IFB165: VIX, Roths, ETF Allocations

Announcer (00:02):



I love this podcast because it crushes your dreams of getting rich quick. They actually got me into reading stats for anything. You’re tuned in to the Investing for Beginners podcast led by Andrew Sather and Dave Ahern. With step-by-step premium investing guidance for beginners. Your path to financial freedom starts now



Dave (00:33):



Welcome to Investing for Beginners podcast. This is episode 165 tonight. Andrew and I are going to go back to the well and answer a whole bunch of answer Allistor questions. We have some fantastic ones that we want to read to you guys on the air and go ahead and answer them for you. So I’m going to go ahead and read the first question. So the question is the question for you loving the content. What are the ask you about your opinions on volatility, indexes, BICS, or VIX slash TBI X and others? Why is something like the T Vicks tied inversely to the S and P 500? Isn’t it its own company. So why doesn’t it trade on the NYC or New York stock exchange and new to investing, but have been educating myself intensely for the last two months and interested in your thoughts on this? So am I, Andrew, what are your thoughts?



Andrew (01:24):



Okay, so the VIX is the volatility index. Essentially. You might hear about the Vicks in times when the stock market’s in turmoil when you see a sharp crash, that’s usually when you have a lot of volatility. And so like last March. Yeah. Like last March, that would be what the VIX tries to track. And then the T VIX that he’s talking about is basically like a leveraged ETF. So, you know, if the VIX were to go up to like a 60, then the T VIX would go up to double like one 20, something like that. So you mentioned that why is something like TVX tied inversely to the S and P, so it’s not a guarantee that high volatility means that the market’s going to go down, but frequently when there’s a crash, there tends to be a lot of volatility. So, you know, that volatility could look like the market bouncing up and down, like it did in March where it’s up 5% down, 5%, 5% down, 5%, something like that.



Andrew (02:37):



So you can have, you know, like a relatively strong market with a high VIX to people like to use the Vicks kind of like as a recession indicator, not, not recession like a bear market indicator. And so, you know, sometimes they’ll try to trade the VIX on that. You know, I’ve heard traders talk about, well, why don’t I just mix a stock long stock portfolio with a VIX component? It’s like, you can’t lose, right? Because if the stock market crashes, then the VIX should go up and then so that those trades will profit while your long trades on the market or are going down. But that doesn’t work out that easily. I’ll give, I’ll give one example. So particularly with this T VIX that this listener’s asking about, it’s a leveraged ETF. And so the problem with those is any leverage.