The ASX share market is going through plenty of volatility. On Friday, the S&P/ASX 200 Index (ASX: XJO) dropped by 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 a lot worse during the COVID-19 crash in early 2020 when it fell by more than 30%.
But, the ASX 200's movements are dictated by a few large blue chips like Commonwealth Bank of Australia (ASX: CBA) and BHP Group Ltd (ASX: BHP).
There's a lot more pain than the index would suggest. For example, the Xero Limited (ASX: XRO) share price is down over 20% since mid-August and it has fallen around 50% in 2022 to date.
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What's causing the latest volatility?
This year we can probably put the declines down to a mixture of inflation, rising interest rates and the tailwind of COVID-19 impacts on things like the supply chain.
But, today's drop could be due to what's going on in the United Kingdom. While its economy is not quite as big as it used to be, it's still a member of the G8, a group of eight of the largest economies in the world.
There has recently been a change of prime minister in the UK, as well as a new economic strategy implemented to grow the economy.
As reported by various media, including the Financial Times, the UK's new chancellor announced plans to cut taxes and increase debt. It will reportedly add 72 billion pounds of borrowing to fund tax cuts and economic growth. Taxes will be cut to the tune of 45 billion pounds, with wealthier households being key beneficiaries.
What will this do to the UK economy, inflation and interest rates? The market tends not to like uncertainty.
According to a quote by the Financial Times, chancellor Kwasi Kwarteng said:
What I was worried about was low growth. The danger is in choking growth — that's the danger. The only way we deal with that is by growing the economy.
Markets move all the time. It's very important to keep calm and focus on the longer-term strategy.
Is this a time to worry?
The thing is, there is always something to worry about on the ASX share market.
Inflation and rising interest rates are influential. So are the effects of the Russian invasion of Ukraine. There are regular concerns about China.
The COVID-19 pandemic was a huge thing to worry about.
Brexit.
Greece.
The GFC.
The dot com crash.
All of these things have unsurprisingly caused a bit of volatility.
Valuations would go through the roof if there were nothing to worry about. Then valuations would be something to worry about.
It's human nature to have concerns and want to protect yourself.
But, I think it's moments like this are when it's best to invest, if we have the funds to do it. Ideally, we'd want to buy shares for the lowest price possible – that normally comes during a bear market, when investors become fearful.
It's true that it is painful to see your ASX shares fall 20%, 50% or even more. However, for good investments, volatility is the price of entry. Good businesses have historically recovered to former heights, even if it takes a while.
That's why I think it's worth always investing in assets I'd want to buy more of in a crash or economic recession. It's easier to know if it's an opportunity.
I have been investing during the last few weeks and I'm planning to make multiple investments today/this week. I believe it will help accelerate my long-term wealth-building.
