What we learned about investing during a pandemic

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So, what happened last year? Taking an investor’s lens to 2021, I share the lessons investors can carry forward into 2022:

Volatility is here to stay—that’s OK, the markets can handle it

Even before COVID-19 added another layer of uncertainty to investing, the fact is markets were already impacted by the fast pace of change in the digital economy. The stories in the media can cause big swings up and down, as the markets adapt and pick up where they left off. Part of this is from the impact of technology that tracks positive and negative headlines, and the markets sell and buy accordingly. We’re now seeing it play out with the Omicron variant. 

Look back to the start of the pandemic (March 2020), and then to the release of the vaccines (December 2020), the emergence of the Delta variant (late 2020) and the announcement of new pills from Merck and Pfizer that treat the virus (November 2021). You see a clear pattern emerging with each event: The markets take a quick dip, then a swift uptick, and then we get a green light to invest. 

Rising interest rates are not necessarily a negative

The source of the next wave of volatility likely won’t be caused by the pandemic. Instead, it will be the one-two punch of rising interest rates and inflation

This is not a major cause for concern when it comes to investing, and here’s why: The economy will likely continue to grow. Even with all the uncertainty, the Canadian economy was on track to grow 4.5% for the year, according to TD. While rising interest rates will increase the cost of loans and business investments, those costs will still be low because interest rates are at historic lows. The expected increase for 2022 is 1%, which would bring the interest rate to 1.25%.  

Any increase in interest rates represents an opportunity for risk-averse investors—and particularly retirees—to put their money into lower-risk investments, such as bonds and GICs, and generate returns that should exceed inflation. 

Inflation makes the case for investing

It should come as no surprise to anyone that just about everything is more expensive. Canada’s inflation rate hit an 18-year high of 4.7% in November 2021, while the U.S. inflation rate hit a 40-year high of 6.8% that same month, reports the CBC

The most important takeaway from these facts? When your spending power is diminishing, there is no alternative to investing in the markets to grow personal wealth. If more people understood inflation, they’d be investing. Keeping money in cash, with interest rates so low, will not help you meet the added expenses you will face.