Sunday, June 3, 2012

The Investor Challenge: "Buy on the Dips" or Manage Volatility and Risk

On Friday, several factors including those mentioned above, drove the VIX volatility index up 26.4%. The VIX, which is a measure of expected volatility of S&P 500 stocks in the next 30 days, is considered a measure of investor fear/uncertainty. As the VIX increases, it is assumed that investors are less sure of market direction.

MY TAKE

Some traders and investors thrive on volatility and seek “fast paced” opportunities. However, a market where volatility is increasing and the VIX is above 25 can be challenging for longer term investors. While a “buy on the dips” approach may work for some investors, I continue to encourage a more cautious short-term approach to the markets and wait for more stability.

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