There were some dramatic moves in share prices at the beginning of October, with headlines again proclaiming stock market doom and gloom. So are we set for a gloomy winter on the markets, or will the sun continue to shine?
After five years of strong upward markets, barring a hiccup in 2011, it is not surprising that this year has been a little more subdued. Although the recovery in economic terms is still under way, investor confidence is a little more shaky and the future a little less certain. I believe this volatility in markets is here to stay, and I suspect we will see our investment values continuing to oscillate over the coming months.
Why do I say this? First, because the current global economy is characterised by a divergence in fortunes. Some regions - the UK and the US, for example - are doing well in economic growth terms; others, such as Europe and Japan, are struggling. This means we are likely to see diverging monetary policies: interest rate increases in the UK and US; loosening monetary conditions in the Eurozone and Japan. Differences in growth rates, interest rates and currency movements all add to market uncertainty and volatility.
Second, the global economic growth rate is lower than the level predicted by history as normal. Although this might be more sustainable, it means relatively small changes in global GDP are amplified and are therefore more likely to provoke market reaction. A reduction of the growth rate by half a percentage point is much more significant against a growth rate of 2.5 per cent than against the "normal", pre-crisis 4 per cent global growth rate.
Third, equity markets have already moved up and are no longer cheap by historic standards. That means the price you pay for shares in a company is already factoring in an element of earnings growth. This is not necessarily a bad sign, because it indicates there is investor confidence in the recovery. But it leaves less of a cushion for disappointments and less valuation support should anything unexpected come out of the woodwork; again, this is a recipe for more volatility.
So what should charity investors do to prepare themselves and their portfolios for these oscillations?
Keep an eye on the cash flow at your organisation - ensure that all the assets that are needed in the short term are held in the form of cash. Even bonds, in my opinion, are dangerous to own as a liquidity reserve.
Don't panic - ensure that your governance structure allows you to take a long-term investment view where appropriate. Selling assets at a bad time is one of the most destructive things you can do for your charity's longevity.
Don't put all of your eggs in the same basket - diversification should help cushion the volatility.
It is difficult to predict the market's direction at the best of times. The current economic landscape makes it even harder to do so. Long-term equity investors should take comfort from the fact that the main determinant of returns - the price you pay - is still reasonable.
Equities is still the sector where I would invest my long-term savings today, but I would be ready for both rain and shine over the coming months.
Kate Rogers is client director at Cazenove Charities