I find days like yesterday where the stock market takes a “bloodbath” as an interesting study in financial behavioural psychology. It feels like the press wait for days like this, so they can unlock their caches of scary stock market terminology like “bloodbath”, “plunge”, “thumped”, “rout” and so on to generate interest in their articles. Journalists and commentators are using fear to sell their stories.
So what actually happened? The Australian stock market went down by 3.71%. It’s the biggest fall on the ASX 200 in 2 years. That’s actually quite a lot in a day. But it also needs to be put into perspective because we invest for timeframes much longer than one day.
The most relevant index to follow for the Australian stock market S&P/ASX 200 Gross Total Return (XJT). You can find this via the XJT ticker code in most stock market webpages, such as here: S&P/ASX 200 Gross Total Return (Accumulation) – Market Index. The XJT index represents the ASX 200, which is the largest 200 companies by market capitalisation in Australia, but importantly adds the dividends paid by those companies. Everyone who owns these shares receives a dividend. Dividends are an important part of the total return.
Even after yesterday’s “bloodbath”, the annual return on the XJT index is 8.67%. That’s pretty good and is about average. You’d still be ahead if you invested as recently as 30th May. While it’s the biggest fall on the market in quite some time, the market has been steadily rising for some time and you’re still ahead if you’ve invested through most of the year so far.
And out of interest, even using the ASX 200 index without dividends, the annual return is still 4.55% and you’d still be ahead if you invested on 30th May which is not that long ago.
So if you read or hear about this on the news – there’s no need to panic. It’s still been a good 12 months.
