So, you’ve decided to invest your nonprofit’s endowment or reserve funds. For most nonprofits with a healthy reserve, that’s a wise choice. Investing your nonprofit’s reserve funds helps safeguard against both the expected and unexpected, from routine donor attrition to sudden inflation.
Moreover, when a nonprofit invests its funds in a strategic and efficient way, it creates opportunities to open new programs, attract more donors, and have a more significant impact on the communities it serves.
To help get you started, let’s look at the five steps crucial to starting an investment account for your nonprofit and using it to boost your fundraising:
- Step 1: Establish Investment Policies
- Step 2: Pick Your Investment Solution
- Step 3: Open and Fund a Nonprofit Investment Account
- Step 4: Share Your Giving Link
- Step 5: Accept Cash and Non-Cash Donations
While inflation in 2022 has grown to above 8%, nonprofit reserve funds in savings accounts and money markets average only a 0.06% annual return. In this case, if your supporters’ generous gifts are sitting in a savings account, they’d be actively losing value. Although this may seem worrisome, you can avoid this situation by using a well-planned strategy and comprehensive tools to invest wisely.
Step 1: Establish Investment Policies
While you may be eager to get started growing your funds, jumping in without a plan can lead to frustration, conflict, and headaches down the line. Instead, spend time working with your board members to develop investment policies unique to your nonprofit.
In most cases, you’ll collect these in an investment policy statement that acts as an accessible guide for all things investment-related at your nonprofit.
Your statement should include detailed information about:
- Roles, responsibilities, and limitations of your investment committee, board members, executive director, and other stakeholders
- Goals and objectives of your investment, including the target rate of return and risk allowance
- Types and percentages of different investments (stocks, bonds, etc.) allowed or prohibited
- Ways in which you will assess and report on the performance of your investment strategy
- How, why, and when funds can be added to and withdrawn from the investment account
As your nonprofit’s needs and goals change, your investment strategy should also change. In addition to updating your policies alongside major programmatic or organizational changes, plan to revisit them on an annual basis.
Step 2: Pick Your Investment Solution
A quick Google search will turn up a long list of different nonprofit investment providers. Choosing between so many options can at first feel overwhelming. To narrow things down, we can organize these solutions into five main types. These are:
- Traditional Big Banks. These are well-established organizations with name recognition, but they often have high fees, extensive paperwork, and limited transparency.
- Active Wealth Advisors. While active wealth advisors offer a personalized approach to investing, they often underperform the market and come with high fees.
- DIY. This approach can cut down on fees, but it requires volunteer board members to act as sole fiduciaries and can quickly become confusing and inconsistent with rotating board terms.
- Money Markets, Savings, and Deposit Accounts. Though these are often considered a “safer” investment, returns are so low that, considering inflation, your funds are likely losing value requiring additional fundraising just to keep up.
- Automated Investing. This modern solution uses highly diversified index investing that is more affordable, less complex, and often produces superior results over medium to long time horizons than actively managed portfolios.
While you’re likely eager to start investing your funds, take your time during this step. Each of these solutions comes with a range of benefits and drawbacks.
To find the best fit, make a list of your top investment priorities, do your research, collect recommendations from your nonprofit peers, have conversations with different providers, and compare your options.
Step 3: Open and Fund a Nonprofit Investment Account
We can break this step into two interrelated parts: (1) applying for an investment account and (2) funding your account. Let’s take a look at each:
Apply for an Investment Account
Having picked your nonprofit’s investment solution, it’s time to set up an account. In most cases, you will need to be able to demonstrate your nonprofit’s 501(c)(3) status, share basic information about your nonprofit and its officers, and meet minimum initial fund amounts. Before you apply, make sure you meet these requirements and have documentation to prove it. Doing so will help streamline the process and get your account open sooner.
Fund Your Investment Account
Once your application is approved, you’ll gain access to your account, choose the appropriate investment portfolio according to your investment policies, and transfer your cash reserves.
That’s all there is to it! At this point in the process, you’ve taken the most important steps to grow your giving with nonprofit investing. But don’t stop here. Beyond strategically investing your existing funds to outpace inflation, you can leverage your investment account across your fundraising strategy.
Step 4: Share Your Giving Link
Once you’ve funded your investment account, you can begin to accept a new stream of donations that go directly into your account. While there are several ways to accept these donations—and these will vary based on the tools you use—the easiest way is through a “giving link” unique to your nonprofit’s investment account.
Sharing your giving link with your wider network enables you to quickly reach as many supporters as possible while protecting your nonprofit’s financial security from potential fraud. Plan to advertise your link across the following channels:
- Digital advertisements (i.e., Google Ads)
- Social media posts (e.g., Facebook, LinkedIn, Instagram, Twitter)
- Website retargeting
- Email (newsletters, call-to-actions)
- Direct mail (with a QR code)
A nonprofit’s giving link is easy to share, guides donors through the giving process, and will automatically invest their donations according to your strategy. Thus, this approach both removes the burden of giving from your donors and the burden of reinvesting those donations from your development and financial teams.
Step 5: Accept Cash and Non-Cash Donations
Not only can you grow your fund via your nonprofit investment strategy, but by sharing your giving link, you will also grow it by continuing to accept new donations. In fact, an investment account can open up your fundraising to contributions beyond traditional cash gifts.
Infinite Giving’s Guide to Nonprofit Investing notes that “nonprofits that can accept non-cash assets can appeal to untapped donor audiences and grow up to six times faster than their counterparts.” But what exactly are these non-cash assets? These include:
- Stocks
- Crypto
- Endowments
- Real estate
Thus, use tools for accepting non-cash contributions that make it as easy as possible for donors to quickly gift these assets to your nonprofit, receive confirmation, and avoid having to fill out tedious or sketchy forms. Ultimately, if you’ve put the right tools in place, these cash and non-cash donations will be automatically liquidated and reinvested in investment portfolios according to a predetermined strategy.
Even after you’ve accepted donations and maximized their impact with strategic investments, your work is far from finished. One oft-forgotten but crucial post-investment step is to thank your supporters and show donors continued and ongoing appreciation.
Don’t let this be an afterthought! Without your donors, your investment account would be empty.
While the automatically-sent, personalized thank-you email is both a tried and true method of showing gratitude and is expected from most donors, Bloomerang recommends offering a range of additional ways for donors to remain involved with your organization. For example, if a donor gifts an endowment to your nonprofit, you could send them a link to a portal where they can view how their money is growing and being used.
Whether sending your donors targeted matching gift letters or giving them a peek-behind-the-scenes with an office tour, take active steps to show them how much you value their support. As a result, you’ll ensure they continue to give and help fund your mission throughout their lives.
About the Author
Karen Houghton, CEO and Founder of Infinite Giving
Karen Houghton is the CEO of Infinite Giving, a relationship and technology driven Nonprofit Investment Advisor. Karen leverages her deep nonprofit expertise to bring a modern and curated investment experience to nonprofit organizations all over the US. She advocates for organizational sustainability through better financial management, strategic access to curated investment practices for reduced management fees, and increased asset giving.