Investing during modern times can be a challenging endeavor. Whether you are the CEO or CFO of your organization, or a volunteer serving on the investment committee, the responsibility of managing the investment endowment and finances of your favorite nonprofit is crucial. However, it can also potentially be a bit anxiety inducing, too. The good news: With a little perspective and a proper framework, managing your endowment can actually be a very rewarding and important part of your nonprofit work.
Managing your nonprofit endowment is like managing your “family finances”
In many ways, managing the finances of a nonprofit endowment is similar to managing your own finances at home. Approaching it this way can make the process seem a little less intimidating. Think about it: Like any family, most nonprofits seek to balance short-term cash-flow needs with long-term goals. The endowment serves as the nonprofit’s “nest egg” – similar to your own personal savings or retirement account.
Also, many of the same, thoughtful principles you already apply in your employer 401(K) or 403(b) account will apply to your nonprofit’s endowment. For instance, the most critical decision for any investor is the split between investing for growth versus investing for safety and cash flow. Studies have shown that this decision explains over 90% of the difference in results from one portfolio to the next.* Diversification of risk is another example of a sound practice for any investor – personal or institutional.
Educating yourself about key nonprofit principles
Overall, a better understanding of your nonprofit’s specific needs, goals, and resources will help you serve as a more effective committee member. With that understanding in mind, we’d like to introduce some important concepts to consider as you serve in your critical role with your nonprofit. In an upcoming series of blog posts, we’ll touch on each of the following principles in greater detail:
- The Benefits of Having an Endowment: Do We Need One?
- Time Horizon: Support of a Perpetual Mission
- How Your Tax-Exempt Status May Give You Financial Flexibility
- Balancing Your Nonprofit’s Long-Term Growth vs. Short-Term Income Needs
- The Importance of Well-Documented Investment
- Policy Statements & Spending Policies
- Understanding Your Fiduciary Responsibilities and Regulatory Requirements
Of course, each organization and committee member will have to evaluate these concepts in light of their nonprofit’s unique characteristics. However, just by exploring these topics, you’ll be on your way to becoming a more thoughtful and engaged nonprofit investor. Even more important, you’ll be better equipped to help to secure and improve your organizations’ future impact.
Stay tuned. In subsequent blog posts we’ll explore these topics in greater depth. In particular, we’ll highlight what makes an endowment different from other investment pools and what nonprofits can do to optimize this critically important asset.
*Determinants of Portfolio Performance, Financial Analysts Journal, July/August 1986, Vol. 42, No. 4: 39-44. Gary P. Brinson, L. Randolph Hood, and Gilbert L. Beebower
Important disclosure information
Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.
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This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.
RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.