As a board member, you have a difficult task; you need to ensure that your organization has the money, talent, and expertise, along with the resources needed to fund the organization's mission, while doing so in ever-changing markets and regulatory environments.

If your organization relies heavily on your investment program to meet spending needs, it is essential for the organization’s board to understand how to manage this program effectively.

Economic forecasters expect the inflation-adjusted growth for a portfolio with 60% stocks and 40% bonds to drop to 2.8% over the next ten years, a level of returns that would make sustaining a 5% spending rate unsustainable.

In other words, trustees in nonprofit organizations must think differently about how to achieve return goals, and thus, if market return expectations decline, there are still ways to improve portfolio yields and thus achieve your long-term goals.

Here, my colleagues and I suggest 5 strategies that trustees in nonprofit organizations should adopt to move forward.

1. Manage your investment portfolio dynamically:

Dynamically managing means actively monitoring the financial movements in your investment portfolio on a daily basis, seizing short-term market opportunities, adjusting as the market demands, and helping to mitigate risks. Dynamic management is crucial in a low-yield environment and is designed to help ensure that short-term fluctuations do not disrupt long-term return goals.

In this regard, investors in such an environment should consider all methods available to ensure that spending goals can be met, which means incorporating investment strategies that may provide additional yields, and mitigating organizational risks, as well as ensuring that the investment portfolio program is implemented effectively.

2. Consider a spending policy:

Rationalizing your nonprofit's spending policy, balancing the needs of current beneficiaries with future beneficiaries, can significantly impact the amount of returns you need to provide for your nonprofit's investment program.

3. Manage liquidity:

Many nonprofits discovered that liquidity had a significant impact on their ability to achieve their spending goals during the global financial crisis of 2008-2009, and while we believe that illiquid assets can help you achieve spending goals over time, their management must be rationalized to align with your organizational objectives.

4. Holistic risk management:

Investment risks are among the risks faced by nonprofit organizations; in fact, looking at the risks that threaten your organization holistically, rather than individually, better equips your organization to manage any potential surprises.

It's also important to have a risk management plan that includes the risks that the organization may face, such as investment risks, credit risks or governance risks, as well as operational risks, structural risks, and market risks.

5. Define your organization’s time horizon:

Whether or not your organization desires to continue indefinitely will influence how you address other strategies, including how you manage your investment program. You may want your nonprofit to stay in the market as long as possible or prioritize spending now and focus on the duration in the market later.

Over time, you may prefer to make the spending point a secondary matter within the organization, and in either case, all board members, the investment committee, and staff should agree upon these points. Remember that this decision is not fixed and should be adjusted as your organization evolves and its goals change.

Having a solid understanding of these strategies and defining your nonprofit board's willingness to prioritize the organization is crucial for effectively managing your investment program; it’s important to discuss these strategies at the credit level and define high-level decisions in the investment policy statement.

Additionally, the investment policy statement serves as the guiding document for your organization's investment program, providing long-term strategic guidance on how to align your mission and goals with your nonprofit policies; it also outlines the responsibilities of various stakeholders involved in managing your investment program, moreover, this statement helps maintain your nonprofit vision over the long term.

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