{ "title": "What is the VIX", "modified_at": "2026-05-28 15:35:14", "published_at": "2026-05-27 05:00:00", "url": "https://insights.wealthsimple.com/what-is-the-vix", "short_url": "http://prez.ly/jCHd", "culture": "en", "language": "EN", "subtitle": " \u2013 and why is it called the \u201cWall Street fear gauge\u201d?", "slug": "what-is-the-vix", "body": "

Whenever markets suddenly drop a few percentage points in a trading day, you’ll see panicky headlines about the “VIX”, aka the ominously-named “Wall Street fear gauge” hitting a new high. It’s hard to know what to make of the VIX as a retail investor saving for the future — is it worth following closely, or is it just noise?

The VIX — formally known as the CBOE Volatility Index — represents the expected volatility of the S&P 500. Professional traders, risk managers, and the business media all watch it closely but, for a long-term and diversified investor, the VIX isn’t all that useful. Here's what it is, what it isn't, and why understanding it might make the next market scare a little less scary.

What the VIX actually is

In order to understand the VIX, you need to know how options work. For those of you who aren’t familiar, here’s a quick primer: an option gives you, as the name implies, the option to buy or sell a security at a future point in time at a given price. If there’s a stock trading at $25/share now, you might have the option to buy it for $30 in a month. Is that a good trade? If the stock’s price generally doesn’t go above $26, no — but for a stock with highs of $50 and lows of $10, a $30 option is a much more appealing proposition.

Options, essentially, are bets on where a stock price is headed, and so they don’t get a lot of action during calm conditions. A choppy market is different. It’s full of implied volatility: as more people try to protect their investments with options, the price of those options goes up. All the VIX does is, through a price-averaging formula, show implied volatility by estimating how far up or down prices will swing on the S&P 500. A VIX reading of 17, for example, means the market expects a price swing of 17% up or down over the next 365 days.

This is how the VIX earned its nickname of “the Wall Street fear gauge”. It’s a catchy name, but the VIX isn’t actually measuring fear. It simply measures the likelihood of change.

What the VIX is not

The VIX isn’t a guess that markets will fall (or even an indication they have fallen), nor can it tell the difference between a sharp drop in markets and a sharp rally. A rising VIX simply means the expected range of volatility is wider. As you can see in the chart below, if we break up the S&P 500 into periods of low, medium, and high VIX levels - the best forward looking returns have actually come when the VIX was elevated.

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\u200bThat’s why it can be so dangerous to base your investment decisions on the VIX. It’s just a snapshot of sentiment at that moment. And sentiment can quickly reverse.
\u200b
\u200bAll the VIX can tell you is whether the market is nervous right now. It’s more of a weather report than a warning siren, especially for someone invested in a long-term, diversified portfolio. In practice, the VIX also tends to spike fast and fall relatively quickly. Strong buying opportunities don’t become obvious until after the moment has passed, but the U.S. debt-ceiling crisis in 2011, the COVID-induced crash in 2020, and Liberation Day in 2025 all turned out to be cases where volatility did benefit some investors.

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When fear is at its peak, options prices often reflect the worst-case scenario rather than the current reality, and markets have a track record of recovering over the long term.

How to read the VIX

As we mentioned above, the VIX is expressed as a number and over time, a rough framework has emerged for what different levels mean:

So how much should a normal person care about the VIX?

Volatility is a normal part of how markets work, and it’s what makes long-term investing rewarding. If markets never moved, there would be no return premium for staying invested through periods of uncertainty. When you see a headline about the VIX spiking, it can be good to know that investors are nervous — nervousness drives volatility which, in the short-term, can affect your returns.

But a number on a screen is rarely a reason to abandon a plan that was built for the long run. At Wealthsimple, our portfolios are designed with exactly these moments in mind — diversified across asset classes, geographies, and risk levels. That way, short-term turbulence doesn't derail your long-term outcomes. The VIX tells you whether the market is anxious. Your job — and ours — is to make sure you’re well-positioned no matter what happens.

 

Have questions? Contact us.

All information and commentary provided is for illustration purposes only and is not investment advice or recommendations. All investments involve risk. To get more info on our products, investment decisions, fee schedules, user testimonials, promos & more visit wsim.co/disclaimers

Indicated performance data are historical for the period indicated. Rates of return do not take into account any fees or tax payable. Past performance may not be repeated.

Managed accounts are offered by Wealthsimple Inc., a registered portfolio manager in each province and territory of Canada.

Wealthsimple Trade is offered by Wealthsimple Investments Inc. (WSII). WSII is a member of the Canadian Investment Regulatory Organization (CIRO). Customer accounts held at WSII are protected by CIPF within specified limits in the event WSII becomes insolvent. A brochure describing the nature and limits of coverage is available upon request or at CIPF.

© 2026 Wealthsimple Technologies Inc.

 

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