1. Define Your Purpose Clearly
The foundation of any successful investment strategy is aligning your goals with your organisation’s mission. A well-crafted mission statement is essential, as it defines the core reason for your organisation’s existence. Ensure all key stakeholders understand and share this purpose. Regularly reviewing and communicating your purpose ensures ongoing clarity, helping everyone stay focused on the bigger picture.
2. Establish a Thoughtful Spending Policy
A spending policy outlines how funds will be distributed from your investment portfolio over time. For not-for-profit organisations, it’s essential to strike a balance between meeting immediate community needs and sustaining long-term support. A clear and well-defined spending policy not only provides financial stability but also offers a strategic guide for navigating uncertain markets. It fosters consistency and fiscal discipline, ensuring your spending aligns with your organisation’s mission and future goals.
3. Assess Your Liquidity Needs
Understanding your liquidity requirements is key to managing both liquid and illiquid assets in line with your organisation’s objectives. Consider whether your priority is long-term sustainability or meeting short-term financial obligations. Your decisions around risk and liquidity should reflect this. A candid evaluation of your cash flow needs and tolerance for illiquidity and market fluctuations is essential. Remember, liquidity exists on a spectrum: while equity funds may be accessible quickly, private market investments might require longer time frames and more strategic planning.
4. Determine Your Risk Tolerance
Your investment strategy should align with the level of risk your organisation is prepared to take while aiming for the returns necessary to meet your goals. Many organisations, particularly in the wake of global financial challenges, are now better able to assess both their capacity and willingness to bear losses. It’s important to ask:
- What level of risk can our organisation withstand?
- What level of risk are we willing to accept?
Understanding these factors will guide your investment decisions and help develop a strategy that balances risk and reward effectively.
5. Understand Your Investment Constraints
It’s crucial to be aware of any limitations or constraints that may affect your investment decisions, including regulations, tax laws, and associated fees. These factors can significantly impact your investment strategy. For example, the need to manage costs may lead to incorporating passive investment strategies to gain exposure to specific markets in a more cost-effective way, compared to traditional active management.
As you develop your investment program, clearly defining your goals and objectives remains the first and most critical step. This includes:
- Clearly outlining the specific goals you aim to achieve
- Agreeing on a spending policy that aligns with your needs
- Assessing your liquidity requirements
- Understanding your risk tolerance
Taking these factors into account will help ensure that your investment strategy is both practical and aligned with your organisation’s broader objectives.