Investments

INVESTING AS A CHARITY: WHY CASH CAN’T ALWAYS CUT IT

For most charity investors, recession, rock-bottom interest rates and volatile equity markets have all made investment decisions harder. So why should you consider moving away from cash?

A PERFECT STORM OF ECONOMIC CHALLENGES

Since the global financial crisis, investors have become increasingly risk aware - and risk averse -particularly when it comes to volatility in their investment portfolios. As a result, many trustee boards have opted to hold significant sums in cash, as a 'safer' option. However, it's a strategy that has left them with negative returns in real terms, after taking inflation into account. And negative returns can make a serious dent in a charity's ability to deliver on its mission.

GET COMFORTABLE WITH RISK AND VOLATILITY

No charity wants to lose money, but the alternative option of investing - and risking - their financial resources can feel intimidating for trustees who lack significant investment expertise. Volatility-based management is one way of helping these investors to understand - and feel comfortable with - and the level of risk and volatility in their portfolio.

A DIVERSIFIED PORTFOLIO CAN HELP SMOOTH RETURNS

A volatility-based portfolio is made up of a range of different asset classes, including equities (shares), fixed interest (bonds) and alternative investments (investments in hedge funds, real estate, etc). By diversifying in this way, the investment manager aims to create a portfolio that will perform relatively well in different market conditions. This approach can make trustees feel more comfortable because while their returns will not necessarily match equity markets in good years, neither should they see significant losses in bad years.

JUDGE YOUR RETURNS BY YOUR GOALS AND RISK APPETITE

Volatility-based management is not about comparing your returns with those of other investors, Instead, it's about investing in line with your charity's specific needs, and its attitudes to risk and volatility. This should result in an investment that behaves as you expect, helping you build your confidence - and your investment returns - over the long term.

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CAF Financial Solutions Limited (CFSL) is authorised and regulated by the Financial Conduct Authority FRN 189450. Registered office is 25 Kings Hill Avenue, Kings Hill, West Malling, Kent ME19 4TA. CFSL is a subsidiary of Charities Aid Foundation (registered charity number 268369).

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