REMEMBER 2020’S BIG market swings? Financial markets have been more boring of late. But are things too quiet?
The VIX is the most commonly cited indicator of market volatility. Turn on CNBC or flip through The Wall Street Journal and you’ll likely learn the latest reading for the “fear gauge.” Last Friday’s close was among the lowest of the year, with the VIX at a little more than 15, versus an historical average closer to 20. Things have indeed been calm.
A VIX in the low to mid-teens suggests market participants believe stocks won’t be too volatile in the near term. For perspective, it spiked above 80 during 2008’s financial crisis and 2020’s COVID-19 crash.
This time of year can be feast or famine for stock market volatility. Trading volume is typically lower than usual, with many investors away on vacation—or, at least, that’s the default explanation. August is also a time that can precede significant volatility. September and October are infamous for featuring bouts of wild market movements.
Don’t feel the need to check the VIX each day. Here’s why.
Do check that your portfolio aligns with your ability, willingness and need to take risk. If you haven’t done so lately, consider rebalancing back to your target asset allocation. Whenever volatility returns, you don’t want to discover that your holdings were riskier than you thought. Nobody knows if a prolonged market correction is imminent, but there might be some reversion to the mean before long. Use these calmer days to ensure your stock-bond mix is where it ought to be.