The S&P/ASX 200 Index (ASX: XJO) had a real growth rate of only 1.0% in the March 2021 quarter. It was the slowest rate of change for the index in the past year. It should be noted the previous three quarters were thrown into turmoil by the effects of the COVID-19 pandemic.
The real growth rate is calculated by subtracting the consumer price index (CPI), or inflation, from the share market's rate of growth. The ASX 200 grew by 1.6% and inflation was 0.6% for the quarter. CPI figures were released today by the Australian Bureau of Statistics (ABS).
Slow quarter in a fast year
While the previous quarter may have been slow, the last year has been anything but for the ASX 200. It had a real growth rate of 28.0% between 1 April 2020 and 31 March 2021 (29.1% minus 1.1% CPI).
Each quarter was wildly different to the last. The three months to June saw the ASX 200 appreciate 14.1%, for September the index shrunk 3.6% in real terms and the December quarter saw the 200 largest ASX shares increase in real value by 11.3%.
Harley Dale, chief economist at CreditorWatch, said today's diminished inflation figures mean the question of further monetary policy is not out of the question.
"The RBA will naturally analyse the detail and composition of the [CPI] result," Mr Dale commented.
"In the short term though it is…about [whether] the RBA will inject further monetary stimulus into the Australian economy".
"We need faster inflation, which is ironic given how many years (decades) we spent fighting high inflation. Wages growth is key and we have yet to see signs of a re-emergence of life in that key metric," Mr Dale added.
Motley Fool Australia previously reported on how cheap money, via low-interest rates, has been good news for investors.
Have you missed the ASX 200 gravy train?
After seeing the ASX 200's relatively slow growth rate for the March quarter, you might be thinking you have missed your chance to invest. Motley Fool Australia's chief investment officer, Scott Phillips, says historically that's never been true.
"History says the ASX has always gone higher and higher over the long term," Mr Phillips said.
"Avoiding investing at the top of the market is always a mistake. It could go on for another 10, 20, or 30% before dropping 10. You don't know where the top will be until you've passed it."
If you are a more risk-averse person, you might be considering investing in something that just follows the share market rather than taking your chances on individual companies. One option is to buy into an exchange-traded fund (ETF). ETFs are designed to track the performance of certain indices, like the ASX 200.
Scott Phillips says that, while he loves ETFs in general, he believes investors need to be wary about buying into those that track the ASX 200.
"I love ETFs as a rule, wonderful way for people who don't want to pick stocks to make money. I do have an issue with ASX 200 ETFs. The index is dominated by banks and miners. It's not diversified enough."
"Even ETFs that track the NASDAQ, which is tech heavy, is more diversified than the ASX 200."
However, Mr Phillips did add that buying into any ETF, including an ASX 200 one, is better than nothing.
"Go for it if you want to do something, but it's riskier than other ETFs out there."
