Institutional Investing (Non-Profit)

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Nonprofits typically have a “working capital” fund for everyday expenses and an operating reserve for unforeseen costs. While there are various ways to calculate the necessary amount of operating reserves, these funds should generally be liquid, meaning they can be easily converted to cash.

The board of directors holds a fiduciary duty to safeguard the nonprofit’s assets and ensure they are utilized to advance the organization’s mission. A responsible approach for the board might involve investing a portion of the nonprofit’s cash in vehicles such as stocks, bonds, money market funds, CDs, and other financial instruments.

Before investing, the board should establish a clear investment strategy by defining the organization’s investment objectives, assessing its risk tolerance, and creating an investment policy. Funds intended for the long term—such as endowments, board-restricted reserves, and capital campaign funds—are often invested to allow for growth while not in immediate use.

Certain investments may also be designated for specific purposes and should not be tapped for short-term cash flow needs. An investment policy can address these considerations, outlining responsibilities for investment activities, as well as the nonprofit's stance on socially responsible investments, spending policies, cash thresholds, and asset allocation.