The market has taken a serious beating in the past few weeks. Because they don't ring a bell at the top or bottom or anywhere else, most experts agree it is impossible to time the market and attempts to do so usually fail (e.g., too often people sell to avoid further losses because the market has declined and then wait too long to get back in and miss a large part of the market's recovery). Most hedging strategies also are doomed to fail for both individual and even institutional investors. All that said, you might take a look at the long-term charts of two things: The VIX and XIV.
The VIX is what is commonly referred to as the "fear gauge" or measure of volatility. You cannot buy or sell the VIX. XIV is an Exchange Traded Note (ETN) that, in effect, is a short on the VIX. You can buy XIV. During times of market stress, the VIX tends to rise and XIV tends to fall. During calm times and market growth, the VIX tends to fall and XIV tends to rise.
Here is a chart showing how the VIX "performed" over the past 5 years and you can see the substantial spike it had in recent weeks:
VIX 5Y Chart
Here is a chart showing how XIV "performed" over the past 5 years and you can see the drop it had in recent weeks:
XIV 5Y Chart
Here is a chart showing how the VIX and XIV "performed" in comparison to each other over the past 5 years:
VIX vs. XIV 5Y Chart
Here is a 20+ year chart of the VIX:
VIX Long-Term Chart
Based on these charts, one might conclude that the rate of gain of XIV when the market recovers is greater than the rate of gain of the market itself (e.g., than VTI which is Vanguard's Total Market ETF) or any cluster of assets (i.e., stocks or index funds or mutual funds one might be holding). And, if one were to find that conclusion compelling, then shifting some funds from stocks or index funds or mutual funds to XIV, perhaps in a laddered way, as the market continues to fall and volatility continues to rise, might not carry any substantially greater
long-term additional risk to holding those assets--while at the same time producing a higher likelihood of recouping one's losses when (and if) the market were to calm down and turn back up. But do recognize that, in the
short-term or far longer, the rate of decline of XIV during times of increased market volatility will be much greater than the rate of decline of the market itself or any cluster of asset holdings.
To be clear, this blog is NOT recommending or suggesting in any way that one buy, sell, or do anything viz. XIV. Rather, this blog is simply trying to set out some facts.