Inflation is a leading economic indicator that is defined as the decline of purchasing power of the dollar over time. The rise in the general level of prices, often expressed as a percentage, means that our dollar effectively buys less than it did in prior periods. This becomes particularly impactful on nonprofit reserves.
As many of you know, inflation has risen to a whopping 7%. Labor, facility, and capital expenses that you may need down the road are sometimes seeing 10-20% increases. And although the Fed has indicated a steady rising of interest rates to curb inflation, it shows no signs of quickly abating to the central bank's 2% target. Here are 3 ways this impacts nonprofits.
1. Losing buying power.
If your current investment strategy has been savings accounts, money markets, or CDs - you are likely topping out returns between 0.06% and 0.1% average annual returns. That means that despite best intentions, your reserves could be actively losing value. So while it may seem “safe”, it may not be financially savvy.
Nonprofit’s have a responsibility to be good stewards of donor funds and should have an intentional focus on long term capital preservation of their reserves. By preserving your buying power and hedging against inflation, you are guarding your future and reducing the need to constantly bring in greater donations.
2. Increased wages.
Average hourly earnings increased by 4.7 percent last year, according to the Bureau of Labor Statistics. While that’s good news for workers, it presents a challenge to nonprofit employers to keep up or risk losing workers. Unfortunately it likely won’t stop there. The Conference Board, a membership organization for small businesses, projects that trend will continue in 2022, with wages rising another 3.9 percent.
A survey released in December by the National Council of Nonprofits found that 42 percent of nonprofits were struggling with job vacancy rates of 20 percent or more. This rising tide of job vacancies means nonprofits have to have a renewed focus on team retention. Mission driven work helps, but our teams also face inflation and need higher wages to pay for them.
3. Increased pressure on development teams.
Inflation also puts development teams under increasing pressure to bring in more donations to offset rising organizational costs. This may be an undue burden if not shared. Global inflation impacts everyone including donors, so make sure you are providing support and giving them additional tools to be successful.
Consider our free endowment gifting tool that invites donors to create giving legacies while building sustainability for your organization. Start asking for stock gifts instead of just cash, to increase gift amounts from high wealth donors.
Finally, simply moving your funds from a savings account, CD, or money market into a diversified and conservative portfolio of stocks and bonds can hedge against inflation and potentially create income over an extended period of time. There’s a reason donor advised funds, community foundations, National Christian Foundation and even your 401ks invest in the market - it works.
Already investing? Check your fee structure. The difference between 50 basis points and 130 basis points could be thousands of dollars of donor money you should be saving and not putting towards a third party vendor.
Protect your reserves from inflation.
Hedge against inflation by leveraging Infinite Giving, an investment platform for tax exempt entities, that provides fiduciary oversight and diversified and rebalanced portfolios of low cost index funds and ETFs. This gives you complete control and access to your funds while outsourcing investment and fiduciary responsibilities. Choose an investment strategy that focuses on long term capital preservation of your reserves in conservative portfolios that should help you retain buying power for your future needs. Contact us to get started.
Infinite Giving is a Registered Investment Advisor and asset management platform. We help you easily invest reserve funds, create and manage endowments, and receive stock and crypto gifts all in one easy to use platform. Investing isn't easy, we just make it feel that way.