Market Volatility
Chart of the Week for August 17 - August 23, 2007
Volatility, as measured by the Chicago Board of Options Exchange VIX Index, increased significantly last week. The index closed at 26.57 last Monday, marking the index's highest point since April 2003. The VIX Index is a commonly used measure of the market's expectation of volatility and risk over the next 30-day period. A high VIX Index level is generally associated with a period of increased volatility and uncertainty in the market, while a lower level corresponds to less volatility and stress in the market.
Although the index has risen nearly 158% this year, Monday's level of 26.57 remains below the levels of 43.74 and 45.08 reached in 2001 and 2002, respectively. Putting volatility into perspective, approximately 28% of the years between 1926 and 2006 had negative S&P 500 returns. However, every 20-year period during the 81-year time frame, including the Great Depression, posted a positive return in the S&P 500.
In short, for investing in U.S. stocks as measured by the S&P 500 Index, it has been "time in the market" and not "timing the market" that has rewarded many investors. As short-term market fluctuations are hard to predict, it is important that investors remain diversified and keep a long-term focus to help reach their retirement goals.
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