Content Editor, Dunham | 2025 ThinkAdvisor Luminary Award Winner | 2026 Wealthies Finalist — Thought Leader of the Year | Macroeconomics, markets, geopolitics & global trends
Updated January 2026: The VIX, or CBOE Volatility Index, measures how much stock market turbulence investors expect over the next 30 days, based on S&P 500 options pricing. Created by the Chicago Board Options Exchange in 1993, it's widely known as Wall Street's "fear gauge" — rising when investors brace for bigger price swings and falling when markets feel calm. A reading below 15 signals calm markets, while readings above 30 signal high fear — and historically, those fear spikes have often marked opportunity rather than lasting damage.
Key Takeaways:
The VIX measures expected market volatility over the next 30 days, reflecting future uncertainty—not just current fear.
Historically, extreme VIX spikes have often coincided with periods of market stress that preceded strong long-term returns.
The VIX reflects emotional market cycles—fear, panic, calm, and complacency—that advisors can help clients understand.
Using simple analogies makes the VIX easier for clients to grasp and reduces emotional reactions during volatility.
Advisors who normalize volatility and emphasize discipline can reduce panic, build trust, and keep clients invested long term.
When markets swing wildly and headlines scream panic, one number usually spikes — the VIX - aka the Volatility Index.
Often called the "fear gauge," it offers a window into investor sentiment — and sometimes, a surprising opportunity.
For financial advisors, explaining the VIX is less about predicting markets — and more about helping clients understand the emotions behind market moves and stay committed to their long-term plans.
Let’s break it down.
What is the VIX (Volatility Index)?
The VIX (Volatility Index) is a real-time index created by the CBOE in 1993 that measures the market's expected volatility over the next 30 days, based on S&P 500 options pricing1. Readings above 30 signal high fear; below 15 signal calm or complacency.
Put simply, it’s just a fancy way of tracking how much market turbulence investors expect over the next 30 days.
The VIX rises when investors anticipate bigger price swings — either up or down.
It falls when markets seem calm and predictable.
But the VIX isn’t just a tool for gauging emotion. It also follows a powerful historical pattern:
High VIX readings (panic) often plant the seeds for future low VIX readings (complacency) - and vice versa.
In fact, the VIX tends to move in rhythmic cycles, where today's fear leads to tomorrow’s calm — and today's calm eventually breeds tomorrow’s risk (more below).
Why the VIX Matters
Market Sentiment Barometer: High VIX = fear or uncertainty. Low VIX = calm or complacency.
Risk Management Tool: Many managers adjust allocations based on VIX levels — leaning more defensive when volatility spikes.
Timing & Communication: VIX spikes often coincide with market pullbacks. Helping clients understand this dynamic can prevent panic selling.
Pricing Insight: The VIX impacts options pricing and hints at broader shifts in risk appetite across markets.
In short, it’s one of the most widely used gauges of market risk in the financial world.
Why Calm Markets Often Lead to Future Volatility
Economist Hyman Minsky had a simple but powerful idea: Periods of stability often create the conditions for future instability.
His theory — known as the Financial Instability Hypothesis — became famous after the 2008 financial crisis, when people realized he'd basically described how crashes happen.
Investors take on more risk and debt, thinking nothing can go wrong.
Over time, that confidence turns into complacency — and the system gets fragile.
Then, a small shock — like a bank failure, trade war, or pandemic — causes panic, selling, and a market meltdown.
Eventually, stability returns, and the cycle resets.
Think of it like traffic after a crash. Chaos at first, then everything slows, settles, takes a breathe, and starts moving again — until the next jam.
This repeating pattern is now called a Minsky Moment — when calm quickly turns into crisis.
You can see it clearly in the VIX.
Long periods of low volatility are often followed by sudden spikes in fear — before things eventually settle again.
Figure 1: VIX Volatility Index - Historical Chart, Macrotrends, April 2025
The lesson? When markets seem most calm, risk is often hiding in plain sight.
When High VIX Levels Signal Market Opportunity
Since 1990, VIX closes above 46.98 have been followed by positive S&P 500 returns 100% of the time over the following 360 days, averaging a 35.3% gain. (Source: Dunham, based on data from 1990–April 2025)
While VIX spikes often dominate headlines with fear, history tells a more nuanced story.
Extreme volatility has often marked turning points with some significant upside potential.
As I wrote to you about on April 8th – since 1990:
When the VIX closed above 46.98, there was a 44% chance the market gained an average of 3% over the next 90 days.
Over 180 days, the odds of a positive return rose to 75%, with an average return of 13.4%.
Over 360 days, markets posted positive returns 100% of the time, with an average gain of 35.3%.
Figure 2: Dunham, April 2025Note: Historical Returns from 1990 to April 2025.
Put simply, sharp spikes in fear often plant the seeds for future market recoveries.
While no indicator is perfect, the VIX’s history suggests that sharp spikes in fear often create opportunity — not just risk — for those who stay focused on the long game.
How to Explain the VIX with Simple Analogies
Explaining the VIX to clients can be tricky. Here are a few relatable analogies you can use:
Weather Forecast Analogy: A high VIX reading is like a forecast calling for storms — it doesn't guarantee a storm, but it suggests you should be prepared.
Car Speedometer Analogy: The stock market is the car. The VIX is the speedometer. A low VIX = smooth cruising. A high VIX = speeding dangerously, demanding more caution.
Heart Rate Monitor Analogy: Like humans, markets have a normal "resting heart rate." A VIX spike is like a racing heartbeat — sometimes normal, sometimes a warning.
Seismograph Analogy: Think of the VIX like a seismograph. Small tremors are common. But sharp spikes hint at bigger disruptions.
VIX Levels Explained: What Different Ranges Mean
Understanding the typical “VIX ranges” can also help advisors and investors interpret current market sentiment.
Below 15: Very calm markets, often with steady stock gains. Complacency risk is high.
15–20: Normal volatility, typical of a healthy bull market.
20–30: Rising uncertainty — triggered by earnings, geopolitics, or Fed action.
Above 30: High fear and stress. Often seen during crises or sharp sell-offs.
Now keep in mind that levels canvary depending on the economic environment. In extremely low-rate eras, even 20 could be considered elevated, and vice versa.
Final Thoughts: Teaching Clients That Volatility Isn’t the Enemy
Explaining the VIX is critical for advisors when guiding clients through chaotic markets.
Because when the VIX spikes and prices swing, clients naturally feel anxious.
But managing volatility isn’t about predicting every move. . .
It’s about interpreting sentiment, staying calm, and framing volatility as a normal — even necessary — part of long-term investing.
So, the next time the VIX grabs headlines, you’ll be ready with facts, perspective, and stories that stick.
Because volatility isn’t the enemy - emotions are.
If you can teach clients that. And they’ll trust you when it matters most.
Frequently Asked Questions About the VIX Volatility Index
What does the VIX actually measure? The VIX measures the market's expected volatility over the next 30 days, based on S&P 500 options prices. It reflects how much investors think prices will swing, up or down, not which direction the market is headed. A VIX of 20, for example, implies the market expects roughly a 20% annualized swing in the S&P 500 over the coming month.
What does a high VIX reading mean for investors? A high VIX, generally above 30, signals elevated fear and expected price swings. Historical data backs this up: when the VIX has closed between 40 and 50, S&P 500 returns over the following 12 months have averaged around 34.4%, and readings above 30 have produced an average 12-month return near 22.3% with a strong positivity rate. Extreme fear readings have often preceded solid recoveries, though outcomes still vary.
Is the VIX a market timing tool? No. The VIX doesn't predict market direction or pinpoint exact tops and bottoms. It only measures the expected size of price swings, not whether those swings will be up or down. Advisors use it to gauge sentiment extremes and frame client conversations, not to time individual trades.
Why do advisors pay attention to the VIX? Advisors watch the VIX as a sentiment and communication tool to help clients stay calm during volatility spikes instead of selling out of fear. Since sharp VIX increases have often lined up with market bottoms rather than the start of prolonged declines, it gives advisors a data point to reframe fear as a normal, sometimes even opportunistic, part of long-term investing.
This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax or investment advice or an investment recommendation, or as a substitute for legal or tax counsel. Any investment products or services named herein are for illustrative purposes only and should not be considered an offer to buy or sell, or an investment recommendation for, any specific security, strategy or investment product or service. Always consult a qualified professional or your own independent financial professional for personalized advice or investment recommendations tailored to your specific goals, individual situation, and risk tolerance. All examples are hypothetical and are for illustrative purposes only.Information contained in the materials included is believed to be from reliable sources, but no representations or guarantees are made as to the accuracy or completeness of information.
Index Definitions
CBOE Volatility Index (VIX) - A real-time index that represents the market’s expectations for the relative strength of near-term price changes of the S&P 500 index (SPX).
S&P 500 Index - The S&P 500, or the Standard & Poor’s 500, is a stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ. The S&P 500 Index components and their weightings are determined by S&P Dow Jones Indices. It differs from other U.S. stock market indices, such as the Dow Jones Industrial Average or the Nasdaq Composite index, because of its diverse constituency and weighting methodology. It is one of the most commonly followed equity indices, and many consider it one of the best representations of the U.S. stock market, and a bellwether for the U.S. economy.
Past performance is no guarantee of future results. All indices are unmanaged and measure common sectors of global asset markets. Securities in the index do no match those in the Fund and performance will differ. The Index assumes reinvestments of distributions and interest payments and also not take into account brokerage fees and taxes. You cannot invest directly in an Index.
Dunham & Associates Investment Counsel, Inc. is a Registered Investment Adviser and Broker/Dealer. Member FINRA/SIPC. Advisory services and securities offered through Dunham & Associates Investment Counsel, Inc.
