A good investment policy statement (IPS) should make investment decisions easier, not harder. It should give your board clarity, protect your organization, and hold up under scrutiny.
Most nonprofits have an IPS. Not all of them have one that's actually doing its job. In our work with nonprofit organizations, we see the same problems come up again and again: documents that are outdated, too vague to be useful, or simply disconnected from how the organization actually operates.
None of these are catastrophic on their own, but they add up. And when a difficult market or a board transition arrives, a weak IPS is the wrong time to find out.
Here are the most common mistakes we see, and what to do about them.
Looking for a deeper dive on what goes into an IPS? Watch our on-demand webinar, How to Create an Investment Policy Statement for Your Nonprofit, for a step-by-step walkthrough of what a strong IPS looks like and how to build one.
Of all the mistakes on this list, this one is the most common by a wide margin. An IPS gets drafted, sometimes by a previous advisor, sometimes by a board member who has since moved on. And then it lives in a folder, untouched, for years.
The problem is that organizations change. Spending needs shift. Board composition turns over. Markets move. An IPS written five years ago may no longer reflect your actual risk tolerance, your current asset allocation, or even the funds you're managing today.
A good IPS should be reviewed at least annually. Not necessarily rewritten, but reaffirmed or updated as needed. That review belongs on your investment committee's calendar, not in the back of someone's mind.
An IPS that says the portfolio should seek "moderate risk" or "reasonable returns" isn't really saying anything. Those words mean different things to different board members, different advisors, and different investment committees. Which means when a decision actually needs to be made, the document doesn't help.
Vague language tends to surface as a problem at the worst possible times. When markets drop and a board member wants to move everything to cash, or when a new committee member challenges the existing allocation, a well-written IPS should be able to settle the question. One full of qualitative placeholders can't do that.
Good IPS language is specific. It defines acceptable asset allocation ranges, names benchmarks, and describes risk tolerance in terms the organization can actually act on. If someone new picked up your IPS tomorrow with no context, they should be able to understand exactly what the policy allows and what it doesn't.
This one is easy to miss because the document can look perfectly reasonable on paper. The asset allocation makes sense, the objectives are clear, but none of it accounts for the fact that the organization draws on the portfolio every spring for operating expenses, or that one of its funds has a restriction the policy never mentions.
A common version of this problem is treating all funds as a single pool. Many nonprofits manage multiple accounts: an endowment, an operating reserve, a restricted fund or two, each with different time horizons and different liquidity needs. A single blanket policy written as though those differences don't exist will eventually create real friction, either for the board trying to make a decision or for the advisor trying to manage the portfolio responsibly.
The IPS should reflect your organization as it actually is and operates, not a generic version of a nonprofit. That means accounting for how and when you spend, what restrictions apply to specific funds, and what level of liquidity you genuinely need.
An IPS doesn't maintain itself. Someone has to be responsible for making sure it gets reviewed, that new board members understand it, and that the advisor is working within it. When that ownership is unclear, which it often is, the document drifts.
Board turnover makes this worse. The average nonprofit board member serves for a few years and then rotates off. When the people who wrote or last updated the IPS are gone, institutional memory goes with them. New members inherit a document they didn't create and may not fully understand, and the cycle of neglect continues.
The advisor has a real role here. A good investment advisor should be an active participant in keeping the IPS current and making sure it continues to serve the organization. If your advisor has never raised the subject of reviewing your IPS, that's worth noting.
An investment policy statement doesn't have to be a complicated document. But it should be an accurate one: current, specific, and built around how your organization actually operates. The mistakes above are common precisely because they're easy to overlook until something forces the issue.
If your IPS hasn't been reviewed recently, that's a reasonable place to start.
If you're ready to bring in outside help, schedule a consultation with Carnegie's nonprofit investment team today.