Insights for Non-Profits

2018 was an eventful year from both an investment and fundraising perspective. Since the New Year is upon us, we thought we’d take this opportunity to reflect on the past year. Consider what these lessons might mean for your organization as we enter into 2019.

Volatility can suddenly upend expectations.

After a remarkably tranquil 2017, stock market volatility came roaring back in 2018. At one point toward the end of the third quarter, the S&P 500 was up more than 10% year-to-date. Then, in the fourth quarter, a meaningful market correction occurred, with the S&P 500 losing nearly 14% of its value from its peak.

Investors continue to wrestle with several key issues, including a US economy that may quickly be approaching peak growth and peak profitability, trade tensions with China, and gradually rising interest rates.

Despite this give and take dynamic, however, it’s actually been a fairly typical year as far as volatility is concerned. The largest intra-year drop in the S&P 500 this year was about -14%. The average since 1980? About -14%. It’s important not to panic as the market goes through periods of tumult.

Charities can learn to live with tax reform.

Tax reform was top of mind at the start of 2018. Among other things, the Tax Cuts and Jobs Act, signed into law in 2017 by President Trump, retained the deductibility of charitable gifts, but doubled the federal standard deduction.

Two major questions were left unanswered: how would donors respond, and what changes to your solicitation strategies might be needed? In 2018, a consensus has begun to emerge on these issues.

Tax advisors have been recommending that individuals combine the amount they would have gifted over multiple years into a single year donation. This approach can help donors exceed the higher standard deduction in the year of their gift, although they may not make as many donations in other years.

Demographics continue to drive changes.

Demographic changes continue to be a driving force for non-profits as the next generation of board members, donors, and volunteers gradually move into positions of influence. The two trends below have been driven by millennials, and we think they will only grow in importance as we continue into 2019.

Socially responsible investing (SRI)

These strategies have a dual focus on investment returns and social benefit. Examples might include screening a portfolio to avoid violators of certain issues, dedicated SRI strategies that proactively search out attractively rated companies, and impact investing aimed at directly tackling a social or environmental problem.

Social fundraising

This is a very broad concept, but at its most basic, social fundraising is anything that leverages the social networks of your supporters to connect with new donors. Examples include peer-to-peer giving, special events, and sharing on social media. All of these involve donors being social in some way, either by asking friends and family for a donation or simply sharing their experience supporting your organization.

Patience really is the key for long-term investors.

2018 was the ten year anniversary of the 2008 credit crisis. Many remember the intense market panic brought about by events like the Lehman Brothers bankruptcy, fear of financial contagion across financial institutions, and Congress passing the Troubled Asset Relief Program. The result was a peak-to-trough decline in US stocks of -55%.

The good news is that in the ten years since, investors have been treated to one of the best bull markets in history. Since bottoming in 2009, the S&P 500 is up over 350%, more than making up for its losses in the credit crisis and allowing many organizations to grow their assets to new heights.

Sometimes this long-term context is lost when we are overly concerned with year-to-year results. If an organization has a suitable investment strategy based on its time horizon, withdrawal needs, and risk tolerance, then it pays to be patient with the stock market. As the last ten years have shown, remaining invested, even in the worst of environments, can allow portfolios to take full advantage of market rebounds when they eventually occur.