How investors can use the VIX, or ‘fear index,’ to better manage their portfolio through stock market volatility

The Cboe Volatility Index (VIX), also known as the stock market’s “fear gauge,” is designed to reflect investors’ outlook for market volatility over the next 30 days by averaging the weighted prices of options on the S&P 500 index.

Geopolitical uncertainty and trade tensions pushed the VIX to higher levels throughout the start of 2026, with a surge over 30 in March – a level that signals extreme uncertainty and one not seen since April 2025 after “Liberation Day” and the implementation of tariffs.  But the spike did not last long: The VIX dropped back below 20 – the level often seen as the start of heightened market anxiety – by mid-April, potentially signaling that investors may see opportunities ahead.

Alternating undercurrents of volatility like this are a perfect example of how quickly uncertainty can shape investor sentiment. Rather than reacting to every market swing, investors can use tools like the VIX to help them understand when volatility is rising and what that may say about near-term market expectations.

Stock market volatility

From 2016 to 2025, the S&P 500 delivered an average annual return of about 16%. However, markets rarely move in a straight line. Daily headlines can often cause anxiety, and cyclical drawdown periods are common, but history shows us that economic fundamentals and corporate earnings generally drive stocks upward over the long run (though nothing is guaranteed).

The stock market is a vast, interconnected system where both human and computerized decision-making results in tens of millions of trades executed every day. These decisions reflect everything from long-term investment outlooks to ultra-short-term high-frequency trading automations.

Geopolitical events, surprises in economic data and policy uncertainty can create prolonged periods of increased volatility. However, there are also countless bouts of intraday market turbulence that fail to make headlines, often coming from a mix of mechanical factors, such as price movement below key support levels or the expiration of index options.

Ultimately, awareness of these drivers doesn’t eliminate volatility. Instead, it helps investors put market moves into perspective and decide whether short-term noise could deliver long-term opportunity.

Why you may want to keep an eye on the VIX index

The VIX can be a useful gauge for investors to understand the environment the stock market is operating in, especially during periods of uncertainty. The VIX can rise and fall very quickly, and the ranges typically reflect various levels of optimism and concern.

Historically, when the VIX sits in the 0-15 range, markets are typically optimistic, with complacency lending to stable price action.

When the VIX is trading between 15 and 20, there’s typically modest uncertainty tied to economic data and policy decisions, earnings or geopolitics.

As the VIX moves into the 20-25 range, concern may be on the rise, leading to more pronounced price swings.

Readings of 25-30 usually coincide with heightened fear, rapid price moves and headline-driven trading.

Finally, anything over 30 is associated with extreme uncertainty, potentially resulting in anomalous price movements.

Because fluctuations in the VIX reflect how investors are valuing risk in the current moment, they don’t always translate into a clear buy or sell signal. In fact, since the VIX’s inception in 1990, the VIX and the S&P 500 index have exhibited daily positive co-movement roughly 20% of the time.  In other words, when stocks and the VIX are rising at the same time, it’s often the result of investors simply paying more “risk premium” to protect against uncertainty.

Common mistakes and misconceptions about the VIX index

A common mistake that investors may make is changing their long-term portfolios based on noticeable increases in the VIX. Volatility is a normal part of markets, and spikes in the VIX often reflect temporary uncertainty rather than a permanent trend. Reacting impulsively can lead to overtrading or premature exit from long-term winners.

The VIX is not a guaranteed predictor of market direction. While it measures the market’s view of volatility over the next 30 days, it doesn’t tell you whether stocks will rise or fall. Periods of elevated volatility can persist without a material market decline, just as low levels of volatility don’t guarantee persistent gains.

It’s also important to note that heightened fear can create long-term opportunities. When the VIX reaches historically high levels, market anxiety often causes asset prices to undercut their intrinsic value, potentially opening the door to discounted investment opportunities. Disciplined investors who stay focused on long-term goals can use these periods to rebalance or diversify their portfolio.

The bottom line

In just the first quarter of 2026, the VIX reached levels over 20 several times, and it stayed there for over a month between March 2 and April 9 as a result of the conflict with Iran. Since then, the VIX has fallen back, but there’s no guarantee it will stay below 20 in 2026. Geopolitical uncertainty, future shifts with tariffs, Federal Reserve monetary policy decisions and changes in board members, plus other economic factors could influence volatility through the rest of the year.

Investors may see the VIX as a useful snapshot of how markets are pricing near-term risk, helping them understand the environment without predicting market direction. Used properly, the VIX can help you reassess risk, consider new investment opportunities and stay focused on the market’s history of delivering favorable long-term returns, rather than reacting to headlines.

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