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Nonprofit Investing Guide: Planning for the Future

Posted Jul 27, 2022 03:49 PM
As a nonprofit leader, you’ve likely spent significant time and energy planning your organization’s long-term programmatic growth. In order to put those plans into action and maximize your impact on the community, you need to take financial literacy seriously and plan for your nonprofit’s financial future.

Of course, there are a range of approaches to consider when it comes to nonprofit financial planning—from building a fundraising strategy to leveraging multichannel marketing. But in this short guide, we'll focus on one tactic that should be in every nonprofit's toolkit: nonprofit investing.

In the nonprofit sector, we need to be more transparent about why investing is so important and what strategies we should follow to guide those investments. Let’s dive in!

Why Should You Invest Your Nonprofit’s Reserves?

Just as there are many ways to practice nonprofit investing, there are a number of reasons for why you should practice it. Infinite Giving’s guide to investing for nonprofits notes the three major reasons nonprofits invest their reserves. An investment strategy can help:

  1. Save for the long-term and hedge risk. Often, the goal of a nonprofit’s investment account is simply to grow your rainy day reserves without any immediate plans to spend them. At the very minimum, while money sitting in a low-interest rate bank account is likely losing value, an investment account can help your fund beat inflation. Then, when the time comes that you need additional funds to cover an unexpected cost, they’re readily available.
  2. Build assets and legitimacy. In addition to growing your savings and hedging against inflation, you might also invest to grow your reserves to pay for a specific capital project or new program.
  3. Court large gifts and grants. Finally, an investment portfolio can help prove your organization’s financial health to major donors and funders. In particular, it can show that you have a strong plan for accomplishing your long-term vision. Additionally, an investment account often makes it easier for your nonprofit to accept large non-cash donations that would otherwise go elsewhere (more on this below!).

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 strategies you can take to increase the impact of your investment and support long-term growth.

How to Make the Most of Your Investment

Whether you’ve been investing your nonprofit’s funds for years or are new to it, consider not only putting the following strategies into action, but also documenting how you’ll use these strategies (along with your policies, procedures, and goals) in a written investment plan. A well-crafted investment plan will help give you clear direction, avoid confusion, create continuity between teams, and effectively implement the following tips.

Determine Your Goals

Having clear goals is crucial to every aspect of a nonprofit’s financial management strategy—especially your investment strategy. In a way, your goals are the foundation of your strategy. Not only will they keep you on track, but they’ll also help you determine exactly how to invest your funds.

For example, a nonprofit fundraising for an upcoming capital project might be more risk-averse than one without a tight fundraising deadline. While the former might place their funds in “safer” portfolios, unable to weather any temporary market changes, the latter might invest in a higher-risk option with an eye on long-term gains.

Thus, don’t wait until after you’ve invested your funds to determine your goals. Begin broad, consider the three main reasons for nonprofit investing in the section above, and then nuance and customize your goals to fit the unique position of your nonprofit. Use these questions to guide the process:

  1. Set a time frame. When or how often do you plan to withdraw from the fund? While you may have a specific date in mind, you may also be investing your fund in perpetuity without any real “end” date.
  2. Identify your ideal return rate. How much do you want to earn on your investment each year?
  3. Define your values. Are there sectors or businesses that you either want to invest in or want to avoid?

While your financial team can certainly help with this step, they shouldn’t do it alone. Rather, collect feedback from across your stakeholders, including your board, executive director, and broader staff team.

Be Open to Nontraditional Donations

We all love a traditional cash donation with no strings attached. But many wealthy donors prefer to make non-cash donations, including:

  • Stocks
  • Cryptocurrency
  • Quasi- and micro-endowments

Because donors can both claim a deduction and avoid paying taxes on any appreciated value of these gifts, 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 huge difference in your financial future.

Historically, non-cash contributions like stocks, endowments, and crypto donations were only available to large nonprofits with the resources to process them. But today, these donations are available to any nonprofit with an investment account.

Even as you go after these non-cash gifts, don’t forget to amplify the impact of your traditional cash donations. Many employers have corporate social responsibility programs that match their employees' donations to eligible nonprofits.

According to matching gift statistics from Double the Donation, an estimated $4 to $7 billion in matching gift funds go unclaimed every year. By not taking steps to claim those matching gifts, you’re missing out not only on the gifts themselves, but also on the substantial investment revenue that money would earn.

Automate Your Investing

Your time is limited. While there will likely always be more to do than there are hours available, investing doesn’t have to be a major time-suck.

What’s the easiest way to streamline your processes while still growing your nonprofit’s funds? Automation! You’re likely already using forms of automation in other areas—whether it’s in your fundraising and donor outreach, website management, or staff payroll.

In many cases, you only need to set things up once, inputting your preferences into the relevant software. Rooted in modern technology and mathematical algorithms, automated investing (also known as passive investing) works in much the same way and tends to outperform its active investing counterparts. Moreover, compared to traditional big banks and wealth advisors, automated investment tools generally offer lower associated fees and risks and higher transparency and access to your investment.

Once you’ve opened an automated investment account for your nonprofit, you’ll follow three simple steps to set it up:

  1. Fund your account. To grow your money, you’ll first need to transfer your reserve funds to your new investment account.
  2. Choose your investment strategy. Depending on your risk tolerance, goals, and investment values, choose from a curated list of diversified portfolios.
  3. Track your results. Watch your funds grow via a digital dashboard and share automatically-generated reports with key stakeholders.

Then, while you focus on the complex and urgent tasks at hand, your automated investment tools are 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.