In this guest blog, Cazenove Capital outline what charities with investments need to be thinking about right now. Opinions are the author’s own.

Charities will be an undisputable source of support over the coming months as the cost-of-living crisis takes hold. Amongst the chaos and angst, the sector should demonstrate how it can collaborate, mobilise, and help those who need it most – much like during the pandemic.

Many charities are already facing up to increasing costs and even greater demand for their services. Where can the extra income to fill this shortfall come from?

Investment markets, often seen as forecasters for the future state of the economy, are volatile, reacting sharply to inflation expectations, consequent implications for interest rates, changes to government policy and lacklustre expectations for growth next year. This can make it uncomfortable for charity boards with investment portfolios to make funding decisions, with even less predictability than usual in terms of expected returns. Is now the right time to be taking extra money from your charity’s portfolios, or should you sit tight and stick to the long-term plan?

We anticipate that there will be important and difficult decisions to be made and urge charities to consider the options carefully in relation to their particular circumstances. You need to understand the implications and seek advice from your investment managers if necessary.

Many long-term charity investors have objectives that link their annual spending rate to inflation – thereby reflecting their ‘real life’ objective to meet the needs of today’s beneficiaries whilst preserving the real value and spending power of their assets for the future. In our experience, most long-term charity investors target a total return of CPI+3-4% per year on average, over a 5 – 10 year period. This reflects the desire to withdraw around 3-4% each year and maintain the real value of the assets over time. You can read more about our research into sustainable spending rates here.

Read the full article about the cost-of-living crisis by Emily Petersen at Think NPC.