How much does volatility matter when investing for income? The media headlines have been disturbing with the dramatic falls in share prices on the world’s stock markets but people should not be pressing the panic button.

With all the recent volatility in asset values, especially equities, if the assets you are invested in produce a total return i.e. capital growth and income, does it matter so much if the capital value fluctuates? Should you do anything if you are a long term investor in quality funds and holdings or do you sit tight and ride it out?

If you look at the three main asset classes of property, fixed interest and equity, each offering total returns, it is possible to establish what the answer is as long as you are holding the right assets within each class.

With property, the quality of the income stream (i.e. the rent received) is determined by the quality of the tenant. If we focus on commercial property rather than residential, this comes down to the strength of the tenant company’s balance sheet.

So as long as the rent is being paid, does it matter if the capital value fluctuates? No! The yield on good quality commercial property is five per cent per annum or better compared to cash, a very attractive return for an income seeking investor.

Commercial leases tend to be for five years plus so voids are less likely than with residential and dilapidations at vacation usually keep the property in good order at the tenants’ cost. Capital growth over the long term is a bonus to the income received.

Much of the recent instability in asset values has been caused by the fixed interest sector, particularly sovereign debt as opposed to corporate debt. Sovereign debt, or government borrowing, has been a major problem in southern Europe as the possibility of defaulting on this debt has been a real possibility.

Even United States debt has lost its ultimate AAA status following a recent downgrading. But remarkably UK government debt – gilts – has been seen as a relatively secure home.

Given there is usually a known repayment date and price, and a set annual income yield, variations of capital values up to redemption should not be a problem as long as there is not default in payment of income or capital and the asset is held to the anticipated redemption date.