WEEKLY BRIEF | Cash Plus Isn't a Beta Anymore. It's a Business.

Hello, and welcome to the IVA Weekly Brief for Wednesday, September 2.

There are no changes recommended for any of our Portfolios.

With a drop of 0.7% yesterday, 500 Index (VFIAX) started its historically worst month off on the wrong foot.

As I told Premium Members yesterday, over the past 50 Septembers, 500 Index (which turned 50 on Monday) has averaged a 0.6% loss. The flagship index fund gained ground 26 of 50 times.

With those odds, should you be hitting the “Sell” button?

Well, we might look back and say it was a good time to sell. But selling now because stocks dropped yesterday or because they’ve fallen, on average, during September wouldn’t be good reasons. In other words, selling today might lead to a good outcome, but it wouldn’t reflect a repeatable process.

No one controls the market or the outcome. All we can control is the process.

Fortunately, sticking to a process of spending time in the market, partnering with Vanguard’s best funds, keeping costs low and staying diversified has led to a good outcome this year. Four of the five IVA Portfolios outperformed the average Vanguard investor (who gained 10.8%) in the first eight months of the year. The exception—the Conservative Portfolio—only holds about 35%-40% of its portfolio in stocks and gained a solid 7.5% through the end of August.

Of course, eight months is just a small step in the journey, but I’m sticking to the plan and the process. I suggest you do too.

Vanguard Updates More Than the Fine Print

Effective October 1, Vanguard is amending both its Brokerage Account Agreement and its Bank Sweep Terms of Use (think Cash Plus and Cash Deposit). Most of it is housekeeping, but a few things stand out.

Not everyone has a Cash Plus Account, but if you’re reading this, you likely have a Vanguard brokerage account, so let’s start with the updated brokerage agreement.

Three small changes worth knowing:

1. Dividend reinvestment for stocks gets a real name and a rulebook: the "Dividend Reinvestment Program," with formal eligibility criteria. Functionally, this is what DRIP already did, so there’s nothing to act on.
2. Mutual fund-to-ETF conversions are now spelled out. Three things to remember if you’re considering one:
   1. It's irreversible—you can't convert back to mutual fund shares.
   2. The conversion itself is not a taxable event, but selling the resulting ETF shares later in a taxable account can trigger capital gains. Remember, your cost basis carries over.
   3. You generally can’t do this inside a 401(k).
3. No more mail-in trade orders. I don’t know how many Vanguard investors were still mailing in written trades, but as of October, you’ll have to use the website, the app or get on the phone with a rep.

Vanguard also rewrote the Bank Sweep Terms of Use, and buried in there is the actual story: Cash Plus is getting tiers (described below) and Vanguard quietly dropped the language describing Bank Sweep as a "pilot" or "beta" product.

Put those two facts together, and you get a clear signal—this is no longer an experiment; it's a permanent part of how Vanguard competes for your cash.

Until now, every Cash Plus holder earned the same yield—including the boosted yield that's been running since January and was extended through September. In April, I asked: When does a "boost" stop being a promotion and start being the actual yield?

We have our answer. The boost was the on-ramp—meant to attract investors to the Cash Plus program. Starting in October, Vanguard splits Cash Plus into two tiers:

• Cash Plus APY (or Annual Percentage Yield): The base rate. Everyone gets this—no qualification needed
• Cash Plus Enhanced APY: A higher rate, unlocked if you or a joint owner meet any one of the following criteria:
  • $1,000,000+ in qualifying assets at Vanguard
  • Enrollment in Personal Advisor, Personal Advisor Select or Personal Advisor Wealth Management
  • Eligibility through certain employer-sponsored retirement plans

While Vanguard recently expanded the definition of “qualifying assets,” realistically, the $1 million bar puts the Enhanced tier out of reach for many people—which is the point. This isn't a yield bump for everyday savers. Vanguard is using cash rates to pull bigger balances in-house and nudge people toward paid advice.

Two more things worth knowing.

First, this tiering only applies to Cash Plus, not to Cash Deposit—the sweep alternative to Federal Money Market (VMFXX) in standard Vanguard accounts.

Second, qualification isn’t instant—asset-based eligibility is checked weekly and employer-plan eligibility can take up to 90 days to catch up. Cross the $1 million line and don't expect the rate to move the next morning. And, yes, it goes both ways—you can lose access to the enhanced tier without warning.

Bottom line: Cash Plus has graduated from pilot program to strategic marketing tool. Vanguard is now using it the way banks have always used tiered savings rates—to buy your balance and your business. I’m still waiting on that debit card, though.

Our Portfolios

Our Portfolios are showing solid returns for the year through Tuesday. The Aggressive Portfolio is up 14.4%, the Aggressive ETF Portfolio is up 12.5%, the Growth Portfolio is up 12.8%, the Moderate Portfolio is up 12.0% and the Conservative Portfolio is up 7.2%.

This compares to a 12.6% gain for Total Stock Market Index (VTSAX), a 15.6% return for Total International Stock Index (VTIAX), and a 0.5% decline for Total Bond Market Index (VBTLX). Vanguard’s most aggressive multi-index fund, Target Retirement 2070 (VSNVX), is up 12.4% for the year, and its most conservative, LifeStrategy 20/80 (VASIX), is up 2.4%.

IVA Research

I pushed this week's IVA Research article to Thursday to give it the room it needs.

The topic: junk bonds are paying nearly the smallest extra yield over Treasurys in more than three decades. I'll walk through what that spread actually means for investors, and why "nothing's gone wrong yet" isn't the same as "you're getting paid to be here." I'll also discuss what I'm holding in the IVA Portfolios instead.

Reminder: I pushed this week’s IVA Research article to Thursday to give it more space. Tomorrow I’ll answer where investors are getting paid to take risk in the bond market.

Until my next IVA Weekly Brief, have a safe, sound and prosperous investment future.