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I recently retired as CFO from a $20 million human services agency. We had approximately $1.5 million in reserves that came mostly from bequests and unexpected items like retroactive rate adjustments on state contracts.
We worried that perhaps we shouldn’t be in the securities markets, but with the help of a savvy board treasurer we concluded that it was a necessity to guard against inflation. I think it’s helpful to think about nonprofit investing a bit like retirement investing. Even in retirement, it is not unusual to have IRAs in high quality, diversified stock and bond portfolios.
Our agency put out a request for proposals to area money managers and wound up with a regional company that has a family of mutual funds with varying levels of risk. We put the majority of our money in a high quality fund with an asset allocation of 30% stock and 70% fixed income. The historical rate of return was around 5% – far better than less than 1% for a savings account – and the turnaround time for withdrawals was a couple of days.
We also had an endowment made up of donor-restricted and quasi-endowment funds. Again, with the help of our board, we learned that we could add a portion of our reserves to our endowment assets but had to label that portion “quasi-endowment” since it could be dissolved at any time with board action. Since endowments, by definition, are long-term assets, we invested this money in a less conservative fund with a 50-50 asset allocation.