Periods of elevated volatility may represent opportunities for investors
What this chart shows:
This chart shows the average one-year performance of the S&P 500 Index from various VIX levels since 1990, as well as historical examples of events that occurred when the VIX Index hit certain thresholds.
Why it matters:
Volatility is a feature of investing, not a defect. However, many investors instinctually view it as something to fear and avoid – which can lead to poor behavior and subpar long-term results. Using the daily closing price of the VIX, an investment made at any level had a solid average one-year return of 9.9%. However, an investment made on days where the VIX was elevated performed meaningfully better.
Investors could benefit from thinking of the VIX as an “opportunity index.” Because while it’s always a good time to invest, history shows that some of the best opportunities have come during periods associated with elevated volatility.
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