Beyond the Bottom Line: Financial Stewardship for Nonprofits

By Missy Montgomery, MBA, CAP® – Wealth Management Advisor

Nonprofit organizations are the heart of our communities, driven by purpose, not profit. Whether supporting education, healthcare, the arts, or social services, nonprofits rely on thoughtful financial stewardship to sustain their mission. Strategic investment planning is more than managing assets; it is about aligning financial decisions with values, goals, and long-term impact.

Understanding the Unique Needs of Nonprofits

Nonprofits face a unique balancing act. Their portfolios must support day-to-day operations, future initiatives, donor-restricted funds, and often endowments or legacy gifts. This complexity calls for a tailored approach that considers:

• Mission alignment: Investments should reflect the organization’s values and purpose.
• Time horizon: Some nonprofits need short-term liquidity, while others can invest for the long haul—or a mix of both.
• Risk tolerance: Boards and finance committees must decide how much market fluctuation is acceptable.
• Regulatory and donor constraints: Legal guidelines and donor intentions often shape investment choices.

Building a Purpose-Driven Investment Policy

A strong Investment Policy Statement (IPS) is the foundation of a nonprofit investment strategy. It outlines financial goals, asset allocation, spending policies, performance benchmarks, and fiduciary responsibilities. It also clarifies how decisions are made and who is accountable.

Central Trust Company partners with nonprofit boards and finance committees to develop IPS documents that are both practical and mission-focused. As a community trust company, we value local involvement and collaboration. This approach fosters transparency, consistency, and keeps long-term goals front and center. It also empowers donors to make strategic gifts—such as appreciated assets—that maximize charitable impact.

Creating Opportunities to Reduce Capital Gains

Most nonprofits that qualify under Section 501(c)(3) of the Internal Revenue Code are exempt from federal income and capital gains taxes. This means they can sell appreciated investments without incurring tax liability if the proceeds support their charitable mission. This exemption offers a powerful opportunity to grow assets and fund initiatives more efficiently.

Navigating Market Trends and Spending Policies

In today’s economic climate—marked by market volatility, inflation concerns, and a declining dollar—many nonprofits are revisiting their spending strategies. Establishing a sustainable draw rate, typically between 4–5% annually, helps preserve capital while meeting operational needs.

As funding sources evolve, nonprofits are increasingly open to exploring new investment philosophies. For example:

• Impact investing: Seeks financial returns alongside measurable social outcomes.
• Environmental, Social, and Governance (ESG) investing: Aligns portfolios with organizational values.

These strategies can be powerful, but they require careful evaluation to ensure they meet fiduciary standards and support long-term sustainability.

Partnering for Long-Term Success

Strategic investment planning is an ongoing process that supports a nonprofit’s ability to pursue its mission with confidence and clarity. Regularly reviewing governance structures, capital needs, and market conditions helps organizations stay resilient in changing environments. With thoughtful financial stewardship and guidance from experienced professionals, nonprofits can strengthen their long-term sustainability, ensuring that every financial decision contributes to meaningful, lasting impact.