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Your nonprofit needs an investment policy

December 2, 2016

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Not-for-profits owe it to their causes and constituencies to uphold prudent fiscal policies. An investment policy designed to safeguard assets is critical to carrying out this responsibility.

Discussion items

Your nonprofit’s investment policy should include a discussion of:

  • Investment portfolio and performance goals,
  • Spending policy considerations,
  • Appropriate investments in terms of risk, potential yield, liquidity and philosophical considerations,
  • Asset allocation, and
  • Investment advisor directives.

Investment policies will vary among organizations based on their needs and characteristics. Specific investment guidelines may even vary within an organization. Policies pertaining to your endowment fund, for example, likely will differ considerably from those directed at your operating fund.

Reasonable care and good judgment

Notwithstanding these differences, all effective nonprofit investment policies share certain characteristics. Your board is required to use reasonable care and good judgment, and the policy it crafts should help ensure your organization’s financial viability. A strategy board members follow with their personal investments (such as an aggressive growth-oriented portfolio) may not necessarily be appropriate for your nonprofit’s funds.

Instead, the policy should specify a return goal that’s consistent with your nonprofit’s needs and financial situation. Board members need to consider how the funds (both principal and income) will be used and when they’ll be needed.

Also make sure your board sets parameters for investment advisors. Some organizations prefer to give them strict directives on how to achieve desired results. Others offer leeway in achieving the return goal through an appropriate mix of approved investments. Most nonprofits, however, will want to prohibit advisors from making certain investments that are incompatible with their mission. Your policy should also outline performance expectations and requirements for investment managers, such as the frequency and type of reports to be issued.

Stay the course

Without regular monitoring, investment policies can easily veer off course, thereby posing risks to nonprofits and their board members. Contact us for help in creating and maintaining an effective policy.

© 2016

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

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