What Belongs in a Nonprofit Investment Policy Statement

An investment policy statement is the document a board writes while it is calm, so that it behaves well when it is not. For a foundation, endowment, church or school, it is also the clearest evidence that the board is meeting its duty of care.

The core sections

• Purpose of the assets and the time horizon they serve.
• Spending or distribution policy, stated as a formula rather than a yearly negotiation.
• Target asset allocation with permitted ranges and a rebalancing rule.
• Permitted and prohibited investments, including any mission-related screens.
• Roles: board, investment committee, adviser, custodian.
• Reporting and review cadence, usually quarterly reporting and an annual policy review.

The conversations that matter more than the document

Two questions decide most of the outcome: how much the organization intends to spend each year, and how much decline it can tolerate without cutting programs. Answer those honestly and the allocation nearly writes itself.

Board education belongs in the calendar too. Committees turn over, and a policy nobody on the current committee helped write tends to get ignored in the first difficult quarter.