Chart of the Week: Volatility and the Stock Market

Chart of the Week: Volatility and Stock Returns

Vix to SP returns

This chart shows S&P 500 annual average returns relative tovolatility measured by the VIX Index. Currently, the VIX is hovering around a comfortable reading of 18, just shy of its average reading of 20. The VIX has not shown a monthly average over the 20 mark in over two years (June 2012), no doubt contributing to the attractive returns passive investing boasted during this time period. However, this long stretch of relatively calm activity appears to be coming to end as the VIX has been trending upward the past year. With the uncertainties of oil prices, currencies, geopolitical concerns, and Fed policy flooding the market, it is unlikely this trend will break anytime soon, shaping up 2015 to be a year to emphasize a diversified investing approach.

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