While there are many approaches to consider when it comes to financial planning—from tapping into giving trends to hiring a financial expert—we'll focus on one tactic that should be in every nonprofit's toolkit: nonprofit investing.
Investing is a key aspect of managing your nonprofit’s reserve funds and achieving financial sustainability. In this guide, we’ll explain why investing is so important and how to get started.
Why should you invest your nonprofit’s reserve funds?
It’s understandable that some nonprofits feel hesitant to invest the money they have in reserve. However, there are plenty of reasons why it’s a smart financial decision to do so. A low-risk investment strategy can help you:
- Save for the long term. Often, the goal of a nonprofit’s investment account is simply to grow your rainy day reserves without any immediate plans to spend them. Strategically investing your reserve funds can help you grow them over time and beat inflation.
- Build other assets. In addition to growing your savings, you might also invest to grow your reserves so you can pay for a specific capital project or new program.
- Court large gifts and grants. An investment portfolio can help prove your organization’s financial health to major donors and funders by showing that you have a plan for accomplishing your long-term vision. Additionally, investment accounts often make it easier for your nonprofit to accept large non-cash donations.
Ultimately, there isn’t just one correct reason to invest your nonprofit’s reserve funds. Likely, your specific goals and approach will vary according to your timeline, risk tolerance, and existing assets. Nevertheless, there are certain steps you can take to increase the impact of your investment and support long-term growth.
How to start investing strategically
When you’re ready to start investing and improving your nonprofit’s cash reserve management, follow these steps:
1. Open a brokerage account
Brokerage accounts are a type of financial account that allows your nonprofit to invest funds, accept stock donations, and more. According to Infinite Giving’s nonprofit brokerage account guide, these accounts can also dramatically increase your organization’s FDIC coverage—meaning that if your bank fails, more of your nonprofit’s funds will be protected by the U.S. government.
While a traditional bank account only covers up to $250,000, for example, a brokerage account that uses a sweep program can help you access FDIC coverage for up to $5 million.
To open a brokerage account and access this additional coverage, you have a few options. You can open an account with a traditional investment firm, bank, or advisor, but these institutions may not understand or even offer accounts for nonprofits.
Research the policies and offerings of each financial institution you consider to make sure they work with tax-except organizations. Or, partner with a nonprofit investment advisor who can handle the entire process and open a brokerage account for you.
2. Work with a nonprofit investment advisor
Even if you open your brokerage account through another bank or firm, a nonprofit investment advisor can be a valuable resource throughout your investing journey. These experts can help you:
- Set goals for your nonprofit’s financial management and investment strategy. For example, if you’re fundraising for an upcoming capital project, you might be more risk-averse than a nonprofit without a tight fundraising deadline. Your advisor can help you choose low-risk, conservative portfolios that align with your current priorities.
- Create an Investment Policy Statement (IPS). A well-crafted investment policy will help give you clear direction, avoid confusion, create continuity between teams, and effectively implement your investment strategies. A qualified investment advisor will create this document for you with the input of key stakeholders like your board, executive director, and other staff members.
- Transparently manage and report on your investment portfolios. Similar to managing a grant, it’s important to consistently monitor your investments and report on their progress to your stakeholders. Your investment advisor can streamline this process by providing you with quarterly board reports, monthly statements, and a dashboard you can access at any time.
Plus, compared to traditional big banks and wealth advisors, nonprofit investment advisors generally offer lower associated fees and higher transparency and access to your investments.
3. Plan to accept non-cash donations
As you work with your advisor to invest in ways that align with your goals, outline plans to shore up those investments with large, non-cash donations.
Your brokerage account enables you to accept stock gifts, but don’t stop there. Many wealthy donors prefer to make non-cash donations since they offer additional tax benefits, meaning they’ll often give much more than if they were simply writing you a check. Thus, your ability to accept these gifts can make a major difference in your financial future.
Historically, most non-cash donations have gone to large nonprofits with the resources to process them manually. But today, these donations are available to any nonprofit with an investment account. Open the door for these gifts by adding these popular non-cash donation options to your giving page:
- Stocks
- Cryptocurrency
- Donor-advised fund (DAF) grants
- Micro-endowments
As you’re updating your donation page, don’t forget to highlight other impactful donation methods like matching gifts. According to statistics from 360MatchPro, an estimated $4 to $7 billion in matching gift funds go unclaimed every year. By taking steps to claim those matching gifts, you’ll earn additional donations and substantial investment revenue.
While you earn new donations, your investments will be constantly working in the background, strategically growing your nonprofit’s reserve funds for the future.
About the Author
Karen Houghton is the CEO and Founder of Infinite Giving, an automated investment platform bringing a better investing experience to nonprofits. Previously Karen served as the Vice President of Atlanta Tech Village and a Venture Partner with Atlanta Ventures. Karen has been the recipient of the Women In Technology's Woman of the Year Award and ATP's Impact Award in 2019, Berry College's Distinguished Alumni Entrepreneurial Spirit Award in 2020, and has been recognized as one of Salesforce’s 10 Small Business Women Who Inspire.
Her experiences in the tech, venture, and nonprofit worlds have helped her impact thousands of lives for good through job creation, funds raised, and increased opportunity.