How charity trustees can prepare for market turbulence

For that reason, it's essential for trustees to be well-prepared to navigate these turbulent times. In this article, we outline practical steps which trustees, together with their investment manager, can take.

Diversify your investment portfolio

Diversification is a key strategy to mitigate risk in investment portfolios. By spreading investments across different asset classes, sectors, and geographic regions, we can try to reduce the impact of a market downturn on the overall portfolio. A well-diversified portfolio is more likely to weather a crisis and maintain stable returns, providing the crisis is contained to certain sectors or asset classes.

Develop a robust investment policy

Having a well-defined investment policy is crucial for efficient decision-making during a market crisis. The policy should outline the charity's investment objectives, risk tolerance, asset allocation, and asset class ranges. Assigning asset class ranges provides your investment manager with the flexibility to tilt your investments appropriately during volatile times.

Monitor investments

Active and regular monitoring of the investment portfolio is essential during both stable and crisis periods. Your investment manager should keep trustees informed about market trends, economic indicators, and investment performance. Regular touchpoints with your investment manager allow for timely adjustments to your investment strategy, ensuring that it remains aligned with the charity's objectives and risk tolerance.

Speak to your investment manager

Seeking guidance from your investment manager can be invaluable during a market crisis. Experienced investment managers can provide insights, analysis, and recommendations based on their understanding of the charity's financial objectives and risk profile. Their guidance can help trustees make well-informed decisions in challenging times.

Focus on the long-term

Market crises can be emotionally charged, leading to impulsive decisions. However, providing your capital is invested to meet your long-term objectives, charity trustees should maintain a long-term perspective. Panic selling or making drastic changes to your strategy during a downturn can lead to missed opportunities for recovery when markets rebound. If, however, your circumstances or capacity for risk changes materially, it is important to keep your investment manager updated.

Communicate with stakeholders

Transparent and open communication with stakeholders is essential during a market crisis. Trustees should keep beneficiaries, donors, and other stakeholders informed about the charity's strategy, its response to the crisis, and any potential impacts on the organisation’s activities. By maintaining clear and honest communication, trustees can build trust and confidence in their decision-making process.

Market crises are inevitable, and charity trustees must be well-prepared to safeguard the organisation’s financial interests during these challenging times. By implementing these measures, charity trustees can better navigate market downturns and position their organisations for long-term financial stability and continued impact on their beneficiaries and communities.