Some of the most important roles in society are served by nonprofit organizations. In the early days, most nonprofit organizations survive in a scarcity mode and operate hand to mouth. But as the mission and donor base grows, many are able to start thinking for the future. And the future requires financial stewardship and long term planning to ensure that the organization's charitable purpose is fulfilled.

According to this Nasdaq post, “taking money and putting it toward longer-term goals like capital spending or a permanent endowment requires prudent investment. In order to take initial seed money and grow it into a substantial nest egg for use toward those longer-term charitable purposes, nonprofits are allowed to invest in stocks, bonds, funds, and other typical investments.” 

Ultimately, many nonprofit organizations choose to invest in stocks and bonds to preserve their capital and earn more money to support their missions and further their charitable purposes. Here are five ways nonprofits can start investing:

1. Big Banks

We have yet to speak to a small to midsize nonprofit investing with a big bank who has had a great experience. Generally speaking, accounts under $10M are not worth the management time for them because nonprofits don't meet the greed index of big banks.

Things to consider: 

  • Well established organizations with name recognition.
  • Traditional industry that requires extensive paperwork. 
  • Long timelines to get things done. 
  • Often pay higher fees to cover their overheard. 
  • Nonprofit investments don't often need to be actively managed.
  • Heavy sales process up front.
  • Middle man between you and your money.
  • Lack of transparency and access.
  • Customer service can be challenging.

2. Wealth Advisors

A 2020 report demonstrated that over a 15-year period, nearly 90% of actively managed investment funds failed to beat the market. According to the Business Insider, just last year “passive funds reached a higher asset total than active funds. This is evidence that most people understand that passive funds are the right place for the bulk of their assets.” Knowing that information, should a nonprofit leverage active management? And why does passive management need a person that requires high fees?  

Things to consider: 

  • Choosing a wealth advisor can become highly political and messy for relationships in nonprofit boards.
  • Actively managed investments often underperform the market.
  • Wealth managers usually have high fees (usually about 1%).
  • Nonprofit investments don't often need to be actively managed.
  • There is a middle man between you and your money.
  • Lack of transparency and access.
  • If you are relying on a board member to manage everything for you - what happens when they leave? Underperform? Don't want fiduciary responsibilities? 
  • Consider potential conflicts of interest.

3. DIY Investing

You can absolutely invest directly through Fidelity or Schwab. It brings you directly into the investment process and cuts down on fees, but it can also be super confusing and comes with great fiduciary responsibilities for nonprofits.

Things to consider: 

  • This is means you have sole fiduciary responsibilities. Do you want fiduciary responsibilities to be entirely in house? It's a big responsibility and one that most nonprofit boards want to avoid taking on in house. 
  • It often reduces advisory fees, but it can be confusing and hard to understand.
  • How do you choose what to invest in? Who creates the portfolio and does the rebalancing? (We advise caution for single stock investments and encourage diversified portfolios for nonprofits.)
  • Can you get the reporting you need?
  • What happens if you underperform? 
  • Consider potential conflicts of interest.
  • Do you have the expertise, time and interest to take this on?
  • Could your time and efforts be leveraged more strategically elsewhere in the organization?

4. Money markets deposit accounts and CDs

These are considered relatively safe investments. While money markets accounts and CDs are a form of investment (mutual funds), they are one of the few that are FDIC insured. But, while they do generate returns, they are so low that your funds may still be actively losing value due to inflation.

Things to consider: 

  • These funds are intended to offer high liquidity.
  • Considered extremely low-risk on the investment spectrum because they are FDIC insured.
  • There are often minimum balance requirements with your bank. 
  • Generates income, but little capital appreciation.
  • They are not suitable as long-term investments.
  • Money markets get an average annual return of .07%, but the inflation rate was 1.2% in 2020 and expected to be 2.4% in 2021.
  • Your funds will likely lose value due to inflation in a money market deposit account or CD.

5. Robo-advising through Infinite Giving

Robo-advisors are a class of financial advisers that leverage modern, financial technology to automate your investment strategy with diversified portfolios of stocks and bonds. Based on passive investing theories and mathematical rules or algorithms, this technology has been around for a decade with a market size of $987 billion as of 2020. Infinite Giving is the only robo-advisor for entity investing and the first one built specifically for nonprofits.

Things to consider:

  • Robo-advisors aim to build wealth gradually over time and mirror the market.
  • We are low cost and save you money.
  • We can provide greater returns than 90+% of active investment advisors.
  • Passive management is a proven investment strategy.
  • Reduced risk through diversified portfolios of ETFs and index funds created specifically for nonprofits. 
  • Brings high transparency and easy access to funds. Log in to review anytime.
  • Simple to use platform that brings all organization investment strategies in one place.
  • Low minimums requirements. Accessible access.
  • Capital preservation.

Infinite Giving is the first robo-advisor that allows entities to invest.

Investing isn’t easy, we just make it seem that way. Before us, only consumers and individuals could use these platforms and benefit from the technology. Businesses and organizations had to use big banks or wealth advisors. We are democratizing investment access for those who can benefit from it the most: nonprofits.

We can help you invest your reserve funds, create and manage endowments, enable donor gifting of micro-endowments and stocks. All in one easy to use place.

Open a free account today. Let’s grow your giving.