A sample nonprofit investment policy provides guidelines on how a nonprofit organization should manage its financial assets and investments. As nonprofits rely on donations and grants, having an appropriate investment policy is crucial to preserve capital, earn returns, and use funds effectively for the organization’s charitable mission. The policy should cover aspects like investment objectives, risk tolerance, asset allocation, spending rates, rebalancing rules, oversight procedures, and reporting requirements. By following prudent investment principles and developing an investment policy statement, a nonprofit’s board can fulfill its fiduciary duty when managing funds.
Defining investment time horizon and risk tolerance level
The investment policy should define the nonprofit’s time horizon for investments based on projected liquidity needs and ability to withstand volatility. This helps determine an appropriate risk level and asset allocation. For example, an operating reserve fund may need one year of spending in liquid assets versus an endowment fund with a perpetual time horizon.
Setting an appropriate asset allocation
The policy provides guidance on asset classes the nonprofit can invest in, what percentage can be allocated to equities, fixed income, cash, etc. This should align with projected spending needs and the organization’s risk tolerance. More equities may provide higher long term returns but also more short term volatility.
Establishing rebalancing procedures
As asset class returns vary over time, the portfolio asset allocation will shift. Rebalancing rules in the investment policy provide discipline to sell assets that became overweighted to buy underweighted assets. This maintains the target risk level.
Defining oversight responsibilities
The policy should state which individuals or board committees are responsible for making and overseeing investment decisions. Responsibilities like selecting investment advisors/managers, monitoring performance, and defining procedures should be clearly assigned.
Requiring periodic reporting
To ensure proper oversight and accountability, the investment policy requires staff and advisors to provide periodic performance reports to the board or designated committees. This reporting allows the nonprofit governance to fulfill monitoring duties.
In summary, a well-constructed nonprofit investment policy provides important guidance to make appropriate financial decisions and responsibly steward assets. By defining objectives, risk parameters, asset allocation, procedures, and oversight duties, a policy sets the foundation for effective long term nonprofit investing.