Guest Post Author: Braxton Leicht, Beta Wealth Group
I have yet to meet someone who joined a nonprofit organization due to a love for raising money. Those who join the firms aligned with the UNA work with them because of the mission, the people involved, the work to be done.
Bringing in money so that a nonprofit can function is one of the often unwelcome, but of course necessary, facets of the job. When we meet with non-profit organizations, our conversation often wind up back at the same points:
- Organizations had been successful with their fundraising, but were not sure what to do with the money once they had it.
- Donors have offered the organization gifts of stock, but they are not set up to receive it.
- Many organizations did not have an investment policy statement, and most had never heard of one or knew the importance of having one.
What Importance Do These Points Have to a Non-Profit Organization?
Money sitting in a checking account, while it feels safe, loses it’s value over time. Inflation has grown at a 2.9% average over the last 10 years, with an expected rate of 2.3% over the next decade. In barest of terms, this means that the buying power of a dollar is close to 72% of what it was in 2015.
Even the best fundraiser will struggle while trying to outpace inflation at this rate. One way funds can outpace inflation, and decrease the time needed to fundraise, is for them to be invested.
There are a variety of strategies that can be employed through investing, which can be designed to match a variety of goals and risk profiled.
Of course, it can be daunting to invest funds entrusted to you by others. This is where the organization’s investment policy statement comes in.
What Is an Investment Policy Statement?
The board of directors of a nonprofit organization has a fiduciary responsibility to protect the assets of the nonprofit and ensure that the assets are used to further the nonprofit’s mission. While funds are needed are for working capital, the investment of an organization’s operating reserve could be prudent.
There is a wide variety of investment vehicles, and their types, to choose from. In order to choose the ones most suited to an organization, questions need to be asked:
- When does the organization want these funds available (the ‘time horizon’)?
- How much risk does the organization want to take on with the investments?
- What principles will guide the investments?
- Are any of the funds that the organization wants to invest restricted in any form?
These are just some of the questions that can, and should, be answered by an investment policy statement.
An investment policy statement is a client-specific document designed to address the objectives, constraints, unique circumstances, and overall oversight procedures that govern the investment-related activities of a non-profit organization.
This document is integral for the current board, but also can prove a lifesaver to new members as turnover occurs. The statement proves that the board has done their fiduciary duty by developing a plan for their funds and their organization, and will work to protect it on a legal basis.
Steps to Creating an Investment Policy Statement
Once an organization has decided to put together an Investment Policy Statement, what are the next steps?
- Start with the organization’s mission.
This will have been done in part previously by the organization, but their goals must be further outlined with the investment of assets in mind. - Match investment goals with financial needs.
Multiple factors play into this step, and must be considered. What expenses must be covered by these funds and their investment types? What are the short, medium, and long-term goals of these investments? Have these goals been adjusted to match inflation? - Plan out the types of investments which the organization will invest.
Members of a nonprofit board must be aware of the sensitivities of other members of the board, and the organization as a whole. What investments should be avoided? Are there certain sectors that members want to support? How much risk are members willing to take on? - Align the allocation of assets for investment.
Based on the factors above, as well as others, the policy must target an allocation, or weighting, of assets across all investments. This will help investments. - Revisit the plan on a regular basis.
The policy, once in place, should be reviewed regularly – at least once a year.
We understand that this process can sound daunting, and that is why organizations sometimes choose to work with outside agencies to help with these goals and stratagems.
About the Author
Braxton Leicht is a former non-profit worker and current financial planner with Beta Wealth Group. He has years of experience in investment management and client development.
