Strengthening Financial Sustainability Through Nonprofit Investing

In today's challenging economic landscape, many nonprofits are feeling the pressure of declining donations and uncertainty about their financial future. If you're concerned about how to navigate these hurdles, prioritizing long-term financial sustainability is essential.

A strategic approach to managing your reserve funds is one of the most effective ways to safeguard your organization's future. While investing might not seem like an immediate priority, it's a crucial element of proactive financial management that can set your nonprofit on the path to sustainability and growth.

Let’s explore why nonprofit investing is so important and how your organization can begin building financial resilience through strategic investments.

Nonprofit Investing: The Basics

Before diving into how to invest, it's essential to grasp some foundational concepts. Here are answers to a few frequently asked questions your team may have about nonprofit investing:

• Can nonprofits invest?
  Yes! In fact, investing is strongly encouraged as part of good financial stewardship. Nonprofits can invest in various financial instruments, including stocks, treasury bills, and certificates of deposit (CDs). Given that nonprofits typically have a lower risk tolerance, they often focus on low-risk assets like treasury bills, which can be liquidated easily if necessary.
• What types of funds do nonprofits invest?
  Commonly, nonprofits invest reserve funds and endowments. Capital campaign funds and grants can also be placed in low-risk sweep accounts. Investing reserve funds (your "rainy day fund") can help combat inflation, preserving their value over time. Endowments are another key resource, as they’re meant to be invested for long-term growth.
• What does your nonprofit need to start investing?
  Your organization will need a brokerage account, a well-defined Investment Policy Statement (IPS), and a trusted partner, such as an investment advisor. While it’s possible to manage investments independently through a firm like Fidelity or Schwab, working with a specialized nonprofit investment advisor can make the process smoother and more effective.

As your organization delves deeper into nonprofit investing, you may have additional questions. Partnering with a financial expert who understands the unique needs of nonprofits can guide you through these complexities and help you make informed decisions.

Why Manage Your Nonprofit’s Funds Strategically?

The primary objective of nonprofit investing is financial sustainability. But beyond that, how can strategic investments further your organization’s goals? What makes low-risk, highly liquid investments worth the effort?

Here are three key reasons, according to Infinite Giving:

1. To grow your reserves.
   A financially sustainable nonprofit maintains a healthy reserve fund, typically covering 6-12 months of operating expenses. Strong reserves enable your organization to weather unexpected challenges and financial shortfalls.
2. To attract major donors.
   Securing major gifts often depends on demonstrating financial responsibility. By maintaining a solid investing track record, your nonprofit can build trust with major donors, showing that their contributions will be managed wisely.
3. To build long-term assets.
   Strategic investments help your organization accumulate capital over time, improving your overall financial position and ensuring resources are available to fulfill your mission.

By investing your funds with care, your nonprofit can boost its financial health, strengthen relationships with donors, and enhance its ability to carry out its mission.

Steps to Start Investing for Financial Sustainability

Once your team understands the basics and benefits of nonprofit investing, it's time to take action. Here’s a step-by-step guide to get started:

1. Partner with a Nonprofit Investment Advisor

Selecting an experienced investment advisor is crucial to managing your portfolio effectively. A specialized nonprofit advisor offers both financial expertise and insight into the unique challenges nonprofits face. Look for a partner who:

• Recommends tailored portfolios based on your nonprofit’s goals and policies.
• Upholds a fiduciary duty to act in your organization’s best interest.
• Provides ongoing oversight and regular performance reports to stakeholders.
• Charges lower minimums and fees than traditional brokers.
• Understands the intricacies of nonprofit investing and offers tools for investment management and donor support.

An advisor can also streamline the investment process with tools for tracking and reporting, making it easier to manage and communicate your financial performance.

2. Define Clear Goals and Policies

Before you start investing, your organization needs a well-defined Investment Policy Statement (IPS). This document lays out your nonprofit’s goals, risk tolerance, strategies, and any donor restrictions. An IPS should also outline asset allocation, diversification policies, and how you’ll measure success.

Work closely with your advisor to create this guiding document, which will help your organization stay aligned on investment decisions and protect against unnecessary risks.

3. Focus on Low-Risk, Highly Liquid Investments

Once your IPS is in place, your organization can begin investing with confidence. For most nonprofits, the priority is low-risk, highly liquid investment strategies. These types of assets, such as treasury bills, short-term CDs, and money market accounts, provide stability and ease of access if funds are needed unexpectedly.

Additionally, consider the type of account you’re using. Brokerage accounts with sweep programs can enhance your financial protection, offering higher FDIC coverage than typical bank accounts—sometimes up to $5 million, compared to the standard $250,000.

Partnering with an investment advisor can open the door to alternative solutions that offer competitive yields and greater protection for your reserves.

Conclusion

Nonprofit investing may feel overwhelming at first, but it’s a critical component of responsible financial stewardship. By taking a strategic approach to managing your reserves and working with a knowledgeable partner, your nonprofit can strengthen its financial position, attract key donors, and build long-term sustainability. With thoughtful planning and execution, your organization can weather economic challenges and continue making an impact for years to come.

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