Financial Services for Charities
Investing for Income
Many charities’ terms require them to use only income towards charitable causes. Some charities have the ability to use both income and capital, however it is very important that the trustees understand what is allowed before they make investment decisions. Certainly any investment adviser should check this before giving advice.
Generally, it can be said, that charities will require a balance between income and capital growth from their funds. Income to be used for charity work and causes and capital growth in order to ensure that the value of the charity fund increases to at least keep pace with inflation and also to support income in the future.
Where the main requirement is to preserve capital as far as possible, and to generate income from this capital, we now have to work a bit harder for reasonable income returns and some decision must be made about risk.
Leaving funds in deposit accounts and National Savings is generally considered very low risk. However there are risks involved, mainly that inflation will erode the value of the funds in the future, that interest rates may fall and that banks may fail. However, generally people are comfortable taking those risks in exchange for the comfort of knowing exactly what they have, where it is and that it won’t reduce in value. Until recently, you could also achieve a fair rate of interest so it was worth taking these risks.
The situation is quite different now. Interest rates are exceptionally poor and whilst inflation is not an issue at the moment, this could change and there is still a risk present that over the longer term, the value of your money in 5 or 10 years will be worth less than it is now.
In this case you may like to consider other types of investment to provide income. For example, corporate bonds are currently providing very attractive yields, whilst some UK Equity Income Funds are also providing high levels of income. However, before ploughing into these types of investments it is important to understand that there are risks involved and you should be clear about what these risk are and take advice from an independent financial adviser.
For further information contact Ruth Dolan, Chartered Financial Planner, on 01227 763939.
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