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The ASX stock market goes through a lot of volatility. On Friday the S&P/ASX 200 Index (ASX:XJO) fell another 1.9%.
At the time of writing, the ASX 200 is down 11% over the past six months.
That feels like a big drop. Of course, it was much worse during the COVID-19 crash of early 2020, when it plummeted more than 30%.
But the movements of the ASX 200 are being dictated by a few big blue chips Commonwealth Bank of Australia (ASX:CBA) and BHP Group Ltd (ASX:BHP).
There is much more pain than the index suggests. For example the Xero Limited (ASX:XRO), the stock price is down over 20% since mid-August and is down around 50% year-to-date in 2022.
What is causing the latest volatility?
This year, we can likely attribute the declines to a mix of inflation, rising interest rates, and tailwinds from the impact of COVID-19 on things like the supply chain.
But today’s drop could be due to what’s going on in the UK. Though its economy isn’t quite as big as it used to be, it’s still a member of the G8, a group of eight of the world’s largest economies.
Recently in the UK there has been a change of Prime Minister and a new economic strategy has been put in place to stimulate the economy.
As reported by various media, including the financial times, the new British Chancellor announced plans to cut taxes and increase debt. A reported £72 billion in loans will be added to fund tax cuts and economic growth. Taxes will be cut by £45billion, with wealthier households being the main beneficiaries.
What will this do to the UK economy, inflation and interest rates? The market doesn’t like uncertainty.
According to a quote from financial timessaid Chancellor Kwasi Kwarteng:
What worried me was the low growth. The danger is stifling growth—that’s the danger. The only way we’re going to deal with this is to stimulate the economy.
Markets are always moving. It is very important to keep calm and focus on the longer term strategy.
Is this a time to worry?
The thing is, there’s always something to worry about in the ASX stock market.
Inflation and rising interest rates are influential. Likewise the effects of the Russian invasion of Ukraine. There are regular concerns about China.
The COVID-19 pandemic was a big thing to worry about.
The dot-com crash.
All of these things have, unsurprisingly, created a bit of volatility.
The reviews would be through the roof if it were Nothing to worry about. Then the reviews would be something to worry about.
It is human nature to have concerns and want to protect yourself.
But I think in moments like this it’s best to invest when we have the means to do so. Ideally, we want to buy stocks at the lowest possible price — that usually comes during a bear market when investors are getting fearful.
It is true that it hurts to see your ASX shares drop 20%, 50% or even more. However, for good investments, volatility is the entry price. Good companies have historically bounced back to previous highs, albeit it takes a while.
That’s why I think it’s always worth investing in assets I want to buy more in a crash or economic recession. It’s easier to know if it’s an opportunity.
I’ve been investing for the past few weeks and plan to make multiple investments today/this week. I believe it will help accelerate my long-term wealth accumulation.