As most of you are aware, worldwide markets experienced wide fluctuations and a significant decline last week that sent many investors in a bit of a panic. We all watched the stock market plunge more than 1,000 points after the market opened on Monday, August 24, and end up more than 600 points on Wednesday, August 26 and by Friday ended with a flat close to quietly round-out a volatile week.
While there is a plethora of information now available on the meaning of these fluctuations and the best way to “ride them out” (and a particularly good piece by Alaska Permanent Capital Management), many of our donors and fund holders are asking what impact this will have on their endowed funds.
To answer this question, I’d like to first discuss the meaning of endowed funds at a community foundation.
Unlike retirement accounts, which have a fixed lifetime, endowed funds are meant to last forever.
As such, we at the Alaska Community Foundation are focused on horizons that extend much farther into the future than anyone setting up a retirement account, or any of us looking at the market last week. We take neither excessive risk with the assets we manage, nor do we project aggressive growth to our stakeholders.
Our investment manager, the Fund Evaluation Group (FEG), shares the same values and goals in their management. In fact, they had a few encouraging things to say about this downturn and their investment goals. According to a statement released on August 25th, the broad investment diversification and defensive, fixed income portfolios that they advocate for their clients have held up considerably better than those exposed to lower-quality credit and international debt. Like us, FEG operates with long-term, steady growth in mind, not highly volatile or narrow investments that carry risk to their clients. Additionally, they assure us that, while concerning, the downturn last week was not unprecedented, and may even be seen as more normal than we might first believe:
But it is not time to panic just yet. Corrections, and even bear market declines of 20% or more, come with the investment territory. Since 1950, a bear market (including those that reached a 20% decline intra-day) occurred approximately every 5 ½ years on average. The current bull market has (had) survived for nearly a year longer than average and remains well above bear market territory. The recent market decline has been swift, but not historic in depth.
Ultimately, the beauty of endowed funds for charitable purposes is that they are well-positioned to weather investment storms from large to small.
Since our funds are managed by goals that extend far beyond our lifetimes and are intended to benefit the lives of Alaskans for generations to come, we need not worry about a potential small loss of asset in the short-term. Instead, we take comfort in the fact that these funds will be here for Alaska’s future.