Financial Planning Fridays #142: Fear is Good for Your Returns
The VIX, often called the fear index, measures uncertainty in financial markets. This video reviews how historically elevated VIX readings, including levels above 26 and 33.5, have preceded stronger-than-average six-month returns for stocks, and notes that the VIX was near 46 at the time of filming in April 2025.
The VIX, often called the fear index, measures uncertainty in financial markets. This video reviews how historically elevated VIX readings, including levels above 26 and 33.5, have preceded stronger-than-average six-month returns for stocks, and notes that the VIX was near 46 at the time of filming in April 2025.
Key takeaways
- The VIX measures the level of fear and uncertainty in financial markets, with higher readings indicating more anxiety.
- Historically, six-month stock returns following a VIX reading above 26 have averaged higher than normal, based on this data.
- A VIX above 33.5 has historically been followed by an average six-month stock return of 12.7%.
- Elevated fear readings like these are framed as historical patterns rather than predictions, since past performance does not guarantee future results.
Hi friends, history shows that fear is good for your investment returns. The level of fear in the financial markets is measured by something called the volatility index, often called the VIX. The higher the VIX is, the more fear and uncertainty in the market on any given day.
The VIX has reached above 80 twice since 1990, during the global financial crisis and then again during the COVID pandemic. Both were extremely scary times. However, this fear has historically led to much higher than average market returns over the subsequent six months. Once the VIX reaches 26, the average six-month return has been higher than normal, and as you can see in this chart, even higher volatility has led to even better returns. A VIX level above 33.5 has had an average return of 12.7% in stocks over the following six months.
The VIX is currently at about 46, as I filmed this on April 8th, 2025, so we are now well above that magic number. Times like these can make anyone anxious, but a bright spot is history shows that when our fears cross above a certain level, the market returns are likely to be excellent going forward. Thank you, and I look forward to talking with you next Friday.
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