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Should you invest while the world is burning?

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The last thing on most people’s minds right now is investing. We’re focused on survival. But what about the long-term?

Should you invest while the world is burning?
The last thing on most people’s mind’s right now is investing. We’re focused on survival: washing our hands obsessively, hunkering down at home, baking banana bread, and worrying. Most of us are worried about the vulnerable in our society, worried about our health and our friends and family, and worried about whether we’ll have a job at the end of all of this.

I’m finding the economic headlines as scary as the pandemic ones. Job losses, business closures, and countries already in recession.

So is it a good time to invest?

Let me start by saying I am not a financial advisor and you should absolutely speak to a registered financial advisor before making any investment decisions. What follows are just a few thoughts to consider – the pros and the cons.

Traditional thinking is that the earlier you start investing, the better. If you’re doing it right, your investments should grow with time, and so the more time they have, the more they grow and the greater your returns. That’s obviously very simplistic and investments don’t always grow - there's inherent risk in all investing, but we’ll get to that. It’s worth noting that the markets will be extremely volatile for a while, so if you do invest now, do it wisely and do it for the long-term. You need to be able to withstand volatility and not panic-sell if prices dip even further. Short-term investing in volatile markets is very risky and best left to the professionals.

Downturns can be great investment opportunities, however. When the market is down, like it is right now, you can get in while the prices are low and, if you make good decisions about which companies to back, history suggests the prices will eventually rise again and take your investments with them.

But this downturn may turn out to be very different. The main caution against investing right now is that no one knows how severe the pandemic will be and how long the resulting economic fall-out will last. It all depends on whether a vaccine or a treatment can be found, how long it will take, and what kind of economic recovery will follow (V-shaped, U-shaped, or the dreaded, Great Depression-style L-shaped). It’s very important to make sure you have enough cash available in the bank that you can draw on to support yourself if you lose your income – maybe many months’ worth of emergency funds – before you think about investing.

All investments carry risk (and usually the higher the potential returns, the higher the risk), but there are lower-risks investments you can make if you want to get started. Bonds are popular in times of crisis and so, unsurprisingly, the bond market is doing well right now. Bonds are different to shares – if you buy corporate bonds, you’re buying buying a portion of a company’s debt  (sovereign bonds = a portion of a nation’s debt). You’re essentially loaning a company (or government) money that they pay you back, with interest – a “fixed-income instrument.” If you buy a bond and hold it to maturity, you pretty much know what your returns will be when you buy it (but if you sell it before maturity, your returns will likely be different because bond prices fluctuate just like share prices do). Bonds are usually lower risk than equities because debt gets repaid before equity holders get any money in the event of a company failing. You can also ascertain the level of risk by checking credit ratings. Companies or governments with good credit ratings are less likely to default on their payments. Again, these are generalizations and the bond market is complex. If you are interested in investing in bonds, consult a professional investment advisor.

Personally, I think the world will keep burning unless we do something about it. The pandemic is just the first crisis of many if we don’t shift the global economy onto a sustainable path. Where we put our money makes a difference – whether it’s in supporting small, local businesses with an environmental and social conscience, or investing in the stock market. There are many green options for investors to consider. You can ask your financial advisor to prioritize high ESG scores (rankings for Environment, Social and Corporate Governance). There is also a growing market for green bonds.

The pandemic will eventually pass, and economies will reopen, but the world will be different. If we choose wisely, I think we can make money and make sure the future is less scary than 2020.

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