The power of compounded interest never ceases to amaze me. Invest a dollar today and in 10 years, it could grow to be much more than that. Who knows how much I would have accumulated by now had I started investing the money earned from my first job as a teenager. Fortunately, I am wiser now. My personal “financial policies,” direct my spending, saving, and investment activities and keep me from spending all of my money on things which I’ll regret later.
Small and large nonprofit organizations can benefit from having a deliberate strategy for their own spending and investing. No one can predict what the financial markets will do, but we can keep an eye on our investments and make sure we have policies that guide those investments. Even organizations that need all of their cash for operating, should have written policies that specifically state that assets are to be kept liquid. Nonprofits with sizeable assets, say over $200,000, will want to ensure that the board provides clear directives to the person managing those assets. Written investment polices can help avoid making haphazard decisions that are not in the best interest of the organization, like investing all of your assets in the stock market or buying a parking lot because it seems like a good idea.
But don’t expect to simply adapt any old policies you find off of the internet. The Standards for Excellence® code specifically states, “Organizations should have written financial policies adequate for the size and complexity of their organization governing investment of the organization’s assets…” Your organization’s investment policy should derive from an assessment of the economy and the organization’s current financial situation, taking into consideration your plans for spending down the endowment and the risk you are willing to assume.
Did you know? The Standards for Excellence® program’s educational resource packet, “Finance Policies” discusses the components of an investment policy and includes model investment policies that you can use as a starting point for creating your own policy. The packet is free and available to Standards for Excellence Institute® members. It is available through the members only section of our website. Hard copies are also available upon request.