Why do charities invest?

The success of charities rides on a number of key factors. The goodwill of donorshours of hard work contributed by volunteers and diligent management all play a huge role in ensuring a charity can effectively achieve its goalsHowever, as a donor, you want to know that your contributions are being put to good useSimilarly, as a trustee, you want to ensure that you are making the most of your charity’s funds. 

It’s for this reason that many charities choose to invest, maximising funds and allowing for potential growth in the future. Making carefulconsidered decisions as to a charity’s investments is the responsibility of its trustees. Whilst this is by no means a small responsibility, there is plenty of help available for trustees looking to make investments. In fact, the Trustee Act 2000 requires trustees to seek financial advice before taking any action, helping to navigate income requirements, restrictions and ethical considerations. 

However, reward also requires a certain amount of risk. As with any investment, you are exposing your charity’s assets to the volatility of the markets, meaning the value of your investment may fallRisk can equally be associated with political and economic change, as well as lenders and non-diversification. The Charities Aid Foundation (CAF) underscores this fact, saying ‘there is no guarantee about the level of capital or income returns that will be generated.’ Therefore, careful risk management is key.  

When calculating risk, something worth considering is your organisation’s capacity for loss. You might ask yourself questions such as: 

  • To what extent can the charity absorb a fall in the value of my investment? 
  • How much risk am I willing to take to receive a return?  
  • What is my Investment time horizon? This is the time frame in which you can hold your investment before you will need the money back. 

Another important consideration is where to invest. There are a number of different asset classes to consider, from government bonds and stocks to equities and property. As a trustee, it is your responsibility to ensure investments align with existing investments, the needs of beneficiaries and the goals of the charity. For example, an environmental advocacy group would likely avoid investing in fossil fuelsThe Charity Commission recently released a report, saying we want more trustees to feel empowered to take a fresh look at their financial investments and make informed decisions that are right for their charity.’  

By dealing with an authorised and regulated advisor, you are complying with your responsibilities as a trustee. We strive to forge long-term relationships with trustees, allowing us to support them in their investments over a long period of time. If you would like to speak with one of our financial planners, please don’t hesitate to get in touch over email at enquiries@gpfm.co.uk or call 01992500261. 

This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions. Investments can go down as well as up and you may get back less than you invested.  

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About gpfm  

gpfm are an independent financial planning company dedicated to the provision of personal, professional, and objective-driven advice for our clients. We have been awarded the Chartered Financial Planners title by the Chartered Insurance Institute for offering high quality, independent and informed advice that meets the needs of our clients.