Investment Policy for Nonprofit Organizations

Ramon de Oliveira

February 20, 2023

Nonprofit Organizations

A robust investment policy statement (IPS) is central to a nonprofit or foundation board’s fiduciary duty to be responsible stewards of its assets. Gleneden frequently works with boards to help create or update IPSs.

An IPS should include the risk tolerance, return objectives, spending objectives and asset allocation guidelines for the portfolio. It should also identify unique circumstances that may require special considerations.

Tax-exempt status

Tax-exempt status enables nonprofits to invest their financial resources in most of the same investments as for-profit businesses, with some limitations. However, there are some rules that must be followed to maintain 501(c)(3) tax-exempt status, such as no private benefit past an insubstantial degree and no insiders (such as board members, directors or key employees).

While a tax-exempt investment policy may include a number of different components, the most important consideration is the ability to protect and grow a nonprofit’s initial invested assets. This allows them to more effectively invest in stock and other securities as a means of earning additional income for their mission.

Non profit investment policy may also address spending policy, cash thresholds, asset allocation and asset management, and other aspects of a nonprofit’s business activities. While these may seem like relatively minor concerns, they can have a significant impact on the effectiveness of the organization’s operations and financial results. If a nonprofit’s investment policy is not working, it’s time to review it and make changes as necessary.


Nonprofit organizations have a responsibility to be transparent about their activities. This helps ensure that the public trusts their organization and understands how they operate.

Transparency also helps to reduce corruption and bribery. It can also protect employees from a company’s actions and hold upper-level staff accountable.

When nonprofits are transparent, it also allows potential investors to make informed decisions about how much to invest in the organization and what kind of returns they can expect. This is especially important for companies that depend on donations or other financial contributions to stay afloat.

A well-written investment policy can help a nonprofit protect itself against legal action and increase its overall return on investments. It should outline general investing goals and objectives, based on the organization’s assets, spending rate, inflation assumptions, and other factors.

Flexibility – Nonprofit Organizations

Flexibility is the ability to move joints and other parts of the body through their full range of motion. It varies between people and depends on their muscle strength, but it can improve your quality of life by increasing movement and decreasing injury.

A nonprofit organization investment policy should help ensure the organization’s portfolio meets its goals and objectives over a given time period. It should also establish a set of operating guidelines and rules for the investment committee to follow as they oversee and monitor the investment program.

The investment policy should include a set of asset-class allocations that contribute to an overall strategy for growth, return enhancement and risk reduction/diversification. The IPS should also outline how these allocations are reviewed and rebalanced on an annual basis or as needed.

Lastly, it should provide liquidity for short-term spending needs and capital rebalances. Ultimately, flexibility helps a nonprofit meet its goals more efficiently and accomplish specific spending projects, such as funding a scholarship or building a new facility.

Independence – Nonprofit Organizations

In the world of nonprofit investment policy, independence means investing in the right way for the right reasons. It’s not about getting rich quick, but about making good decisions now and years from now that will benefit your organization now and for the long term.

Nonprofits have a unique set of goals and objectives for their investments, from protecting their assets during economic downturns or keeping up with donor sentiment to maintaining access to cash in the event of short-term cash flow needs. Developing a solid investment policy statement that aligns with your organization’s mission.  Board’s fiduciary responsibility is an important step towards ensuring that your investments are being managed in the most appropriate way for your mission.

An IPS should include detailed investing objectives. A investment philosophy and strategy and an appropriate time horizon for evaluating performance versus the goals. Additionally, it should document any sustainable or impact investing guidelines that are being applied.