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Note: Links to our free templates are at the bottom of this long guide.
Also note: This is not legal advice

Introduction

Founded in 2017, ��������Ƶ has become the world’s largest open source legal template library, with millions of datapoints that teach the AI what a market-standard non profit investment policy looks like. This allows anyone to draft and customize high quality documents free of charge, without ever having to consult a lawyer.
Creating a sound investment policy is essential for every non-profit organization - helping it make smart decisions and protect its financial integrity. When forming such a policy, risk and return assessment should be top of mind; the level of risk needs to be judged against potential returns and must always be in alignment with the organization’s mission and values. The investment objectives should also be considered: whether short or long-term capital gains; income generation or something else entirely – depending on what best suits the organization’s goals in the medium to long run.
Finally, diversification across different asset classes, countries, currencies and industries helps reduce financial losses from market volatility and downturns - making it key for any successful non-profit investment strategy.
At ��������Ƶ we understand that creating an effective non profit investment policy can often feel overwhelming – so we’ve put together step by step guidance and resources to help you get started today. With our community template library you can easily access high quality legal documents required for your non-profit organisation - without an account or subscription fee - allowing you to quickly customize them according to your specific needs & goals! Read on below for more information on how you can access our community template library today.

Definitions

Investment Policy Statement (IPS): A document that outlines the goals, timeline, acceptable investments, and responsibilities of the investors in an investment portfolio.
Asset Allocation: The process of distributing investments across different asset classes, such as stocks, bonds, and commodities.
Modern Portfolio Theory (MPT): A theory of investing which suggests that investors should diversify their investments across different asset classes in order to minimize risk and maximize returns.
Black-Litterman Model: A mathematical model used to determine the optimal asset allocation of a portfolio.
Active Investment Strategy: A strategy of managing a portfolio that involves actively buying and selling securities.
Passive Investment Strategy: A strategy of managing a portfolio that involves buying and holding a portfolio of pre-selected securities.
Responsible Investing: Investing in companies that adhere to certain environmental, social, and corporate governance standards.
Sustainable Investing: Investing in companies that are committed to sustainability and that are likely to generate long-term returns.

Contents

1. Establishing an Investment Policy Statement
2. Outlining the goals of the investment
3. Setting a timeline for the investment
4. Identifying acceptable investments
5. Documenting the responsibilities of the investors
6. Identifying Investment Objectives
7. Establishing the desired portfolio return
8. Identifying the acceptable level of risk for the portfolio
9. Establishing a diversification strategy
10. Assessing Risk and Return
11. Researching the potential returns for each asset class
12. Identifying the potential risks associated with each asset class
13. Diversifying Investments
14. Establishing a diversified portfolio
15. Identifying the asset classes to include in the portfolio
16. Allocating assets in the portfolio
17. Developing Investment Strategies
18. Identifying the optimal asset allocation
19. Developing a plan to achieve the desired asset allocation
20. Deciding between active and passive investment strategies
21. Setting Investment Limits
22. Establishing a budget for the investment
23. Setting limits on the amount of money invested in each asset class
24. Setting limits on the amount of money invested in each individual security
25. Monitoring Performance
26. Establishing a plan to track the performance of the portfolio
27. Establishing a plan to adjust the portfolio, if needed
28. Developing a Responsible Investing Strategy
29. Researching responsible investment options
30. Developing a plan to incorporate responsible investments into the portfolio
31. Developing a Sustainable Investing Strategy
32. Researching sustainable investment options
33. Developing a plan to incorporate sustainable investments into the portfolio
34. Evaluating the Impact of Investment Decisions
35. Researching the potential impact of the investment decisions
36. Developing a plan to measure the impact of the investment decisions

Get started

Establishing an Investment Policy Statement

• Research and define the objectives of the non-profit organization’s investments
• Develop a timeline for when the investments should be achieved
• Identify the target rate of return for the investments
• Determine acceptable levels of risk and return
• Consider any legal or regulatory requirements that may apply
• Create a written Investment Policy Statement (IPS)
• Once the IPS is written and approved, it should be reviewed annually or after any changes in the organization’s goals
• Check off this step when the IPS is written and approved.

Outlining the goals of the investment

• Establish the risk level of the investments that the non-profit will make, such as the level of volatility and rate of return
• Decide how much of the non-profit’s assets should be invested in each asset class
• Make sure that the investment goals are aligned with the mission and values of the non-profit
• Determine the expected time horizon for the investments
• Set performance benchmarks that the non-profit will use to measure the investments

Once you have outlined the goals of the investment, you can move on to the next step which is setting a timeline for the investment.

Setting a timeline for the investment

• Determine the timeline for the investment. This should be based on the goals outlined in the previous step.
• Establish a time frame for when the investment should begin and when it should end.
• Set a timeline for when the investment should be reviewed and when any adjustments should be made.
• Document the timeline in the investment policy.

How you’ll know when you can check this off your list and move on to the next step:

• When the timeline has been determined and documented in the investment policy, you can move on to the next step.

Identifying acceptable investments

• Analyze your organization’s mission, goals, and values to determine what types of investments are acceptable
• Research and review the types of investments that are available
• Develop criteria and guidelines for acceptable investments
• Review the criteria and guidelines with the organization’s board of directors to ensure they are aligned with the mission and values of the organization
• Once the criteria and guidelines for acceptable investments have been established, you can move on to the next step of documenting the responsibilities of the investors.

Documenting the responsibilities of the investors

• Outline the responsibilities of the investors and make sure all parties involved understand their roles and tasks.
• Create a written document detailing the expectations of all investors, including the board of directors, management, and any other investors.
• Make sure the document clearly outlines the responsibilities of each investor, including the roles and responsibilities, investment decision-making process, and any other relevant information.
• Review the document with all parties involved, and make sure everyone is in agreement.
• Once all parties have signed off on the document, it should be stored in a secure location for reference.

How you’ll know when you can check this off your list and move on to the next step:
Once all investors have signed off on the document, and it has been safely stored, you can move on to the next step: Identifying Investment Objectives.

Identifying Investment Objectives

• Establish the mission and purpose of the non-profit’s investments.
• Consider the non-profit’s current and future financial needs in order to determine the length of the investment horizon.
• Determine what type of returns are desired from the investments.
• Evaluate the non-profit’s risk tolerance and capacity for loss.
• Establish the investment objectives and goals.

When you have identified the investment objectives, you can check this step off your list and move on to the next step.

Establishing the desired portfolio return

• Determine the targeted rate of return for the portfolio, taking into account the expected rate of inflation, the desired rate of return, and other factors.
• Establish a benchmark to help measure the performance of the portfolio, such as a broad market index or the performance of a similar portfolio.
• Review the returns of the fund to determine if the target rate of return is being achieved.
• Once the target rate of return has been established and reviewed, the step can be marked off the list and move on to the next step.

Identifying the acceptable level of risk for the portfolio

• Assess the organization’s risk tolerance by determining the amount of volatility the organization is willing to accept
• Consider the organization’s long-term financial goals and objectives, as well as the board’s attitude towards risk
• Estimate the worst-case financial scenario and decide whether the organization can absorb the losses
• Consider the risk/return trade-off and determine the desired level of return for the investment portfolio
• Determine the acceptable level of risk for the portfolio based on the above-mentioned factors
• When the desired level of risk is established, document it in the Investment Policy Statement
• Check off this step when all of the above have been completed.

Establishing a diversification strategy

• Establish a diversification strategy that best fits the non-profit’s investment policy and acceptable level of risk.
• This strategy should include the types of investments you are willing to accept, the target asset allocations, and the desired range of investments.
• Develop a process to monitor the portfolio and make adjustments when needed to ensure the portfolio remains within the desired risk level and asset allocation.
• When you have developed the diversification strategy and have a process in place to monitor the portfolio, you can check this step off your list and move on to the next step.

Assessing Risk and Return

• Analyze the investment strategy for potential risks associated with each asset class
• Identify the potential return for each asset class, taking into account the associated risk
• Consider the volatility of the asset classes and how that might affect the return and risk
• Estimate the potential return for each asset class against the associated risk
• Consider whether the potential return is commensurate with the risk
• When you have the details of the expected return and associated risk, you can move on to the next step of researching the potential returns for each asset class.

Researching the potential returns for each asset class

• Gather information on the different asset classes such as stocks, bonds, real estate and cash equivalents
• Look at the historical performance of each asset class
• Use online tools such as Morningstar to research the potential returns for each asset class
• Compare the potential returns of each asset class to determine the most suitable investments for your non-profit
• You will know when you can check this off your list when you have identified the potential returns of each asset class and compared them to determine the most suitable investments for your non-profit.

Identifying the potential risks associated with each asset class

• Review the different asset classes (e.g. stocks, bonds, mutual funds, etc.)
• Identify the potential risks associated with each asset class
• Consider both short-term and long-term risks
• Analyze the potential impact of each risk on the investments
• Document the analysis of each risk for future reference

Once you have identified and documented all the potential risks associated with each asset class, you can move on to the next step of diversifying investments.

Diversifying Investments

• Review the list of potential investments that have been identified in the previous step
• Analyze each asset class to determine what percentage will be allocated to each
• Identify which investments will be used to diversify the portfolio
• Establish a mix of investments that will minimize risk while maximizing return
• Monitor the investments regularly to ensure the portfolio stays balanced and diversified

How you’ll know when you can check this off your list and move on to the next step:

• When you have identified the mix of investments you will use to diversify the portfolio and established the percentage of each asset class that will be allocated to each, you can check off this step and move on to the next.

Establishing a diversified portfolio

• Decide on the types of investments that should be included in the portfolio, including cash, stocks, bonds, options, futures, and other investments.
• Determine the percentage of the portfolio that should be allocated to each type of investment.
• Calculate the total value of the portfolio and the amount allocated to each type of investment.
• Identify the specific investments that should be included in each asset class.
• Allocate the portfolio funds to the identified investments.

How you’ll know when you can check this off your list and move on to the next step:

• When the total value of the portfolio and the amount allocated to each type of investment have been calculated, and when the specific investments that should be included in each asset class have been identified and allocated.

Identifying the asset classes to include in the portfolio

• Review the goals of the organization and determine the asset classes that are most appropriate for achieving those objectives
• Consider the expected return and risk of each asset class as well as liquidity needs
• Assess how the asset classes will fit together and how they may interact
• Identify any additional constraints that may be placed on the portfolio
• When you have identified the appropriate asset classes, you can move on to the next step of allocating assets in the portfolio.

Allocating assets in the portfolio

• Determine the percentage of the portfolio to allocate to each asset class as well as the individual investments within those classes
• Take into account the organization’s long-term objectives, risk tolerance, and liquidity needs when making asset allocation decisions
• Make sure allocations reflect the organization’s investment policy and are in line with fiduciary responsibilities
• Rebalance the portfolio as needed to maintain desired allocations
• When the desired asset allocations have been established and the investments in each class have been selected, you can check this step off your list and move on to the next step.

Developing Investment Strategies

• Assess the organization’s goals and objectives to determine what types of investments are suitable
• Develop investment strategies based on the organization’s risk tolerance, goals and objectives
• Identify the types of investments that will be made in the portfolio
• Evaluate the appropriateness of each investment for the organization
• Consider the impact of taxes on the portfolio
• Determine the time horizon for future investments

You can check this step off your list when you have identified the types of investments that will be made in the portfolio and evaluated the appropriateness of each investment for the organization.

Identifying the optimal asset allocation

• Analyze your non-profit’s risk tolerance, return objectives, and liquidity needs
• Research and review asset classes such as stocks, bonds, cash, and alternative investments to decide which are most appropriate for your non-profit
• Research potential asset allocation strategies and determine which is the most appropriate for your non-profit
• Develop a target asset allocation based on your non-profit’s risk tolerance, return objectives, and liquidity needs
• When you have identified the optimal asset allocation for your non-profit, check it off your list and move on to the next step in the guide.

Developing a plan to achieve the desired asset allocation

• Analyze your current investments and determine what needs to be changed to meet the desired asset allocation.
• Develop a plan to invest in the appropriate asset classes to meet the desired asset allocation.
• Decide on the timeline for investing in the desired asset classes.
• Determine what types of investments are appropriate for each asset class.
• Set limits and constraints on investment opportunities.
• Establish a plan to review investments to ensure they continue to meet desired asset allocation.

Once you have developed a plan to achieve the desired asset allocation, you can check this off your list and move on to the next step.

Deciding between active and passive investment strategies

• Research common strategies used by other non-profits to determine which one is the best fit for your organization.
• Consider the costs, time, and resources associated with each strategy, and analyze the potential risk vs. reward.
• Depending on the strategy chosen, research investment products such as mutual funds, ETFs, and individual stocks that may be appropriate.
• Make a list of pros and cons for each strategy and compare them to determine the best fit.

When you can check this off your list:

• Once you have completed your research and made a decision on the best investment strategy for your organization.

Setting Investment Limits

• Establish investment limits for your non-profit, such as maximum risk level, percentage of total assets, and minimum and maximum holding periods.
• Utilize these limits to determine the types of investments that will be permitted.
• Identify the investment types that will not be allowed.
• Create and document an Investment Policy Statement that reflects these investment limits and investment types.
• Once these limits and types are established and documented, you can move on to the next step of establishing a budget for the investment.

Establishing a budget for the investment

• Create a line item budget for each asset class that you plan to invest in
• Estimate the amount of money that you will need to invest in each asset class
• Determine the total amount of money that is available to invest
• Consider the amount of money that will be needed for operating expenses for the non-profit
• Compare the total amount of money available to invest to the total amount of money needed for each asset class
• If the total amount of money available to invest is greater than the total amount of money needed for each asset class, adjust the budget accordingly
• Once you have established a budget for the investment, you can move on to the next step.

Setting limits on the amount of money invested in each asset class

• Decide on the breakdown of the investment portfolio within each asset class
• Determine the percentage of the total investment allocated to each asset class
• Consider the volatility of each asset class and ensure that the percentage allocated to each asset class is appropriate for the non-profit’s goals and risk tolerance
• Consider any restrictions that may be placed on the investment by law or internal guidelines
• Establish a limit on the amount of money that is to be invested in each asset class
• Document the breakdown of the investments within each asset class and the associated limits

Once the limits are set for each asset class, this step can be checked off the list and move on to the next step of setting limits on the amount of money invested in each individual security.

Setting limits on the amount of money invested in each individual security

• Determine the total amount of money available for investments and the portion allocated to each asset class
• Calculate the maximum amount of money to be invested in each individual security based on the total amount allocated to each asset class
• Set a limit on how much money can be invested in each security as a percentage of the total amount allocated to that asset class. This can be determined by looking at the historical performance of the security and its risk/reward profile.
• Monitor the performance of the individual security to ensure it meets the predetermined limits.
• Once you have determined the maximum amount of money for each security and set the limits, the task of setting limits on the amount of money invested in each individual security is complete.

Monitoring Performance

• Calculate the returns on a quarterly basis
• Compare the returns to the performance of a benchmark index
• Establish a process to identify underperforming investments
• Develop a plan to address any issues with the investments, such as selling them or rebalancing the portfolio
• Establish a process to review the overall portfolio performance

Once you have set up a process to monitor the performance of your non-profit’s investments, you can move onto the next step, which is to establish a plan to track the performance of the portfolio.

Establishing a plan to track the performance of the portfolio

• Identify the performance metrics to track (e.g. total return, risk-adjusted return, etc.)
• Establish how often the performance will be tracked (e.g. monthly, quarterly, etc.)
• Determine what types of reports will be used to track performance (e.g. account statements, brokerage statements, etc.)
• Establish who will be responsible for evaluating performance
• Set a timeline for evaluation
• Establish a process for communicating performance results

You can check this off your list and move on to the next step when you have identified the performance metrics, established how often the performance will be tracked, determined what types of reports will be used to track performance, established who will be responsible for evaluating performance, set a timeline for evaluation, and established a process for communicating performance results.

Establishing a plan to adjust the portfolio, if needed

• Set a minimum return rate that the portfolio has to meet, and decide how often it needs to be reviewed.
• Consider investing in index funds, fixed income, and stocks, and determine when and how much you need to adjust the portfolio.
• Set a timeline for when the portfolio should be adjusted, and make sure you have the resources to do so.
• Make sure to document everything, including your decisions and the reasons behind them.
• When you have all the steps in place, you can move on to the next step.

Developing a Responsible Investing Strategy

• Assess the organization’s financial needs and objectives to develop a responsible investment strategy
• Determine the expected return and risk level of the investments
• Identify responsible investment strategies and products that match the organization’s financial needs, objectives, and risk tolerance
• Consider environmental, social, and governance (ESG) factors in making investment decisions
• Review relevant information and research materials on responsible investing
• Make sure that the responsible investment strategy is consistent with the organization’s mission
• Draft an investment policy statement that outlines the organization’s responsible investment strategy

You can check off this step when you have developed a responsible investment strategy, identified responsible investment strategies and products, and drafted an investment policy statement.

Researching responsible investment options

• Investigate various responsible investment options, such as green bonds, ESG funds, and impact investing
• Consider the potential returns, risk profile, and social/environmental impact of each option
• Evaluate the potential costs associated with each option
• Examine other factors such as liquidity, management fees, and available data
• When you have identified the responsible investment options that meet the organization’s criteria, you can move on to the next step of developing a plan to incorporate responsible investments into the portfolio.

Developing a plan to incorporate responsible investments into the portfolio

• Outline your investment objectives, including how they align with the mission of your non-profit
• Identify any potential restrictions or limitations that need to be considered
• Set a timeline for evaluating, selecting and implementing responsible investments
• Engage with stakeholders to determine their expectations and preferences
• Develop a strategy to ensure that the portfolio is consistently monitored and updated
• Once you have developed your plan and timeline, create a written document outlining the plan and timeline
• When you have completed the preparations and written document, you can move on to the next step of developing a sustainable investing strategy.

Developing a Sustainable Investing Strategy

• Identify the organization’s values and goals and determine how they may be incorporated into the investment policy.
• Research and consider the various types of sustainable investments, such as environmental, social, and governance (ESG) investments.
• Identify the criteria for selecting sustainable investments and how these investments will be monitored.
• Consult with a financial advisor or investment manager to discuss the organization’s investment goals and the best type of sustainable investment for its portfolio.
• Create an investment policy statement that sets out the organization’s sustainable investing goals, criteria for selecting investments, as well as how the investments will be monitored.

You’ll know that you’ve completed this step when you have an investment policy statement that has been approved by the organization’s board of directors.

Researching sustainable investment options

• Identify the type of sustainable investments that align with your non-profit organization’s mission and values
• Research different types of sustainable investments and assess their potential risks and rewards
• Consider the impact of sustainable investments and the long-term effects on the environment
• Research the sustainability credentials of different types of investments
• Compare various sustainable investments side by side to determine which is the best fit for your non-profit organization
• When you have identified the sustainable investments that best meet the needs of your non-profit organization, you can check this off your list and move on to the next step.

Developing a plan to incorporate sustainable investments into the portfolio

• Decide which type of investments will be most suitable for your non-profit, such as stocks, bonds, mutual funds, exchange-traded funds (ETFs), and other sustainable investments.
• Research the various options available, such as socially responsible investments and green funds.
• Establish a timeline for when the investments will be made, such as when to buy or sell a security or when to rebalance the portfolio.
• Set objective criteria for selecting investments, such as a minimum return rate or a maximum risk level.
• Develop a plan for monitoring the performance of the investments and for responding to any changes in the markets.
• Create a system for recording and reporting all investment information and transactions.
• Determine the appropriate asset allocation for the portfolio, based on the organization’s goals and risk tolerance.

You will know when you can check this off your list and move on to the next step when you have completed all of the above steps and have a plan in place for incorporating sustainable investments into the non-profit’s portfolio.

Evaluating the Impact of Investment Decisions

• Assess the financial and social impacts of potential investments
• Analyze the short-term and long-term impacts of potential investments
• Consider the potential risks and rewards of each investment
• Compare the impact of investments to the overall mission of the non-profit organization
• Make an informed decision regarding the impact of potential investments

You can check this off your list when you have assessed and analyzed the potential impacts of investments, compared them to the non-profit’s mission, and made an informed decision about the potential impacts.

Researching the potential impact of the investment decisions

• Review the goals and objectives of the non-profit to understand the desired impact of the investment decisions
• Research potential investments and the expected return on investments
• Examine the impact of the investment decisions on the non-profit’s mission and objectives
• Identify any potential negative impacts of the investment decisions
• Develop a plan for monitoring the investments and their impact on the non-profit

When you have completed all the research and identified the potential impacts of the investment decisions, you can check this step off your list and move on to the next step: developing a plan to measure the impact of the investment decisions.

Developing a plan to measure the impact of the investment decisions

• Identify the desired outcomes of the investment decisions
• Set benchmarks for evaluating the success or failure of the investment decisions
• Develop a timeline for measuring the impact of the investment decisions
• Create a system to evaluate investment performance
• Establish a method to track the progress of the investment decisions

When these tasks are completed, you can check this step off your list and move on to the next step of creating a Non-Profit Investment Policy.

FAQ

Q: How should I make sure the investment policy is compliant with UK regulations?

Asked by Alexander on June 12th, 2022.
A: When creating a non-profit investment policy in the UK, you should ensure that it follows the guidance provided by the Financial Conduct Authority (FCA). The FCA is responsible for regulating the financial services industry in the UK, and can provide advice and guidance on any applicable regulations. Additionally, you should familiarise yourself with the Companies Act 2006, which provides an overview of how companies must manage their investment activities. Finally, it is also important to be aware of any industry-specific regulations that may apply to your organisation.

Q: What are the advantages and disadvantages of using a SaaS model for investments?

Asked by Rebecca on August 30th, 2022.
A: The use of a SaaS model for investments offers a number of advantages. Firstly, it allows organisations to access a wide range of financial products without needing to purchase or install any software. Secondly, organisations can benefit from automated processes such as portfolio rebalancing and automated tax reporting. Finally, SaaS models often offer lower transaction costs and improved transparency compared to traditional investing platforms.

The main disadvantage of using a SaaS model for investments is that they can be vulnerable to cyber-attacks due to the increased reliance on technology. Additionally, there is often less control over decisions such as when to buy or sell a security, which can make it difficult for organisations to react quickly in changing market conditions. Finally, SaaS models may also lack the level of personalised advice that can be provided by traditional investing platforms.

Q: What are some recommended guidelines for setting up a non-profit investment policy?

Asked by John on April 3rd, 2022.
A: When setting up a non-profit investment policy it is important to consider both short-term and long-term objectives. Short-term objectives should focus on providing income to support day-to-day operational activities while long-term objectives should focus on building reserves or capitalising investments for future use. Additionally, it is important to ensure that the policy is in compliance with all relevant regulations and laws, such as those issued by the Financial Conduct Authority in the UK or other relevant regulatory authorities depending on jurisdiction. Finally, organisations should review their investment policy regularly and make any necessary changes to ensure they remain compliant and effective in achieving their objectives.

Example dispute

Possible Lawsuits Referencing Non Profit Investment Policy

• A plaintiff might raise a lawsuit against a non profit organization if they have acted in violation of a specific investment policy, such as investing in companies that are in direct violation of the organization’s mission.
• The plaintiff may cite relevant legal documents, such as the non profit’s investment policy, as well as any applicable civil laws which have been broken.
• The plaintiff may be looking for a settlement from the non profit organization, such as a full or partial refund of their donations, or for the non profit to cease investing in companies that are in direct violation of their mission.
• If damages have occurred, the plaintiff may seek to have these damages calculated and compensated.
• The plaintiff may also seek to have the non profit organization’s investment policy revised to ensure it is in compliance with applicable laws and regulations.

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