Jim Neidelman:
Time for this week’s edition of 4 Your Money. We’re joined by David Nelson, CEO of NelsonCorp Wealth Management. Great to see you, David, as always.
David Nelson:
Thank you, Jim. You as well.
Jim Neidelman:
So we’re talking about when markets are askew. And I think a lot of people remember if we go back a year, year and a half or so, the wild swings in the stock market at the outset of the pandemic. If we compare that to today, we notice that things seem to be a little bit more stable, not those wild swings. So what are your positions on volatility? Do you think it’s really subsided for now?
David Nelson:
Well, certainly, you’re right. In comparison to a year ago, give or take, we’re down considerably. Actually, statistically, we hit as far as on what’s called the VIX index is 16, which is quite low. Now we contrast that to a year ago, give or take, bottom line, we’re talking about 80. So it’s come down dramatically from that point. But again, I don’t think we’re out of the woods, I guess, is the bottom line. We’ve seen just the last few days that it’s ticked up again. We got down to 16, now we’re back closer to 20. But clearly, in comparison to a year ago, give or take, we’re down considerably.
Jim Neidelman:
So what are some of the other measures of volatility that investors could or should be watching?
David Nelson:
So we’ve got a great chart that we brought along today to illustrate just this point. And this is what’s called the skew index, and I’ll try to make it as simple as I can for folks out there. We bring these things up because they really do matter. This is another gauge, another method of trying to assess risk. Unlike the VIX that looks in the more short term, the skew index is looking out months and actually the year down the road. And what we see as far as from the skew index, if you go to the far right, we have a yellow oval there that’s showing that this is at an all time high.
David Nelson:
Now, what does that mean? At the end of the day, it means that people are essentially buying. This is a type of, I guess, I’d call it, it’s an option, but we think of it in terms of insurance. And it’s basically saying that a lot of market participants are quite nervous right now. And so we’re seeing these all time highs as far as the usage of these type of volatility tools, as far as for people to protect as far as what they’ve made. And so again, this is something to keep our eye on, to say the very least.
Jim Neidelman:
All right. So help us try to put these different pieces of volatility together, if you will. What kind of picture do you see for the future? Is anything actionable?
David Nelson:
Yeah, I think there is. So the VIX is illustrating or telling us that it’s probably not that evil, but it’s looking, again, very short term. When you find the amount of purchases as far as through the what, again, is called the skew index, you’re seeing these at all time highs. So again, there’s no magical answer for everybody out there. But if I were an individual out there, I would at least contemplate the idea of looking at some of these type of options as far as the better, more long term in nature. We call them a tail risk type insurance, and it’s looking at the extremes. And it won’t protect you as far as the small events. It’s designed as far as to protect against the big events. And there’s a lot of big money that has purchased this stuff. So I might want to consider that if I’m an average person out there.
Jim Neidelman:
David Nelson, CEO of NelsonCorp Wealth Management. Great analysis as always, David. Thanks.
David Nelson:
Thank you, Jim.
Jim Neidelman:
And in case you missed any of this conversation, we have it available for you online at ourquadcities.com.