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Investors Need to Adapt to Higher Volatility
View from the Observation Deck
The VIX Index uses S&P 500 options activity to gauge investors' expectations of volatility. It represents a 30-day measure.
A VIX reading over 30 indicates higher levels of volatility. Investors may become more cautious about equities when readings are that high or higher.
In 2008, a year shaped by the global credit crisis stemming from the subprime mortgage meltdown, the VIX Index hit a record-high of 80.86.
The VIX, however, averaged 21.83 for the 10-year period ended October 2011. This average reading is closer to the norm.
The period referenced in the chart was selected for the similarity in its initial VIX reading (32.45 on 5/6/09 ) and its last reading (32.13 on 11/28/11).
While the beginning and ending readings are comparable, both are above 30 and the VIX exceeded 40 on a number of occasions.
Despite the spikes in volatility, the S&P 500 posted a cumulative total return of 36.80% from 5/6/09-11/28/11.
Tuesday, November 29, 2011 @ 3:44 PM
These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.