By the Donorbox
Any development director worth her salt knows that drumming up donations is only half the battle when it comes to nonprofit fundraising.
Once the money is in the proverbial collection basket, what next?
For one, those hard-earned donation dollars shouldn’t be frittered away on expensive future campaigns with no ROI and lots of administrative overhead.
Beyond this, good stewardship and responsible management of nonprofit fundraising dollars also involves careful saving and investing to maximize the time value of money.
The team at Donorbox put together five investing ideas for nonprofits to help you make the most of and grow your fundraising nest egg so that, in addition to raising funds through your various channels (events, cash, grants, online donations, etc.) you can also increase your capital through risk-managed investments.
One of the biggest mistakes any individual or institution makes financially involves not taking excess money and investing it. One might associate investment with risk, and of course, there is truth to this. But you know what they say: With great risk comes great reward. Consider the proverbial talent hidden under a rock instead of being invested. After ten years, sure, that talent will still be there. But what you can buy with one talent — or in non-Biblical terms, one dollar — is less ten years down the road than it is today.
Why? Because of inflation. The rate of inflation fluctuates year by year, but it stands around 2 to 3 percent on average annually. That means that for every year of positive inflation, the money you store will buy on average 2 to 3 percent less than it did the year before.
The answer to this problem is to choose investment vehicles with returns that at a minimum match the average rate of inflation.
What’s a small nonprofit to do? Major national and global nonprofits may have the means to hire an institutional investor or hedge fund to manage their capital and make investment decisions on their behalf. But what about the one or two-person shop or the growing, mid-size nonprofit?
There are options for you! With careful research and proper diversification, you can minimize risk and make the most of the time value of money, making sure any excess funding you earn doesn’t languish in a no-yield checking account as the rate of inflation grows.
Here are five ideas for how to invest your nonprofit funds responsibly, starting with the lowest risk ideas to the highest.
1. No risk: high yield savings.
At the barest minimum, your nonprofit monies should be stored in high yield savings account with a bank or credit union. These deposit accounts are typically FDIC or NCUA insured, so the risk of loss is almost nil. The returns are lower, but if you do a little online research you can find accounts with attractive interest rates, especially at online-only banks and credit unions. (Need advice on how your nonprofit organization can save more? Read this blog post full of ideas for boosting savings).
2. No risk: bank and credit union CDs.
A step up from high-yield savings account in terms of rates is usually a bank or credit union Certificate of Deposit, AKA a CD. These are “time deposit accounts” with a specific period to maturity during which they can’t really be touched. In other words, if you buy a 12-month CD, you won’t be able to touch that money in most cases for a year without facing a penalty. Still, if you can afford to set the money aside and let it grow, many CDs offer higher interest rates than regular savings accounts. You can also shop for the best rates online to ensure your money is getting a good return.
3. No risk: money market accounts.
This investment tool is another type of higher-yield savings account offered by a financial institution like a bank or credit union. Though there are some specific parameters around what is allowed with an MMA (e.g. minimum balances to maintain, maximum number of withdrawals per month, etc.) an MMA offers more flexibility than a CD and is also FDIC or NCUA insured. Be sure to shop rates before you lock into an account at a website like Nerd Wallet or Bank Rate.
4. Low to medium risk: bonds.
Bonds are a lower risk vehicle for investing in anything from the federal government to municipal governments and corporations. There is a wide array of bonds with different risk levels, so some research is required. Generally, you would want to look for a bond with lower risk of failure and can expect a return of between 2 and 4 percent with such an instrument (slightly higher than a CD or MMA). Nerd Wallet offers a breakdown of how beginners can buy bonds
- Medium to high risk: stock market index fund.
No, we aren’t recommending you speculate on individual stocks. There’s just too much risk in doing this, and even the world’s top speculator Warren Buffet proved that it’s much smarter, safer and more successful to invest in a broad index fund. You will definitely want to understand what you pay to invest in a basket of stocks (there are hundreds of options available from thrift brokers like Vanguard), as there is quite a range. In addition, you will want to look for and compare each fund’s “expense ratio.” This piece of information tells you what you are paying the folks who administer said account. There is quite a range and you definitely do not want to lose your returns to a fund with a high expense ratio. Aim for a ratio under 1 percent. For more helpful information, read this article on how beginners can invest in index funds.
But wait. CAN a nonprofit organization invest in the stock market? Motley Fool says yes. www.fool.com/knowledge-center/can-a-nonprofit-organization-invest-in-stock.aspx Just be careful not to cross the line into doing business, the article says, and make sure your charitable focus is maintained. You should probably also review these investment policies from the National Council of Nonprofits.
Bonus idea: Look for roboadvisor platforms like Wealthfront, Betterment, Fundrise and so on. These platforms let you invest in a variety of stock, bond and real estate funds at your preferred risk tolerance. They also rely on automation to charge the lowest administrative fees on the market today.
By carefully investing, you’ll make sure that they money you worked hard to raise for your nonprofit will be managed responsibly and will have an opportunity to generate proceeds beyond what you can earn from donors and sponsors.
Please note that this article is for informational purposes only and is not intended to be interpreted as investment advice.
About Donorbox
Used by more than 25,000 organizations from 25 countries, Donorbox is a donation platform centered around the fundraising needs of nonprofits. The state-of-the-art, recurring donation plugin can be seamlessly embedded into any website or with a popup widget, allowing nonprofit organizations to accept monthly, recurring donations managed by the donors themselves. View a live example and sign up for free at donorbox.org.
Disclaimer: This content does not necessarily represent the views of IWB.