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When the VIX is Vexing


Where you can put your money to work when the volatility index has you concerned. Shirley Mueller, MD, recommends looking to companies with a generous fallback cash reserve, which serves as a cushion if the economy goes south.

The market is up and there is little fear it won’t continue, according to the volatility index (VIX) market indicator — nicknamed the fear index. This is vexing because many economic indicators, both here and abroad, are not good, even dismal. This scenario leaves cautious investors wondering where to put fresh money now when it is no secret that the market could become shaky.

From Yahoo Finance

The VIX is an important assessment of near-term instability market expectations. It is indicated in blue below. Presently the VIX is low compared to a year ago. At the same time large cap stocks represented by the Dow Jones Industrial Average are up (shown in green below).

Whether this is the case or not, there are ways to invest new money now that are more prudent than others. One good option is to place money in stocks that have a generous fallback cash reserve. That way, even if the U.S. economy goes south, they have a cushion. On the other hand, if our stock market continues to blossom, these businesses can use their cash to make more money.

Companies in this choice position are listed below. Also included is inside ownership (thought to be a positive for a company going forward) as well as the cash position offset by debt. Some of the corporations have no debt at all.

This chart was constructed in part from information provided on Forbes.com and Yahoo.com

Note that when buying, companies with higher dividends would be better placed in tax-advantaged accounts. Also, determining how costly a company is compared to the general market is useful as well as the likelihood it will perform well in the future.

In closing, I can’t help but bring out that old phrase: “In a recession, it is better to be cash rich and debt poor” — a piece of wisdom these companies have taken to heart. This could end up serving both them and us well.

This information and content is offered for informative and educational purposes only. MyMoneyMD, LLC, is not acting as a Registered Investment Advisor, Investment Counsel, Tax Advisor or Legal Advisor.

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