There’s a myth in the nonprofit world: parking cash in a savings account is the “safe” choice. In reality, it can be one of the costliest decisions a board makes, and often the one no one thinks to question.
That doesn’t mean the market is always “safe” either. Investing always carries risk, including the risk of loss. But holding everything in cash carries a cost too, even if it never shows up on a statement. The question your board actually needs to answer isn’t which option is risk-free, because neither one is. It’s whether your decisions are intentional, and tied to what each dollar is actually meant to do.
Let’s be clear about something up front. Keeping a healthy cash reserve is not a mistake. It’s one of the most responsible things a nonprofit can do, and we’d never suggest that every dollar your organization holds should be invested in the market.
How much you keep in cash is a decision that flows from your board’s policies. Depending on your organization’s circumstances, that might mean three, six, or even twelve months of operating reserves kept liquid and readily accessible. Those funds are there so you can meet payroll, weather a slow fundraising season, or respond to an unexpected expense without disruption to your mission.
There may also be an opportunity to be more intentional even with the cash you do hold. A money market account, for example, can often produce more returns than a traditional savings account while still keeping funds liquid. Some organizations choose to hold their full reserve there; others keep a portion in savings and a portion in a money market. Either way, the point is the same: even your “safe” money can be working a little harder.
The challenge tends to show up with the money beyond that reserve. This is where many nonprofits may feel afraid to invest, even when they’re holding well more than what their operating needs require. That’s the money this article is really about.
Walk into many nonprofit boardrooms and you’ll find a version of the same story. Somewhere on the balance sheet is a reserve fund, an endowment, or a rainy-day account that has grown over years of careful fundraising, well past what the organization needs to keep on hand. And alongside it is an unspoken agreement not to touch it.
Often times this isn't something that was ever voted on. Nobody wrote it into policy. It happened one cautious year at a time, until “leave it in savings” became the default answer to a question no one wanted to own. Often, the real issue is simply that no one has brought in outside financial support to help answer it.
Cash feels safe because it doesn’t move. But money held well beyond your operating needs can slowly lose ground to inflation over time, and it’s money that isn’t working toward your mission the way it could be. That cost is real, even though it doesn’t appear as a line item, which is exactly why it’s so easy to overlook.
The hesitation is understandable, and the fear behind it can be legitimate. Boards are accountable to donors, to a mission, and often to one another. No one wants to be the person who recommended a strategy that went sideways. So, the path of least resistance is often to recommend no strategy at all, and call it prudence.
Your board is good at what it does. It knows how to run programs, cultivate donors, and keep a mission moving forward. Yet somewhere along the way, it may also have become responsible for asset allocation, portfolio construction, and rebalancing decisions, often without anyone consciously deciding that should be the case. Most boards were never built to do both.
Most board members and executive directors didn’t take on their roles because they wanted a second job managing a nonprofit's investment portfolio. They stepped up because they care about the mission. Wanting to do right by the organization’s funds and wanting to become an investment manager are two very different things, and conflating them is often what keeps that excess cash sitting still.
With no advisor in place, no one is asking the harder questions: What is this money actually for? When might it be needed? For appropriate funds, what could it do if it were positioned to grow rather than sit still? Without answers, the default isn't really a decision at all. It is the absence of one.
The turning point is often a conversation about purpose. Once the organization can name what each portion of their excess reserves is actually for, the strategy begins to take shape on its own. Money set aside for near-term operating needs can be managed very differently from money meant to support the mission twenty years from now, and both can be handled differently from restricted funds earmarked for a specific future purpose.
None of that becomes clear until someone asks the question.
This is where many conversations about nonprofit investing take a wrong turn. They tend to start with an allocation instead of a purpose.
A 60/40 split between stocks and bonds can be a reasonable starting point, but on its own it isn’t a plan. An organization can hold that allocation indefinitely without ever asking whether it fits its actual needs. A single blended split treats every dollar the same, when in reality your operating reserves, your board-designated funds, and your long-term endowment may not be the same kind of money at all.
Once you separate funds by purpose and time horizon, allocation decisions often become clearer. Reserves that might be needed within a year can call for a very different approach than funds intended to support a mission decades from now. A well-considered spending policy and thoughtfully built Investment Policy Statement are what can turn this from a one-time choice into a repeatable process.
That’s what a real investment strategy tends to look like: not one number applied to everything, but a set of decisions tied to what the money is actually there to do.
This is often where the conversation stalls. Advisory fees are visible; they show up on a statement. The cost of having no strategy doesn’t appear anywhere, which can make it easy to underestimate.
Consider an organization that saved roughly 1% in fees by skipping an advisor and keeping funds in cash for operations it didn’t need. Over the past ten years, that decision might have looked something like this:
A hypothetical $1,000,000 invested over 10 years in a diversified portfolio tracking the S&P 500, net of a 1% advisory fee, would have grown to roughly $3.65 million by the end of 2025. The same $1,000,000 held in cash, earning a typical savings or money market yield, would have grown to about $1.16 million.
In this speculative illustration, the 1% saved on fees came alongside more than $2 million in growth the mission never realized. However, this is a hypothetical example and is not a projection or a promise. In addition, it’s worth sitting with the parts of the chart that dip. Markets don’t move in a straight line, and 2018 and 2022 show that plainly; a diversified portfolio can and does lose value in some years.*
This is also where a long-term strategy can earn its keep, and where nonprofits have an edge over people with limited time horizon. When you’ve defined the purpose of each bucket of money in advance, and paired that with an appropriate reserve of cash, a down market becomes something you’ve planned for rather than something that forces your hand.
The organizations that struggle most in a downturn are often those that have to sell investments at depressed prices simply because they need the cash. A sound plan is designed to help you avoid that position, so short-term volatility doesn’t derail long-term goals.
It’s natural to view an advisor relationship as a cost to weigh carefully. It can be just as useful to ask the question in reverse: what might it cost the mission to leave excess reserves unmanaged for another decade? If you’re not sure where to begin, these are some of the questions worth asking when choosing a financial advisor.
Nonprofits already work hard to diversify how money comes in, through grants, events, individual donors, and more. Over time, a well-managed investment strategy can function as another source of support for the mission. Not a replacement for fundraising, but an additional leg of the stool.
It starts with the same purpose-driven thinking behind any strong fundraising strategy: understanding what the money is for, matching the approach to the goal, and reviewing it regularly. Investment returns are never guaranteed the way a grant commitment might be. But over time, a thoughtful, well-governed strategy can become a meaningful contributor to the organization’s financial picture, alongside the revenue streams your team already works so hard to build.
Start with the question: What is this money actually for? Keep a prudent reserve in cash, sized to your board’s policies and your operating needs. Then, for the funds beyond that, let purpose guide the rest: the allocation, the risk tolerance, and the policy tend to follow naturally from there.
You don’t need to become an investment manager to get this right. You need a fiduciary who will ask the right questions, build a strategy around your mission, and manage it, so your board can focus on what it does best.
As a 100% fee-only, fiduciary firm with no outside shareholders, we don’t sell products or take commissions. We build investment strategies around your organization’s purpose, not a generic model portfolio. Schedule a conversation with our nonprofit team, or start with our free guide, A Nonprofit’s Guide to Finding an Investment Advisor.
Disclaimer: This commentary is for informational and educational purposes only. This information is not intended to provide, and should not be relied on for, tax advice. Please consult your tax advisor regarding your specific situation. Opinions are subject to change.
For informational and educational purposes only. Carnegie Investment Counsel (“Carnegie”) is a registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. For a more detailed discussion about Carnegie’s investment advisory services and fees, please view our Form ADV and Form CRS by visiting: https://adviserinfo.sec.gov/firm/summary/150488