Scroll Top

Raffa Insights: 2023 Year in Review


Ryan Frydenlund sat down with Dennis Gogarty and Mark Murphy to recap the year for nonprofit & association investors and look into the crystal ball for 2024.

What happened in the market in 2023?

Mark Murphy (Chief Investment Officer):

After a really difficult 2022 where we saw stocks and bonds pull back significantly, 2023 saw a huge rebound.  Stocks performed very well and bonds also bounced back.  Overall, 2023 was a great year for investors.

Was there a particular strategy that worked well for our nonprofit and association clients this year?


The one overarching strategy that worked well this year was staying disciplined to your policy’s target asset allocation.  That really worked wonders in 2023.  After seeing poor performance from stocks and bonds in 2022, low risk investments like treasury bills, very short term CDs, and money market funds looked very appealing to a lot of investors going into 2023.  However, if you shifted longer term dollars into those investments, you would have missed out on the significant bounce back we’ve seen this year.  A broadly diversified portfolio of stocks and bonds well outpaced what treasury bills have yielded this year.  Staying disciplined was key for our clients.

Some other particular areas that performed well this year were international value stocks and international bonds. Large cap growth stocks that had an exposure to artificial intelligence performed very well for our clients as well.

What did we learn this year about how to invest non-profit and association reserves?

Dennis Gogarty (President):

Nonprofits and associations are different – revenue and expenses can be uncertain and so too can be the timing of spending from excess cash and investments. As a result, nonprofits and associations need flexibility while still maximizing yield – that’s hugely important. Mark was speaking mainly on dollars invested for longer term objectives. For immediate or other current budget year objectives, cash was king in 2023 as treasury money market fund yields surpassed 5% and that created a golden opportunity for nonprofits and associations to move dollars out of their checking accounts, or from other short-term fixed income products that might have lower yields or withdrawal penalties, and into products backed by treasuries that have higher yields, more flexibility and the lowest risk possible. We’ve also see stock values climb around the world so continuing to remain disciplined to a more diversified growth focused strategy with those longer term dollars proved wise.

Pivoting to governance and oversight – was there a particular investment policy component that was most beneficial to have this year?


Yes, particularly with respect to the longer term dollars – having target asset allocations for stocks and bonds with clearly defined ranges that trigger rebalancing were beneficial this year and would have drove nonprofits that have those types of policies to buy into those areas that fell the most in 2022 or sell from those areas that has previously increased in value – buying lower and selling higher is exactly the kind of discipline you want to bring to the investment program and the best way to do that is through investment policies.

What were the common mistakes or lessons learned that nonprofits and associations should be aware of going into 2024?


The biggest lesson learned this year how important it is to consistently think about segmentation of cash assets and moving funds among those segments as conditions change – maintaining higher than necessary checking account balances or leaving excess cash in longer term accounts were really the two most common mistakes that we saw. We know that they were a result of a reaction, or a lack of action driven from fears coming out of the 2022 declines. Specifically, it was not taking advantage of those treasury cash yields and moving money out of checking accounts or other lower yielding short-term fixed income products or not investing excess cash that could have been invested for longer term objectives.

Looking to next year, what are going to be the major investment drivers in 2024?


In 2024, market performance is going to be very much dependent on inflation and the Federal Reserve’s reaction to inflation and other economic data. If we see inflation continue to improve and move towards the Fed’s 2% inflation target, we’ll likely see solid performance from stocks and bonds. However, if inflation remains at its elevated level, or accelerates, then the Fed will likely need to raise the Fed funds rate or at minimum, keep it higher for longer than investors are currently expecting. This could very well push the economy into a recession and likely drive stock prices down. We’ll be monitoring this closely and be ready to take action based on whatever the market throws at us.

As a result, is there anything nonprofits and associations need to be thinking about doing right now?


I would continue to focus closely on cash and make sure you’re managing that effectively. Even if we do see short term interest rates come down, they’re still much higher than they have been over the past decade and likely much higher than what your checking account offers – just make sure that you’re managing that tightly. Secondly, ensuring that you have a significant amount of high-quality intermediate term fixed income investments in your longer-term portfolio. If we do see the economy pullback and enter recession, those high credit quality intermediate term bonds likely will hold up well and be a hedge against equities, which would likely be performing poorly at that time. With shorter term bonds, performing better recently, many I think have forgotten that shorter term bonds don’t see the same degree of price appreciation and so as a result, don’t provide as significant of a hedge as intermediate bonds do in times of market crisis.

What do you recommend suggesting for staff members that are starting to think about what to focus their finance or investment committees on in 2024?


I think the most important thing that finance or investment committee members can think about is how to bring discipline and structure to the investment program – what sorts of policies can they think about that will bring structure and discipline moving forward. We think that that starts with a segmentation structure – either timing based, objective-based, project-based – some way to segment the dollars and assigning a target allocation to each of those segments, ideally based on the expected or likely timing of the cash flows from that segment, and then have a clearly defined policy that will support the effort to buy lower and sell higher over time. It’s that kind of consistency and discipline that drive smart decisions that will likely work out very well moving forward.