What We Learned About Investing During a Pandemic

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    So what happened last year? From an investor’s perspective of 2021, I share the lessons investors can take into 2022:

    The volatility will remain – that’s fine, the markets can handle it

    Even before COVID-19 added another layer of uncertainty to investments, the markets were already affected by the rapid change in the digital economy. The stories in the media can cause huge swings up and down as the markets adjust and pick up where they left off. Part of this is due to the impact of technology, which is driving positive and negative headlines and selling and buying the markets accordingly. We are now seeing it with the Omicron variant.

    Look back at the start of the pandemic (March 2020), then the vaccine release (December 2020), the advent of the Delta variant (late 2020), and the announcement of new pills from Merck and Pfizer to treat the virus (November 2021 ). You see a clear pattern in every event: the markets drop quickly, then they rise quickly and then we get the green light to invest.

    Rising interest rates are not necessarily negative

    The source of the next wave of volatility is unlikely to be caused by the pandemic. Instead, it will be the double blow of rising interest rates and inflation.

    This is nothing to worry about when it comes to investing, and for the following reason: The economy is expected to continue to grow. Despite all the uncertainty, the Canadian economy was well on its way to growing 4.5% over the course of the year, according to TD. While rising interest rates will add to the cost of borrowing and business investment, those costs will nonetheless be low as interest rates are at historic lows. The expected increase for 2022 is 1%, which would bring the interest rate to 1.25%.

    Any rise in interest rates gives risk-averse investors – and retirees in particular – the opportunity to invest their money in lower-risk assets such as bonds and GICs, and generate returns that should exceed inflation.

    Inflation speaks in favor of investing

    It shouldn’t surprise anyone that almost everything is more expensive. Canada’s inflation rate hit an 18-year high of 4.7% in November 2021, while the US inflation rate hit a 40-year high of 6.8% in the same month, the CBC reports.

    The most important lesson to learn from these facts? When your purchasing power is weakening, there is no alternative to investing in the markets to grow your personal wealth. If more people understood inflation, they would be investing. Holding cash at such low interest rates will not be able to cover the additional costs.

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