Fear Index

The topic for this week has to do with the Investment Cycle Investing and the use of a Fear Index for making investment decisions. Let's stop Cancer by supporting Relay for Life. I am getting interest from people who want to take advantage of the offer to match contributions for Relay for Life. If you would like to participate, please send me a check made out to the American Cancer Society. The beginning paragraph is from Vanguard. At the end are some quotes on the topic of Irony that I hope you enjoy.

Vanguard Weekly Update

Consumers are helping propel the economy's slow recovery, as retail sales numbers came in better than forecast this week. The housing market has been dim recently, but improvement is evident from a year ago. Leading economic indicators increased for the sixth month in a row. In other news, industrial production was flat and business inventories rose. For the week ended April 20, the S&P 500 Index rose 0.6% to 1,379 (for a year-to-date total return—including price change plus dividends—of about 10.3%). The yield on the 10-year U.S. Treasury note fell 3 basis points to 1.99% (for a year-to-date increase of 10 basis points).

Investing Based Upon the Fear Index

A strategy for investing is called Investment Cycle Investing. The basis for this strategy is that investing occurs in cycles where any investment will go up and down with time. The method that I use to understand this cycle is the Volatily Index, aka VIX, or Fear Index. A low VIX value, below a value of 20, indicates that investors are calm. A VIX value above 30 indicates that investors are getting fearful. The higher the value the greater the amount of fear which is why it is called the Fear Index. Currently the VIX is below 20. Stocks for example remain high with a low VIX, go down with an increasing VIX and go up with a decreasing VIX. This means that a low VIX value indicates a good time to sell some stocks to balance a portfolio and a high VIX value indicates a good time to buy stocks to achieve a portfolio balance. The normal investor tends to do just the opposite to buy with a low VIX and sell with a high VIX. This is a strategy for frustration and losing money. This is known as investing on emotion rather than data. It is better to get more conservative with a portfolio when the VIX is low rather than the VIX is high.

Irony

When a man retires and time is no longer a matter of urgent importance, his colleagues generally present him with a watch. R.C. Sherriff

Half our life is spent trying to find something to do with the time we have rushed through life trying to save. Will Rogers

You have to put off being young until you can retire. Author Unknown