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Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our investing reporters and editors focus on the points consumers care about most — how to get started, the best brokers, types of investment accounts, how to choose investments and more — so you can feel confident when investing your money. Investing disclosure: The investment information provided in this table is for informational and general educational purposes only and should not be construed as investment or financial advice. Bankrate does not offer advisory or brokerage services, nor does it provide individualized recommendations or personalized investment advice. Investment decisions should be based on an evaluation of your own personal financial situation, needs, risk tolerance and investment objectives. Investing involves risk including the potential loss of principal. Bankrate logo Editorial integrity
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. Stocks are volatile. That much is understood by most investors, but what exactly is volatility and how is it measured for the ? You may have seen references to something called the VIX, an index that measures volatility, during times of extreme financial stress. Understanding it all can be complicated, so let’s take a closer look at what it means. What is the Cboe Volatility Index VIX
The VIX is an index run by the Chicago Board Options Exchange, now known as Cboe, that measures the stock market’s expectation for volatility over the next 30 days based on option prices for the . Volatility is a statistical measure based on how much an asset’s price moves in either direction and is often used to measure the riskiness of an asset or security. The VIX, which was first introduced in 1993, is sometimes called the “fear index” because it can be used by traders and investors to gauge market sentiment and see how fearful, or uncertain, the market is. The VIX typically spikes during or in anticipation of a . The higher the VIX goes, the more volatile things are expected to be. In March 2020, as concerns around the took hold and its impact on the economy was unknown, the VIX reached an all-time high of 82.69. This peak surpassed its previous high of 80.86, which was reached during the fall of 2008 as the global financial crisis was wreaking havoc on markets. For most of its existence, the VIX has generally sat somewhere between the levels of 10 and 30. How volatility is measured
The VIX is attempting to measure future volatility over the next 30 days, but it doesn’t do so precisely. A VIX level of 25 doesn’t mean that volatility will average 25 percent over the next month or so. In fact, have shown that it tends to overestimate volatility by an average of 4 or 5 percent. But the studies also show that there is some predictive value in the VIX. Here are some simple guidelines for what the VIX level is implying about future volatility: VIX of 0-12: When the VIX is at this level volatility is expected to be low. For context, the lowest daily closing value for the VIX was 9.14 in November 2017. VIX of 13-19: This range is considered to be normal and volatility over the next 30 days when the VIX is at this level would be expected to be normal. VIX of 20 or higher: When the VIX gets to be above 20, you can expect volatility to be higher than normal over the next 30 days. This level is typically reached during times of market stress such as when there are concerns about an economic slowdown or recession. During extreme market events like the financial crisis or the onset of a global pandemic, the VIX may reach levels of 50 or higher. It should be noted that these are rough guidelines unexpected events can throw a wrench into markets and a low VIX level today could be followed by a period of extreme volatility if circumstances change. Can you invest in the VIX
Investing in the VIX directly is not possible, but you can purchase ETFs that track the index as a way to speculate on future changes in the VIX or as a tool for hedging. This isn’t something that will make sense for most investors who are working to meet a long-term goal such as . But for those who are more inclined to , ETFs that track the VIX can be a useful tool. When uncertainty and fear hits the market, stocks generally fall, and your portfolio could take a hit. But having a small amount of money invested in an ETF that tracks the VIX can help dampen the blow. Bottom line
The VIX is an index that measures expectations about future volatility. It tends to rise during times of market stress, making it an effective hedging tool for active traders. Though it can’t be invested in directly, you can purchase ETFs that track the VIX. When its level gets to 20 or higher, expectations are that volatility will be above normal over the coming weeks. Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation. SHARE: Bankrate reporter Brian Baker covers investing and retirement. He has previous experience as an industry analyst at an investment firm. Baker is passionate about helping people make sense of complicated financial topics so that they can plan for their financial futures. Brian Beers is the managing editor for the Wealth team at Bankrate. He oversees editorial coverage of banking, investing, the economy and all things money. Related Articles