is your investment policy ready for 2026?
As you prepare for year-end and begin shaping your organization’s investment strategy for 2026, navigating shifting economic conditions, changing interest rates, and evolving board priorities can feel overwhelming. To help address these challenges, Raffa Investment Advisers’ Chief Investment Officer, Mark Murphy, CFA, was recently a guest on a Strategic Association Solutions LinkedIn Live Q&A session, where he answered some of the most common questions nonprofit leaders are facing today as it relates to their investments. Several of those questions and Mark’s answers are shared below. We hope this information supports your efforts as you review and strengthen your organization’s investment program for the year ahead.
Markets and The Economy
1. What are major market drivers as we head into the end of the year?
Several forces are shaping the markets as we approach 2026. Inflation trends, employment conditions, Federal Reserve policy expectations, corporate earnings, and consumer spending continue to influence overall market behavior. Markets have been especially sensitive to signs of slowing economic growth or lingering inflation, since both can shift expectations around future interest rates. Geopolitical developments and trade-policy uncertainty also contribute to short-term volatility. It is helpful to remember that these factors often affect day-to-day movement, even when the long-term economic outlook remains steady.
2. How do rising interest rates change the way nonprofits should think about fixed income and cash holdings?
Higher interest rates can make cash and bonds more appealing and create a healthier environment for fixed income overall. Short-term holdings may now generate meaningful income, while intermediate-term bonds offer strong yields and the potential for price gains if rates decline.
We recommend that nonprofits review their checking account balances to see if there’s an opportunity to earn more yield. The first step to investing is getting cash out of your checking account and putting those dollars to work in Money Market Funds, Treasury Bills, CDs, and Savings Accounts to safely take advantage of higher yields. We recommend keeping 1-2 months of expenses in your checking account and sweeping any excess into a higher yielding, liquid alternative.
3. What’s the best way to protect our portfolio from market downturns or volatility?
Protection comes from diversification, disciplined asset allocation, and maintaining appropriate levels of investment reserves. Trying to sidestep volatility usually adds risk. Staying invested and rebalancing regularly helps maintain long-term stability. Within equities, global diversification can reduce concentration risk. With international stocks currently at lower valuations than U.S. stocks, adding exposure abroad and reducing overweight positions in U.S. equities can help manage volatility. Within U.S. markets, shifting some exposure from large-cap stocks toward mid-cap and small-cap stocks can further diversify the portfolio. Concentration in a few large companies increases risk. On the bond side, prioritizing credit quality is key. High-quality bonds tend to preserve value during periods of market stress and provide stability when equities decline.
The good news is that nonprofit executives and Board members have all the control they need to protect their investments through their investment policy. Requiring downside protection through policy language around diversification, fixed income credit quality and maturity, and permitted/prohibited investments is crucial. Raffa regularly assists clients in crafting such language to help set adequate guardrails in place.
Schedule a consultation with one of our team members if you need assistance updating your policy.
4. How can a disciplined rebalancing approach help us stay on track through market ups and downs?
Rebalancing (i.e. making trades to bring your portfolio back in line with its target asset allocation) forces consistency. By selling assets that have appreciated and buying those that have lagged, organizations naturally buy low and sell high. This keeps risk exposure aligned with investment policy guidelines and reduces emotional decision-making. A disciplined rebalancing process can significantly improve long-term outcomes, especially during volatile periods.
5. How does the Federal Reserve impact my investments?
The Federal Reserve influences interest rates, borrowing costs, inflation, and overall economic conditions. These factors affect stock, bond, and cash returns. Because of this, markets often react immediately to Federal Reserve announcements and to expectations about future policy changes.
6. Is now a good time for nonprofits to start investing, or should we wait for markets to “settle down?"
Markets rarely feel calm in the moment. Waiting for perfect conditions often results in missing meaningful returns. A more effective approach is to align investments with the timing of expected cash flows. For funds needed within five years, focus on safer investment vehicles. For funds not needed for five or more years, long-term investing can help weather volatility and support growth. Additionally, gradual investing, guided by a clear investment policy, allows organizations to build discipline and consistency. Over time, consistency is often far more influential than timing.
Investment Policy
7. What’s the biggest mistake nonprofits make when setting up an investment policy?
The most common mistake is creating an investment policy that is too broad or lacks clear guidance. A strong policy should clearly define risk tolerance, target asset allocations, time horizons, spending expectations, rebalancing processes, and oversight responsibilities. A well-designed policy reduces uncertainty, supports fiduciary consistency, and removes emotional bias from investment decisions.
8. How do we balance liquidity needs with the goal of earning a reasonable return?
Segmenting assets by time horizon is often an effective approach. We often recommend that nonprofits create different portfolios based on different time horizons and investing objectives. Short-term reserves provide support for ongoing operations, intermediate-term funds can be invested for specific initiatives, and long-term reserves can focus on growth. This method can help maintain adequate liquidity while allowing longer-term assets to pursue higher returns. Each portfolio should have its own section in your investment policy speaking to its purpose, time horizon, risk tolerance, spending expectations, etc.
9. Should our investment policy include ESG or mission-aligned investing?
This decision depends on your organization’s values and mission. Environmental, Social, and Governance (ESG) considerations can be integrated into your investment program without sacrificing diversification or long-term performance. Ensure your values are clearly defined within your policy to avoid confusion or unintended restrictions. The goal is alignment, not political positioning, and any approach should remain consistent with your fiduciary responsibility. Clarifying organizational values before applying ESG screens is an important first step. Be aware that ESG strategies may introduce performance deviations over shorter term periods when compared to broad market benchmarks.
For additional information on values-based investing, check out these articles:
10. Should nonprofits consider investing in alternatives like private equity or real estate?
Alternatives can offer diversification benefits for large nonprofits with significant assets and long time horizons. However, they introduce complexity, higher fees, and reduced liquidity. Most nonprofits can achieve their goals with well-constructed stock and bond portfolios. Alternatives should generally only be considered when governance, resources, and risk tolerance support their use.
11. Should cryptocurrency be considered for nonprofit investment portfolios?
Cryptocurrency remains highly volatile, difficult to value, and unpredictable. For most mission-driven organizations, it is not recommended due to the associated risk. However, nonprofits may choose to accept crypto donations with a policy to quickly convert them to lower risk.
12. How often should a nonprofit review or rebalance its investment portfolio?
We recommend reviewing portfolios monthly and rebalancing when allocations drift meaningfully from targets. A drift-based rebalancing policy provides structure, keeps risk exposure consistent, and helps avoid emotional decision-making during periods of market stress.
Conclusion
As nonprofits look ahead to 2026, thoughtful planning, disciplined investment processes, and a clear investment policy will be essential. The market environment continues to evolve, but the principles of good stewardship remain constant: understand your time horizon, maintain appropriate diversification, rebalance consistently, and align decisions with your long-term mission. With a clear policy and a disciplined approach, your organization can navigate uncertainty and ensure its investments continue to support its goals for years to come.
If you would like help refining your investment policy or reviewing your asset allocation, our team is here to support you.
Schedule a complimentary consultation with a Raffa Investment Advisers team member.
Disclosures:
Raffa actively leverages Artificial Intelligence (“AI”) and Large Language Models (“LLMs”) within our operations. The use of such technologies, focusing on the safeguard of non-public personal information (“NPPI”), protecting of trade secrets, verification of information accuracy, and other pertinent compliance considerations, is outlined in Raffa’s Compliance Manual and acknowledged by Raffa staff. All viewpoints and final content created was reviewed and approved by the Raffa team to verify accuracy, perspective, and compliance with our marketing guidelines.
For informational purposes only. All economic and performance information is historical and not indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this material, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. You should not assume that any discussion or information provided here serves as the receipt of, or as a substitute for, personalized investment advice from Raffa Investment Advisers or any other investment professional. To the extent that you have any questions regarding the applicability of any specific issue discussed to your individual situation, you are encouraged to consult with Raffa Investment Advisers.
All information, is obtained from sources believed to be reliable, but Raffa Investment Advisers’ does not guarantee its reliability. Information pertaining to Raffa Investment Advisers’ advisory operations, services, and fees is set forth in Raffa Investment Advisers current disclosure statement, a copy of which is available from Raffa Investment Advisors upon request.