How Boards Should Invest Nonprofit Money That Isn’t Needed for Immediate Operations

Nonprofits commonly treat cash as the safest option, but holding money beyond near-term needs in low-yield accounts can erode purchasing power and reduce mission impact over time. The decision to keep or invest funds should be intentional and tied to what each dollar is meant to accomplish.

Keeping a healthy operating reserve is necessary. Boards commonly set reserves equal to three, six or even 12 months of operating expenses. Those funds should remain liquid and easily accessible so payroll and programs aren't disrupted during shortfalls or unexpected expenses.

If you're holding all reserve cash in a traditional savings account, consider whether higher-yield liquid alternatives such as money market accounts could produce better returns without sacrificing access.

Name the purpose of each pool of money

The pivotal step is naming why money exists. Common categories include:

• Near-term operating reserves (immediate liquidity needs).
• Board-designated or rainy-day funds (no donor restriction but a deliberate hold-back).
• Restricted funds (donor-restricted to specific uses or timing).
• Long-term endowment or mission-support funds (intended to support operations decades out).

Once funds are separated by purpose and time horizon, the appropriate investment approach becomes clearer. Money you might need within a year calls for a different allocation than funds meant to support the mission in 20 years.

Match risk and allocation to time horizon

Don't rely on a single blended allocation for all assets. A 60/40 stocks-to-bonds split can be a reasonable starting point, but applying one allocation across reserves, board-designated funds and endowments treats every dollar as if it has the same purpose.

Instead, set allocation rules tied to each fund's purpose. Short horizons favor liquidity and capital preservation. Long horizons can tolerate more volatility in exchange for higher expected long-term returns.

Create repeatable governance and delegation

Boards are accountable for financial stewardship but don't have to manage daily investment tasks. Put a written investment policy statement (IPS) and a spending policy in place. These documents should:

• Define objectives and acceptable risk for each fund category.
• Set target allocations and rebalancing rules.
• Clarify delegation of day-to-day administration to staff or an external advisor while keeping oversight.

Turn investment decisions into a process rather than a one-time choice.

Understand the real cost of sitting in cash

Cash's cost often doesn't appear on financial statements. The article provides a hypothetical comparison: $1 million invested over 10 years in a diversified portfolio tracking the S&P 500 (net 1% advisory fee) would have grown to roughly $3.65 million by the end of 2025, while the same $1 million held in cash and earning typical savings or money market yields would have grown to about $1.16 million. That difference illustrates how longer-term funds can lose ground to inflation and missed opportunity.

• Inventory all fund pools and label them by purpose and time horizon.
• Set or update an IPS and a spending policy that reflect those categories.
• Move short-term reserves to higher-yield liquid accounts where appropriate.
• Decide what to delegate to staff or an advisor and document reporting and review cadence.