The past four years have seen swings in the value of financial markets around the world, with many charities experiencing huge falls in the capital value of their portfolios, followed by considerable recoveries in the years afterwards.
For charities that have experienced such changes, it is important to understand how volatility and its associated risks affect their portfolio management.
James Brooke Turner (right), finance director at the Nuffield Foundation, says that the amount of volatility a charity can handle is likely to depend on how long it can hold on to its assets.
Charities that have long-term goals should be tolerant of volatility and willing to accept large swings in the capital value of their portfolios, he says. Those that expect to spend money in the near future, however, should move into assets that offer more predictability but, in exchange, must expect to see lower returns in the long term.
Brooke Turner says that, for trustees who intend to invest for the long term, the key is to keep your nerve in the short term.
"At this level, volatility is less about price than about governance stress," he says. "Understand the range in which your assets might move. The best investment decisions are about what might happen, not what has happened."
A key question for charities is how the assets they buy reflect their requirements. Are investments volatile and illiquid? How much income do they offer? Is there a risk of losing capital? How is this balanced against their return?
They must also think about diversifying their portfolios to protect against risk - a concept that requires choosing different asset classes such as stock, property and bonds.
The key to deciding what should be in your portfolio is knowing what you want to achieve, says James Bevan (right), chief investment officer at the investment manager CCLA.
"There's a bifurcation between charities that want to exist for ever and those that want to spend the cash some day," he says. "One charity might have different pots intended for different purposes, which they should allocate differently.
"If you have a reserve from which you might want to write a cheque at any time, that should be in low-risk assets or cash.
If your expenses are fixed, you must think differently than if they are discretionary." However, he says much of the rationale for diversification is based on "fragile" mathematics.
"For example, if you want to diversify from equities to debt, that's perfectly reasonable," he says. "But if your debt is corporate bonds, you've actually taken on many of the characteristics of the equity market."
Another key challenge for charities is to consider how much of their portfolios they can safely spend - a decision based partly on whether a charity wants to exist in perpetuity or feels that spending on existing beneficiaries outweighs the good it can do in later years.
In the US, there are rules requiring charities to spend 5 per cent of the value of their endowment each year. But no such rules exist in the UK, and permanently endowed charities, which are intended to exist forever, tend to take lower sums than this from their portfolios.
John Hildebrand (right), an investment manager at Investec WM, says that the historical performance of different asset classes should allow charities to estimate reasonably accurately how much money they can spend. Charities, he says, should also have a reasonable perception of this, based on the performance of their own portfolios.
Many charities, he says, have adopted the policy of treating capital gains and income interchangeably - a "total return" policy - which allows a charity to make savings in good times in order to have more flexibility in periods when market values drop. The government is in the process of introducing changes to the law that will make it easier for charities to adopt total return policies.
For many charities, the question of where to invest is linked to their desire to protect a permanent endowment against inflation.
For a permanent endowment, inflation is the perennial enemy - something that devalues the portfolio daily and requires the charity to run to stand still.
The threat of inflation has worsened in recent years. After a decade in which it mostly remained below 3 per cent, the rise in the retail price index reached more than 5 per cent in 2011, at a time when the value of most investment assets had remained flat or fallen sharply.
"The two main questions I get asked on a regular basis are 'how much can we spend?' and 'is a return to inflation just around the corner?'" says Kate Rogers (right), client director at Schroders. "Protecting against inflation is a consistent issue."
Many charities find the returns that they can achieve on resources held in cash are well below the rate of inflation. So they have tended to move their portfolios into riskier assets to ensure that they still get a return on their capital, she says.
Another common move is to hold 'real' assets such as equities, which gain value in line with the increase in the size of the economy, rather than debt, which does not.
Charities might have to consider screening their investments so they do not fund companies with activities that work against the charity's objects.
But there are differences between how much charities are expected to do to ensure high ethical standards and how much they have actually done.
A recent survey by the ethical investment organisation Uksif found that 59 per cent of investors wanted charities to take a lead in ethical investment. But a Charity Finance Group survey in the same week found that only about half of its members had any sort of ethical investment policy.
Initially, ethical investment focused on excluding companies in sectors such as tobacco or munitions; but many specialists in the field are now keen to focus instead on policies of investing in companies with good environmental, social and governance records.
Some charity investors are beginning to use their assets to put pressure on companies whose stock they own to improve pay and conditions for workers, or to focus on environmental objectives.
And a few charities are now beginning to look further than investing in the mainstream markets and consider making 'programme-related investments' in other charities that deliver a social good - thus exchanging some financial return for an increased social return.