Hold those party hats.
Stock market volatility is back, with a vengeance.
But panic not, Foolish readers.
As you'll read about below, it's during times of heightened stock market volatility that I've made some of my biggest, and easiest money.
Overnight, the Dow fell over 300 points, its largest retreat since February.
Not surprisingly, the S&P/ASX 200 Index has followed Wall Street down, losing 1.4% in lunchtime trade. Hell hath no fury like a nervous trader, one who sniffs a stock market correction.
Back Stateside, the VIX, otherwise known as the fear index, soared 27% higher to almost 17, its highest level since April.
I have a close affinity with the VIX, having made a boat-load of money shorting it during the GFC.
As the VIX spiked to as high as 79 in October 2008, the ride was nerve-wracking. But ultimately, it was some of the easiest money I've ever made.
You see, the VIX's long-term average is around 20. All I had to do was wait for it to fall back to those levels, and I'd be in the money, massively so. As bets go, it was as close to a certainty as I've ever made.
I still keep a close eye on the VIX.
We won't see it up at close to 80 again in a very, very long time, if ever, but if and when the VIX jumps back above 20 — the higher the better — I'll be licking my lips, ready to write, or sell, even more put options on some high-quality US stocks.
In the coming weeks I'll share more about writing put options, including walking through a real-life example. This low-risk income generating strategy, one I've used for years, has allowed me to pocket thousands and thousands of dollars along the way.
Back to the VIX, volatility, and the stock market stumble…
The moral of the story is clear.
Don't fear volatility, and market downturns.
Instead, embrace them.
Look at lower share prices as an opportunity to add money to your favourite holdings. History has provided ample evidence that this is a relatively simple way to widen your lead on the market's average return, spiralling wealth higher for generations.
You do have cash put aside for moments like these, don't you?
As a reminder, the average self managed super fund (SMSF) holds 28% of their assets in cash.
That's too high in the best of times. With interest rates hovering at close to generational lows, it's criminal.
Doing the damage overnight was the giant spectre of US inflation, and therefore an earlier than expected end to the period of 0% interest rates.
Amidst the market's consternation, it should be remembered that only yesterday the US Federal Reserve reiterated it's likely to keep interest rates low for a "considerable time" after ending their bond purchase program.
What a difference a day makes, to the markets anyway.
US markets haven't seen an official 10% correction since 2011.
On average, stock market corrections come along every 11 months. We're overdue. The declines, as highlighted by the 2% drop in US markets overnight, often come with unexpected and shocking swiftness.
Such is life for the stock market investor. If you can't stand the heat, get out of the kitchen.
Here at The Motley Fool, we're optimists.
We look at the stock market through the lens of a long-term investor.
We ride the ups, and ride out the inevitable storms.
And by ride out, we don't mean sell-out. Panic selling never made anyone rich.
This particular storm may pass, quickly, especially when investors come back to their senses and realise any rise in US interest rates is still some way off, and even then, it's not as if we're talking about interest rates jumping to 4%.
Here in Australia, because house prices are so damn high, Credit Suisse recently said…
"It would only take one percentage point of interest rate hikes to bring the debt-servicing ratio back to GFC highs, which we view as unsustainable."
It's why Credit Suisse think the peak in domestic interest rates here would be below 3.5%.
Yes, Foolish readers, low interest rates are here to stay, meaning, by comparison, high quality, dividend paying stocks still remain incredibly attractive options for income-starved investors.
Given that background, what's not to like about lower share prices, and therefore higher dividend yields?
The stock market sale starts now.
