ASX 200 tanks: What you need to know

Watching the share market tank can be a highly unnerving experience.

The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) this morning tumbled 104 points – or 2% – to just 5,234 points. The ALL ORDINARIES (Index: ^AXAO) (ASX: XAO) was also trading 2% lower at the same time, with just five shares from the ASX 200 cohort trading in the black.

The most notable of those were Coca-Cola Amatil Ltd (ASX: CCL) and QBE Insurance Group Ltd (ASX: QBE) up a mere 1% and 0.7%, respectively.

Elsewhere, it was all red. Commonwealth Bank of Australia (ASX: CBA) shares were down 1.4% while Australia and New Zealand Banking Group (ASX: ANZ) dropped 1.6%.

BHP Billiton Limited (ASX: BHP) and South32 Ltd (ASX: S32) fared even worse, shedding 3.1% and 4.1%, while telecommunications giant Telstra Corporation Ltd (ASX: TLS) was trading 1.1% lower.

Those weren’t the worst of the declines either, with Whitehaven Coal Limited (ASX: WHC), Liquefied Natural Gas Ltd (ASX: LNG) and Newcrest Mining Limited (ASX: NCM) all amongst the worst performers. Each of those companies has fallen a minimum of 4.5%.

Prior to today, investors had watched the ASX 200 drop 4.9% since peaking at 5,611 points on 1 August. However, none of the days between then and now have been quite as savage as today’s sell-off, so it is understandable that some investors are nervous.

It appears the sell-off is mostly attributable to comments from a U.S. Federal Reserve official suggesting that interest rates in that country must rise sooner rather than later. It also follows indications from other central banks around the world that they are becoming less willing to cut interest rates any further, potentially removing one of the factors that has helped to drive equity markets higher in recent years.

But ultra-low interest rates are not a sustainable way to boost share prices, and rising interest rates around the world could actually help the Australian economy by weakening the Australian dollar. The Australian Financial Review quoted Anne Anderson, UBS Asset Management head of fixed income, as saying:

Sucking up the pain of increased volatility is better than the alternative of continuing down the path of negative interest rates.”

It’s never nice to watch your shares fall in value, but it is vital to remember that investing in the share market is properly done over the long-term. Markets will rise and fall – some days more sharply than others – and the successful investors will be the ones who ignore the short-term movements and focus on the bigger picture.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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