‍‍Investing often feels daunting for nonprofits, even if you’re just stewarding your reserve funds conservatively so you can weather financial challenges. For instance, what investing strategies should you use? How can you protect your organization’s finances from unnecessary risk and change course if needed? How will you discuss your investments with donors?

You can answer all of these questions with a thorough nonprofit investment policy. This policy will be instrumental in your journey toward financial sustainability, so the sooner you create one, the better. We’ll cover everything you need to know to get started, including:

• What is a Nonprofit Investment Policy Statement (IPS)?
• Do You Need a Nonprofit Investment Policy?
• Core Components of an Investment Policy for Nonprofit Organizations
• Sample Investment Policy Statement for Small Nonprofits
• Nonprofit Investment Policy Checklist
• Other Policies Your Nonprofit Needs

Managing your nonprofit’s funds doesn’t have to be difficult. With sound policies and expert guidance, any organization can steward their finances responsibly.

What is a Nonprofit Investment Policy Statement?

An Investment Policy Statement (IPS) is a document created by your organization and its investment advisor that outlines a roadmap for managing your nonprofit’s investments. It’s essentially an agreement to protect your nonprofit, its board, and its finances. Your IPS defines investing goals, strategies, allocation guidelines, and more to provide clear guidance for investment managers.

Do You Need a Nonprofit Investment Policy?

The short answer is yes, every nonprofit should have an investment policy!

Even if you’re not fully immersed in the world of investing yet, it’s a financially responsible decision to create a nonprofit investment policy anyway. Having an IPS comes with several benefits:

• Helps fulfill your fiduciary responsibility: Your board of directors has a fiduciary responsibility to manage funds in your nonprofit’s best interest. Clearly outlining investing guidelines for board members in an IPS helps them fulfill this role.
• Protects your board and finances: Having an IPS protects board members and your financial assets by clearly explaining how your investing plans work in the organization’s best interests.
• Guides your investing strategies: An IPS outlines your organization’s risk tolerance, investing best practices, and responsibilities in a clear and concise way to guide your investments and ensure they serve organizational goals.
• Encourages you to think long-term: As you clarify financial goals and strategies during the policy creation process, you’ll make long-term cash management plans to help grow your reserves.
• Provides clear instructions for making changes: A good nonprofit investment policy assumes that your priorities will evolve. It includes provisions for updating the policy and explains how to do so responsibly.

We recommend that all nonprofits not only create their own investment policies but also revisit them often, especially with your board. Remember, these policies aren’t just for organizations with multi-million-dollar endowments—if you plan to invest any of your reserve funds in treasury bills, CDs, mutual funds, or other low-risk, highly liquid strategies, you need an IPS.

Core Components of an Investment Policy for Nonprofit Organizations

Now that you understand why they’re important, let’s explore what a nonprofit investment policy actually looks like. Whether you create an IPS on your own or with the help of a registered investment advisor, it should include the following sections:

Delegated Responsibilities

This section clarifies the responsibilities of your board, investment committee, and advisor or fund manager in charge of managing investments. It should specify who the investment committee reports to (typically your board of directors), how they will oversee investing activities, and how often they will review the IPS and make necessary changes.

Investment Goals

A clear statement of your organization’s investing goals and motivations is crucial for guiding your activities. Use straightforward language to explain why your nonprofit plans to invest its funds and how investing will help it further other strategic goals.

For example, here’s a brief goal statement from our sample nonprofit investment policy:

“The Fund is to be invested with the objective of preserving the long-term, real purchasing power of assets while providing a relatively predictable and growing stream of annual distributions in support of the Institution.”

You should also clarify any value-aligned investment strategies in this section. If your organization prioritizes environmental, social, and governance (ESG) investing, for instance, you can specify what that looks like and why it's important to your nonprofit.

Spending Policy

When will your nonprofit spend its investment income? How much can you withdraw from your brokerage account, and how often? How should funding be distributed? Compile the answers to these questions in the spending policy section. You might set a specific distribution amount or use a total-return-based spending policy, meaning that you distribute funds based on net investment income, net realized capital gains, and proceeds from the sale of investments.

A spending policy is more important for endowments, which have a set percentage of the fund that you can spend annually (such as 5%). However, it’s worthwhile to create a general spending policy, too, even if it’s more flexible.

Portfolio Investment Policies

This section details how you’ll invest your nonprofit’s funds. It should include:

• Asset allocation policy and guidelines describe how you’ll allocate assets to maintain a balanced portfolio, including your approach to equities, fixed income, and cash investments. This policy should list acceptable and prohibited equities and securities, along with an allowable range for each (e.g., “Fixed income will make up 30-80% of total portfolio assets”).  
• Diversification policy explains how you will diversify investment assets to avoid undue risk. Here, you can clarify how much of your portfolio must be invested in government-guaranteed securities and whether investments must be above certain investment grades.
• Rebalancing guidelines describe what actions your investment manager will take to achieve the portfolio’s target asset allocation. Outline how often they should review and rebalance the portfolio, and what they should use for rebalancing (incoming cash flow and outgoing money movements).
• Prohibited investment policies are actions your nonprofit and fund manager should never take regarding the portfolio, such as purchasing securities on margin or selling derivative securities for speculation.

Reporting Standards

Your nonprofit’s investment policy should include guidelines and standards for measuring investment performance against your goals. Here, you should restate your goals for equities and fixed income investments and list the benchmarks you’ll use to evaluate them (such as the S&P 500 Index).

Determine how often your investment committee will evaluate the portfolio’s performance, and include instructions for reviewing and updating your IPS based on performance, if needed.

Reserve Expenditures

This section outlines considerations and guidelines for your nonprofit’s reserve fund spending. Ideally, you’ll only spend a limited percentage of your reserve fund annually (such as 5% of the account’s total market value) to preserve its long-term value and growth. Specify limits on reserve expenditures here, along with how often your investment committee will review the fund’s performance.

Donor Restrictions

Finally, include a statement about how all of your investments will comply with relevant donor restrictions. Here’s what this statement might look like:

“In all instances, donor intent shall be respected when decisions are rendered concerning the investment or expenditure of donor-restricted funds. If a donor, in the gift instrument, has directed that appreciation not be spent, [Your Nonprofit’s Name] shall comply with that directive.”

Sample Investment Policy Statement for Small Nonprofits

Clearly, your IPS is an important, multifaceted document. If you don’t want to start writing yours from scratch, use our free template!

There’s no need to spend money on IPS creation or over-complicate the process. Our expert nonprofit investment advisors developed a straightforward template to get you started. In our sample investment policy statement, you’ll find all the essential sections discussed above, plus examples of the industry language and terminology you might use.

This is just a sample nonprofit investment policy and isn’t meant to be used as is. Make sure to adjust your policies in accordance with your unique needs and goals. Or, partner with the advisors at Infinite Giving to get a fully custom, complementary IPS included as part of our service. Our advisors are well-versed in creating investment policies designed to meet the needs of growing nonprofits, and we’re more than happy to discuss what yours could look like.

Nonprofit Investment Policy Checklist

Whether you use our template or work with a professional to create your nonprofit’s investment policy, there are a few things you should verify before you finalize the document. To ensure your IPS aligns with industry standards, use this checklist.

To provide a strong foundation for future cash management, your nonprofit's IPS should have:

• Defined responsibilities for key decision-makers
• Clear investing objectives
• Spending, allocation, and diversification guidelines
• Reporting and success metrics
• Approval from the board of directors
• Been reviewed by a nonprofit investment advisor
• Plan for periodic policy review

If you can check off each of these items, you’re on the right path toward better financial stewardship for your nonprofit!

Other Policies Your Nonprofit Needs

An IPS isn’t the only policy you need to be financially responsible with your organization’s funds. While you’re developing your nonprofit investment policy, consider creating or updating these other important documents:

• Specific endowment policies for true, quasi-, and micro-endowments
• A gift acceptance policy that outlines the type of donations you accept (such as cash, stocks, and in-kind gifts) and how each gift is recorded
• A conflict of interest policy to support your board’s fiduciary responsibility and provide guidelines for managing any conflicts
• Staff compensation policies that explain your organization’s compensation structure, rates, and procedures
• An expense reimbursement policy to clarify which organizational expenses you can reimburse staff and volunteers for

For more information about each of these policies and how to create them, refer to Jitasa’s financial management guide. This resource also covers basic nonprofit financial documents you might want to review, such as your chart of accounts and statement of cash flows.

Additional Resources

Creating an IPS doesn’t have to be hard or time-consuming, especially with the right tools and expertise on your side. Whether you use our free IPS template or partner with the nonprofit investment advisors at Infinite Giving, you’ll be ready to start investing in no time. Still have questions? Don’t hesitate to contact our team.

For more information on all things nonprofit finances, check out these additional resources:

• Free Investment Policy Statement Template. Download our free nonprofit IPS template and easily tailor it to align with your organization’s priorities and investing strategies.
• Working with Nonprofit Investment Advisors: FAQs and Tips. Want professional help? Use the best practices in this guide to evaluate your options for investment advisors and choose one to partner with.
• Nonprofit Asset Management: Basics, Benefits, & Options. Investing is an essential part of managing your organization’s financial assets, but what else should you do to stay on track? Explore this guide to find out.