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A Portfolio As Lovely As A Tree

Will Your Nonprofit’s Finances Stand the Test of Time?

As anyone involved in managing a nonprofit institution can attest, the roles and responsibilities involved in doing so are widely varied, and can be quite complex. Establishing a proper investment strategy for your nonprofit can certainly fall under this “complex” umbrella. However, it’s also one of the most important decisions any nonprofit organization makes.

A nonprofit’s investment choices need to meet numerous objectives, such as: They must be aligned with the organization’s short- and long-term goals, match the amount of risk the nonprofit can handle, and help meet the organization’s ongoing cash-flow needs. That’s a pretty tall order. While many organizations can easily

identify those variables as “needs,” your officers may lack the tools to go any farther. Your board members may need help pinpointing the appropriate risk level needed in your nonprofit’s portfolio, or the amount of endowment required to meet goals and sustain your cash flow and principal for the future. This is where a financial advisor with experience advising nonprofits can be a partner for your organization.

While the “right” investing strategy will vary from one nonprofit to the next, it’s helpful to remember some general principles. Academic research and analysis over the past 60 years*, including what is termed “Modern Portfolio Theory,” indicates that (a) The primary determinant of return and risk in a portfolio is the allocation between equity and debt investments, and (b) An appropriate means of achieving optimal risk-adjusted returns is to hold many different kinds of investments that behave independently of each other (i.e. diversifying, or not putting all your financial eggs in one basket.) Keeping those principles in mind, your leadership team can, with the help of an advisor, determine a tailored asset allocation that works for your organization.

While having a few financially savvy officers is helpful in any organization, an independent financial advisor can take your nonprofit to an entirely different level. For instance, professional advisors have access to modern analytical tools that essentially let them “stress-test” your nonprofit’s likelihood of success or failure (i.e. running out of capital) under varying market conditions, using different asset-allocation strategies. We call this a Financial Sustainability Analysis. This study can help your leadership team answer critical questions you may face over time. Some examples:

• What if our organization’s cash outlays increase x% over the coming x years? Is that sustainable?

• If we must take care of a large lump-sum need, how will our organization’s capital resources be affected down the road?

• Can we reduce our exposure to stock-market risks and still generate enough income to meet our goals and objectives?

These are questions that most nonprofit organizations can’t comfortably answer alone. However, offering education about and strategies for dealing with these uncertainties is what a good financial advisor does every day. To learn more about how RegentAtlantic might be able to help your nonprofit develop a long-term investment strategy, visit our Neighborhood Nonprofit Group webpage, or contact Joe Gazdalski at jgazdalski@regentatlantic.com.

 

 

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. Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request. This article is not a substitute for personalized advice from RegentAtlantic. This information 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.

*Markowitz, H.M. (March 1952). “Portfolio Selection”. The Journal of Finance (1): 77–91.

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.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

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.

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