It’s hard to think of silver linings in a global pandemic, but if you went looking for one about COVID-19, you might point to the unexpected financial gains many people have made due to increased savings over the last year and a half.
When much of the world went into a rolling series of lockdowns and restrictions in March 2020, no one expected them to last more than a year. That’s 12+ months of focusing on our housing and food costs and not much else (aside from our Netflix subscriptions).
We’ve all spent more than a year not doing all the things we did every day—lunch at that place around the corner from the office, regular salon visits, our morning stop at our favourite coffee shop—that led to us spending a dollar here and a dollar there without thinking.
But with the pandemic having brought all that to a standstill (to say nothing of more significant expenses, like family vacations), many people suddenly found themselves in a situation of pandemic growth, with quite a bit of extra cash on hand each month.
So how much have people saved during the pandemic, and what should they do with it as we emerge from lockdown?
How much have people saved during lockdown?
The combined effect of reduced discretionary spending and support from government emergency programs led to record savings on the part of Canadians. According to Statistics Canada, Canadians squirrelled away savings of $212 billion in 2020, compared to $18 billion in 2019. That’s an average of $5,574 in savings per Canadian in 2020, compared to just $479 per person a year earlier.
Canadian’s average savings rate was 14.9% of disposable income in 2020, jumping up from 1.3% in 2019. In the earliest months of the lockdown—April, May, and June 2020—the savings rate peaked at nearly 27% of disposable income.
While many Canadians used these savings to pay down credit card and consumer debt, by some estimates roughly $150 billion is sitting in bank accounts ready to be spent.
How to use pandemic savings most effectively
As the world opens back up, there are almost too many choices of how to spend our savings. We could buy property. Maybe a new car. We could travel again!
While this kind of spending will feel good, it might be tempting to simply spend everything we’ve saved. Instead, consider how long-term investing in exchange-traded funds (ETFs) will benefit you down the road instead of quickly being used up.
From early beginnings as equity-index trackers, ETFs have proliferated into thousands of different funds, offering a wide of investment choices. So, you must do your research and find the ETFs that suit your goals as an investor.
You can start with an asset screener that filters out ETFs that don’t fit your interests and then turn to the research tools made available by the ETF managers to help keep investors informed of the performance of the fund. These documents will take various forms, including performance one-pagers and monthly commentaries on the status of the fund. They will outline performance trends and issues related to the ETF that could have an impact, both positive and negative, on the outlook for the fund.
ETF investing for the long-term
If we’ve learned anything from the pandemic, it’s how quickly situations can change. After a pre-COVID peak in February 2020, markets dropped precipitously just weeks later, leading to a flash recession and profit collapse. Yet, by the end of 2020, markets had returned to record highs despite the pandemic.
The inescapable lesson of history is that if you’re investing, the safest bet is to do so for the long term. This strategy helps insulate you from fluctuations and corrections that happen from time to time. On a long enough timeline, however, the historical trend of the market overall has been upward.
What might your ETFs be worth in 10 years? In 20? If you’d invested in Netflix in 2011, by 2021 you’d have experienced a 35.5% CAGR. If you’d invested in Amazon? A 33.98% CAGR. It’s a similar story for Apple (29.81% CAGR) and Microsoft (26.08% CAGR), and many others.
After more than a year of pandemic and lockdown, we all deserve to treat ourselves to a little something nice from our accumulated savings. But if we really want to reap the benefits of this unexpected financial silver lining to the pandemic, we’d be wise to invest the rest of those pandemic savings and put them to work for us over the long term in ETFs.
To find out how Evolve ETF can help you with the long-term investment of your pandemic savings, contact our sales team today. https://evolveetfs.com/evolve-etfs/