Nonprofit & Association Reserve and Investment Governance Guide
A detailed guide to reviewing or developing the two policies that govern your nonprofit or association reserves:
your reserve policy and your investment policy statement (IPS).
Strengthening Your Reserve and Investment Governance
Your reserve policy and investment policy statement are central to how your organization governs its reserves. Together they define how much should be held in each pool, how each pool is invested, and how those investments are overseen. Given the role each one plays, clear guidelines that stay current and aligned with your objectives are what allow your board to fulfill its governance responsibilities.
This reserve and investment governance guide covers:
- what belongs in each policy
- how purpose factors into reserve segmentation
- topics to discuss with your board
- how to go about updating your policies
Use the guide to structure a conversation with your board or finance committee, whether you are reviewing policies that have been in place for years or developing them for the first time.
For additional assistance, learn more about our sample policies:
Sample Reserve Policy | Sample Investment Policy Statement
Reserve & Investment Policy Considerations Covered in this Guide
Segmentation Strategy
Understand the importance of segmenting your reserves, and the role purpose plays in segmentation. Learn about different reserve segments you can consider and the role each plays in an overall strategy.
Key Details to Include
Review a detailed list of the information that is often helpful to consider including in both your reserve policy and your investment policy statement. This information is broken down section by section.
Board Discussions
See a list of topics that are often helpful to include in board discussions when reviewing and updating your policies. Topics include confirming objectives, benchmark alignment, roles and responsibilities, and more.
Policy Review Process
Understand next steps as it applies to strengthening your policies, including the order in which you should update your policies and the frequency at which they should be reviewed or updated.
Reserve & Investment Governance Resources and Templates
Educational Articles and Guides
- Investment Policy Statement Best Practices for Nonprofits and Associations
Whether you are building a policy from scratch or strengthening the one you have, this article walks through the essentials: why it matters, who should build it, how it connects to your reserve policy, what to include and what to leave out, and how to adopt, govern from, and maintain it. - How to Segment Your Nonprofit’s Investment Reserves and Create a Reserve Policy
This article explains the role purpose plays in reserve segmentation, including the difference including purpose makes in your investment approach. Additionally, it discusses how to turn your segmentation and strategy into a reserve policy your board can adopt and maintain. - Stability Reserves vs. Strategic Reserves: Defining Your Nonprofits Long-Term Reserves by Purpose
This article covers the purpose-driven reserves structure we use to help boards align each reserve with its intended purpose, with a focus on reserves tied to long-term strategic initiatives and stability. - Is Your Investment Benchmark Doing Its Job? A Guide for Nonprofits and Associations
A carefully-selected benchmark, consistently applied, helps separate market-driven results from the impact of the portfolio’s strategy, asset allocation, and manager decisions. This article discusses how to select benchmarks, examples of commonly used benchmarks, and how to use benchmarks to monitor performance over time. - Nonprofit and Association Reserves: Are You Where You Should Be?
How do you determine how much to hold in reserves? Peer benchmarking provides a credible frame of reference, but the right reserve strategy depends on your organization’s specific circumstances. This article explains how to use peer data thoughtfully to add context to your board discussions.
Sample Policies
Download our sample policies for an editable template that you can customize to your organization’s needs.
Looking for Help With Your Reserve and Investment Governance?
Walking through reserve segmentation and the details of an investment policy statement can be intimidating. Raffa typically includes policy development within our onboarding process. This process generally includes:
- Reviewing your organization’s financial documents, existing reserve and investment policies, and cash flow needs.
- Assessing your organization’s current financial position, liquidity needs, and overall capacity for investment risk.
- Interviewing key staff and board members to understand your objectives in order to work towards alignment.
- Surveying your committee’s risk tolerance and recommending investment policy parameters, with the reasoning documented.
- Assisting in defining a reserve strategy and structure that considers purpose and time horizon.
- Drafting or updating your Investment Policy Statement, then monitoring and helping to refine it over time.
If you are interested in meeting with one of our advisers to discuss your governance policies, click the button below or email the Raffa team at info@raffaadvisers.com.
Common Questions About Reserve and Investment Governance
Why should a board document the reasoning behind its policy decisions?
A board should document the reasoning behind its investment decisions because it turns a one-time choice into institutional knowledge that future committee members can rely on. Recording why reserves were segmented a particular way or why a target, allocation, or benchmark was chosen helps new committee members understand the intent. The reasoning behind policy decisions can be as valuable to preserve as the policies themselves.
What is a nonprofit or association board's role in overseeing its reserves and investments?
A nonprofit or association board’s role is generally to govern its reserves and investments, which means setting the policies, targets, and guidelines that direct how the money is handled and then monitoring the results to confirm they stay aligned with those guidelines. Boards typically delegate the day-to-day decisions to staff and an investment adviser, who manage the accounts within the policy, while the board and finance committee keep oversight of whether the policy is being followed. That oversight usually includes reviewing performance reports against the investment policy, confirming the adviser stays within scope, and revisiting the policy when circumstances change. A board generally retains responsibility for oversight even when it delegates the decisions, so keeping the governing and managing roles distinct lets it oversee reserves without getting pulled into daily operations.
How does a board know whether its reserve strategy is still appropriate?
A board generally knows its reserve strategy is still appropriate by checking that each pool’s purpose, target, and time horizon still match how the organization actually uses the funds. This usually comes up when the budget, revenue, or strategic plans change, or on a regular review cycle. A strategy that no longer reflects current needs is often a sign it is time to revisit the policy.
How do you know when it's time to update your investment policy statement?
You generally know it is time to update your investment policy statement when your organization experiences a significant change and thus the current policy is no longer reflective of the organization’s needs. Common triggers include a shift in your objectives, cash flow needs, risk tolerance, or leadership, an allocation or benchmark that no longer matches how the funds are invested, and a policy the current committee was not involved in creating. Additionally, many organizations review their policy on a set cycle, so that necessary updates are caught, even without an obvious trigger.
Interested in Working with an Adviser?
Disclosures:
Raffa Investment Advisers is a registered investment adviser with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training.
All investments involve risk, including the possible loss of principal. Past performance is not indicative of future results. Any forward-looking statements are based on current expectations and are subject to uncertainties.
This page is for informational purposes only and should not be construed as personalized investment advice. The sample reserve and investment policies and associated guide are provided as a starting point rather than as legal documents or as legal advice, and your organization is responsible for reviewing and adapting any policy it adopts with its finance committee, board, and appropriate advisers. The considerations described here reflect Raffa’s perspective as an investment adviser serving nonprofits and associations, and other advisers may weigh them differently.
Portions of this page were drafted with the assistance of AI tools and reviewed by Raffa Investment Advisers staff for accuracy and compliance.