What’s good investment advice for you as an individual might actually be terrible advice for your nonprofit!  If you’re managing your organization’s operating reserves, these should be your top 4 priorities, in order of importance. 

     One of my biggest wins in 2024 was the amount of interest income my clients were able to earn through their cash management strategies.  Not every year offers the opportunities that this one did, due to the higher interest rate environement – but I’m thankful they trusted me to spot the possibilities and not miss the opportunity for more money to fund their missions!

I like to think of asset management this way: 

“Manage what you currently have, so that you will be ready for what you want to have.” 

     If you’ve been entrusted with resources, should you store them away where they will sit stagnantly and never grow? Or should you actively manage them in a way that intentionally leads to growth and multiplication? 

     This question reminds me of the parable of the talents found in Matthew 25 – some buried, some squandered and some multiplied what they had been entrusted with!

     With that principle in mind, here’s the top 4 criteria that every nonprofit should prioritize when stewarding operating reserves and making investment decisions. 

Investment Priority #1: Safety

     Safety should be the largest priority when making nonprofit investment decisions. You should be asking questions like:

• Are these funds safe?  In the case of operating reserves, FDIC insured funds are my recommendation!
• In the case of other types of funds (endowment or long-term capital funds) there are other considerations I won’t go into today.

Investment Priority #2: Liquidity

     Liquidity describes the availability of the funds and how quickly they can be accessed. Be sure to consider:

• How quickly can these funds be accessed in an emergency situation? 
• Are there any terms that would prevent us from accessing these funds at any given time? 
• Will we face any potential penalties if we have to access these funds sooner than anticipated? 

Investment Priority #3: Diversity

     Diversity can be summed up by the old adage “Don’t put all your eggs in one basket.” The reason we all still know this phrase (whether we have chickens or not) is because it really is true! Spreading out your assets is a simple, but wise, investment principle. This might look like:

• Spreading your cash around different banks to stay below the FDIC insurance limit of $250,000 per institution (not per account)
• Staggering maturity dates
• Using a variety of investment types

Investment Priority #4: Yield

     The lowest nonprofit investment priority should be the yield, also known as the interest rate or the rate of return. That means yield should actually be the very last factor in your decision, only after the first three priorities have narrowed down your options. Like I said, this is vastly different from personal investing, where you decide what level of risk you’re comfortable with and might be much more aggressive in your investments in order to achieve the highest yield. 

     While these four priorities serve as general guidance to point you toward healthy investment decisions for your nonprofit, there’s actually a very specific law addressing this exact topic called the “Uniform Prudent Management of Institutional Funds Act” This law provides guidance on investment decisions and endowment expenditures for nonprofits and charitable organizations. I cover this law and the specific investment requirements for nonprofits in much greater detail in my upcoming signature A-Z master course called The Financially Thriving Nonprofit, which launches this month!  

     If investment decisions like these are a little overwhelming or you just want to build a solid base of understanding for your board about all the rules specific to nonprofit finance, I’m so excited to make my signature A-to- Z master class, The Financially Thriving Nonprofit available to you! 

JOIN OUR WEBINAR TODAY!!!  

February 6th, 2025 at 10:00 AM Central

Join the conversation by registering HERE right now! 

And if you missed the webinar, it’s not too late to still join the Financially Thriving Nonprofit master course! Learn more HERE!