The markets are falling, but equities are still a good bet

Don't be scared by current volatility, says Kate Rogers of Schroders

Kate Rogers
Kate Rogers

This year, the British summertime has been spoiled not only by the weather, but also by chaos in our city streets and the investment markets.

Charity trustees returned from their holidays to find their investment portfolios worth substantially less and, with worries about recession, face the prospect of yet more rollercoaster thrills. Is it time to buy more equities, sell or hold on for the ride?

In order to appraise the best course of action for your charity, we first need to consider the reasons for the upset, in both the markets and the streets.

The story begins with a period of prosperity. House prices were strong, optimism was high, credit was abundant. Then the music stopped and the level of indebtedness in our banks and pockets was revealed.

Three years on, both companies and individuals have responded by paying off debt and saving. Initially, governments maintained spending, even as tax receipts fell. Now they too are cutting back, with civil unrest, sadly, as one of the results.

In Europe, concerns that some governments won't be able to repay their debt has meant that investors in government bonds face significant losses. This has led to worries over European banks' exposure to those debts and talk of a second credit crunch. Collective government belt-tightening has also led to disappointing growth figures on both sides of the Atlantic. The net result? Markets have fallen.

Charity trustees might need to consider whether this requires a change in their investment strategies. In theory, you should not respond to market movement by altering the risk that you are prepared to take in your portfolio. However, if your charity's income is likely to be affected by government spending cuts or weaker economic growth, then there is an argument for revisiting your strategy.

I have been recommending that clients maintain positions in equities. Although uncomfortable, the current volatility is throwing up opportunities to get exposure to good quality companies at reasonable prices.

For long-term investors, equities at this point do not look expensive and have historically been the best bet for charities wishing to increase their income ahead of inflation. Hold on to your hats, strap yourselves in and stay aboard for the ride.

Kate Rogers is client director at Schroders

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