As a board member, you have a difficult task; you need to ensure that your organization has the money, talent, expertise, and resources needed to fund the organization's mission, while also doing so in ever-changing markets and regulatory environments.

However, if your organization relies heavily on your investment program to meet spending needs, it is crucial for the board to understand how to manage this program effectively.

Economic forecasters expect that the inflation-adjusted growth rate of a portfolio comprising 60% equities and 40% bonds may decline to 2.8% over the next ten years, a return level that would make supporting a 5% spending rate unsustainable.

In other words, trustees in non-profits must think differently about how to achieve return objectives, and accordingly, if market return expectations decline, there are still ways to enhance portfolio returns and thus achieve your long-term goals.

Here, my colleagues and I propose 5 strategies that trustees of non-profits should adopt to move forward.

1. Manage your investment portfolio dynamically:

Dynamically managing means actively monitoring financial movements in your investment portfolio daily, seizing short-term market opportunities, and adjusting as market conditions require to help mitigate risks. Dynamic management is important in a low-return environment and is designed to help ensure that short-term fluctuations do not disrupt long-term return objectives.

Given this, investors in such an environment should consider all available methods to ensure spending goals can be met, which means incorporating investment strategies that may provide additional returns while avoiding risks for your organization, as well as ensuring the effective execution of the investment portfolio program.

2. Consider spending policy:

Rationalizing your non-profit's spending policy and balancing the needs of current beneficiaries with those of future beneficiaries can significantly impact the amount of returns you need to generate for your non-profit's investment program.

3. Manage liquidity:

Many non-profits have discovered that liquidity significantly affected their ability to achieve their spending goals during the 2008-2009 global financial crisis. Although we believe that illiquid assets can help you achieve spending goals over time, managing them rationally is essential to ensure alignment with your organizational objectives.

4. Manage risks holistically:

Investment risks are among the risks facing non-profits. In fact, looking at the risks facing your organization holistically, rather than from an individual perspective, better prepares your organization to manage any potential surprises.

It is also important to have a risk management plan that includes potential risks that the organization could face, such as investment risks, credit risks or governance risks, as well as operational risks, structural risks, and market risks.

5. Define your organization's time horizon:

Whether your organization desires to continue indefinitely or not will influence how you approach other strategies, including how you manage your investment program. You may wish for your non-profit to last as long as possible in the market, or prioritize spending now and focus on duration in the market later.

Over time, you may prefer to make spending points a secondary concern for the organization, and in either case, all board members, investment committee members, and staff should agree on these points. Remember that this decision is not fixed and should be adjusted based on how your organization evolves and its goals.

A solid understanding of these strategies and the board's willingness to prioritize the non-profit's vision is crucial for effectively managing your investment program. It is important to discuss these strategies at the credit level and to set high-level decisions in the investment policy statement.

Additionally, the investment policy statement serves as the guiding document for your organization's investment program, providing long-term strategic guidance on how to align your mission, goals, and non-profit policies. This statement also outlines the responsibilities of the various actors involved in managing your investment program, and additionally helps maintain your non-profit's long-term vision.

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