The Worst Investments You Can Make: iPath S&P 500 VIX Short-Term Futures (VXX)
Expenses: 0.89%, or $89 per $10,000 invested.
Let’s take the iPath S&P 500 VIX Short-Term Futures TM ETN (NYSEARCA:VXX). VXX isn’t a stock. You aren’t buying ownership in anything. There’s no sales or net income to track, no price-to-earnings ratio and no dividends.
That’s because this is nothing more than a gamble on volatility. The VXX is tied to something called the Chicago Board Options Exchange’s Volatility Index. It’s nothing more than a “barometer of investor sentiment and market volatility.” If that sounds like a wibbly-wobbly-timey-wimey thing that it difficult to peg down as far as its actual methodology, well, join the club.
But it gets worse. No security actually tracks this “barometer,” so instead, futures contracts based on this wibbly-wobbly-timey-wimey security were invented. The VIX futures themselves? Well, the VXX vehicle created to track them isn’t even very good — since it only moves about 50%-60% of what the VIX index moves. The VXX is thus this bizarre security that trades like a stock, is only moderately tied to futures contracts but has the same decay qualities of an option.
And it’s down 73% over the past year. It’s not an investment. It’s putting all your money on the wheel of fortune.