The VIX measures volatility, or the expectation of market uncertainty over the next 30 days.
In short, it’s quoted in percentage points and then annualised to gauge the potential movement of the S&P 500, up or down, in that 30 day period.
As you might imagine, August and September had some sharp spikes, with a high of 43.05 in August suggesting a potential 12.5% market movement over 30 days.
To put that in perspective, lows are usually 10 equating to a potential 2.89% market movement.
And the VIX high was an intra-day spike to 89.53 during the GFC, suggesting a potential 25.89% market movement over 30 days.
Up until last week the VIX was slaloming downward after the tax-evading, fiscal buffoons of Greece were bailed out.
Then the Greek Prime Minister went nuts and sent the VIX shooting skywards again.
A day later, the Chairman of the US Federal Reserve, Ben Bernanke, showed the markets a little leg i.e. suggesting further stimulus could be on the way.
In response the VIX cooled, markets bounced and the crisis was over, or delayed, at least until the next one.
The message?
Volatility will never end, so if you want to capture market returns over the long term, you have to endure such volatility over the short-term.
*Last Tuesday we were also shown the risk of a wholly cash based strategy.
While the media were predictably outraged on behalf of borrowers when NAB didn’t pass on the full rate cut, the plight of savers was again ignored.
The savings accounts of NAB’s online arm, Ubank, instantly had .4% slashed from their savings rate – .15% more than the cut by the RBA.
Poor form NAB and Ubank.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL / ACL 224543. This information is general in nature and readers should seek professional advice specific to their circumstances. Need help with your financial your financial future, we think we’re Australia’s top financial adviser.
