Investment Strategies for this Rocky Market

photo by Jaap Steinvoorte

Written by Nathan White, CFA

We are finally starting to see some true fear in the markets.

The VIX index, which measures market volatility, is above 30. Once this "Fear Index" gets into this territory, it indicates that market participants are getting taken out whether they like it or not. These reading have the tendency to shake out the last of the sellers.

The hard part is that the indicator can get worse sometimes before it gets better, and it takes a lot of nerve to buy when the market is acting so badly.

So although this can be a good time to buy for the long-term, the problem is that you must stay solvent during the short term in order to take advantage of it. That means being able to withstand some seriously negative days on the market.

Another investment strategy is to wait out the market volatility and not buy during the downdrafts but instead wait for a broad based rally that comes after the market has hit what looks like a bottom. This strategy can have less risk if the rally is broad based. The cost of the strategy is that you did not buy in a at market lows and if the rally is not broad based you might be buying in just as the market is getting ready to roll over again.

Another quick note...

The government has done a masterful job of delaying the pain of a bear market with the bailouts. Why don't they just get out of the way and let the market do its thing? We might have more short term pain, but then it would be done! Pull the sliver out and let's heal!

Every time the government bails out somebody it comes at the cost of long--term prosperity.

There is a consequence for every action and the more obligations the government assumes will reduce the upside potential of a recovery and our future standard of living.

Stay tuned...

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this article has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this article constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.