What we learned about investing during a pandemic

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.

Timing the markets doesn’t work

This is not new information, but some investors seem to forget this through every market dip and surge, including in 2021. While the concept of timing the market is easy to understand—buy low, sell high—too often investors get caught up in trying to buy at the lowest low and sell at the highest high. 

Hitting at the absolute best time to buy or sell rarely happens, particularly when the market can be up one day and down the next. That happened regularly this past year. My best advice: Don’t try to time any market or any stock. Instead, focus on the long term and buy good-quality investments. 

Final thoughts on 2021

If 2021 taught us anything, it’s that the markets are resilient. In the future, if someone tries to tell you “This time is different;” it’s not. Lean on history, remember all that the world has endured, and get in the game and stay invested. 

Perhaps more than ever, 2021 revealed the importance of having a plan to help keep you focused on your goals. Now is as good of a time as any to revisit your goals to make sure you’re moving in the right direction. 

Top up your tax-free savings account (TFSA). If you have children, invest in a registered education savings plan (RESP). Look at your investments with an eye to minimizing your tax bill. If you’ve made money—and most of us have if we stayed invested throughout the year—and realized those gains, consider selling off stocks you’re unsure about to offset gains.

What can investors do specifically to cope with rising inflation and higher interest rates in 2022? I’ll cover that in more detail in my next column.

Allan Small is the senior Investment advisor at the Allan Small Financial Group with iA Private Wealth, and he is the author of How To Profit When Investors are Scared. He can be reached at [email protected].

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About Allan Small, FMA, FCSI

Allan Small is the Senior Investment Advisor at the Allan Small Financial Group with iA Private Wealth and host of The Allan Small Financial Show. He is also the author of How To Profit When Investors Are Scared. He can be reached at [email protected].

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