The VIX currently sits at 16.39. Raise your hand if you think high volatility is going to return to the market in some shape or form in 2011. [raises hand]
Luckily, over the last year many new products have been released that allow for investors to use volatility-based funds in their portfolios. However, caveat emptor! Most of these funds are designed for the day-trader or short-term investing populations.
There are new volatility-based products entering the market weekly at this time, but this article presents the current best options for investors, depending on your investing style. Personally, I bought VXZ recently as a way to be positively exposed to increasing volatility. In addition to my opinion that volatility is going to mean-revert and head higher at some point, the main idea here is that since my portfolio is substantially net long, if a negative event (think muni default, European sovereign default, etc.) occurs, my portfolio will likely take a large hit in the short-run. Volatility will also increase if a negative event occurs. Since these asset classes are negatively correlated in "bad" states of the world, overall portfolio performance should improve.
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