The financial market had a small scare at the end of February. A 10% drop in the Chinese stock market induced a 400-point drop in the Dow. Recent turmoil in subprime lending had the market go down and then up. I don’t know or care where the market is going, but I did take the opportunity for some house cleaning trades. The goal is to simplify my finances in one small step at a time. I closed my ING and HSBC accounts last year under the same theme.
When the stock market is down, money flows to bonds, especially Treasury bonds. This is called “flight to quality.” Because bond prices are up, I sold my positions in iShares Lehman 1-3 Year Treasury Bond Fund (SHY) and iShares Lehman U.S. Treasury Inflation Protected Securities Bond Fund (TIP). I bought these bond ETFs when I had a Scottrade account a while ago. I don’t need them any more because I’m with Vanguard now. TIP was as low as $98 per share in January. I sold at $101. I parked the proceeds in 4-week Treasury Bills for now. I intend to invest the money in more 5-year TIPS notes at the next auction on April 24th if the yield is attractive then.
I also sold both Dodge & Cox International Stock Fund (DODFX) and Vanguard International Value Fund (VTRIX), and bought iShares MSCI EAFE Value Index Fund (EFV). This is a pure parallel move within the same asset class. Both the Dodge & Cox fund and the Vanguard fund are actively managed international value funds. When I bought the two funds, there was no index fund option for international value. There is nothing wrong with the two funds. Both performed well. Dodge & Cox has my respect for an honest asset management company. Their fees are very reasonable. If active management can add value, I think Dodge & Cox and Vanguard have the best chance of delivering value-add. However, because I don’t believe active management adds value beyond chance and luck, I switched over to an index fund ETF.