Monday morning brought early volatility to U.S. equity markets and headlines regarding increased fear and volatility. Many of these references were to the VIX. I want you to understand this measure and know what may fix your VIX concerns.
VIX is a ticker symbol for the Chicago Board Options Exchange Volatility Index and is a measure of the perceived volatility of S&P 500 Index options over the next 30 days.
It matters only in that it is one of the more popular ways of gauging the fear level of investors.
Things to keep in mind:
1) Volatility or changes in price often provide entry points for new investments and opportunities to take profit or realign your holdings.
2) The VIX is focused on options/prices of 500 large cap stocks that are actively traded known as the S&P 500 Index. My clients typically own many other investments whose pricing over the next 30 days are not reflected in any manner by the VIX.
One of the most important things you can do as an investor is to be aware of how much volatility you can tolerate without deviating from your investment plan. In other words, create your own “VIX”. You may prefer to stay within 6% price movements or 3% or 10%. Your measure is far more important than any other.
If I’m your advisor, chances are, we talk about it often. If I’m not your advisor, please have this conversation with the appropriate person.
Until next week,
Susan R. Linkous
When you see an “index”, understand that you can’t invest directly into it. Indices often track price fluctuations but aren’t direct investment vehicles.
Any reference to “options” above is for definitive purposes only. Options trading is not suitable for many.