The Non-Profit Volatility Advantage

May 18, 2022

Market selloffs are never easy. It doesn’t matter whether you are an individual investor, a financial professional, or a non-profit organization, down markets are difficult to get through. But unlike many investors, the endowments and foundations that support non-profits and their missions have a unique advantage: time.

Most investors have a specific, time-sensitive goal in mind—saving for retirement, buying a second home, leaving a legacy, etc.—and it creates difficult tradeoffs. Take on risk by investing for growth over the long-term, versus taking less risk and worrying about running out of money down the line.

For many non-profits, their missions are already here and matter today, and their goals are perpetual. Community support, educational funding missions, and other organizations are all thinking about making an ongoing, lasting impact. This perpetual, long-term focus can be very valuable during difficult market environments.

Patience is a Virtue

Defining objectives are the starting point for any customized investment solution and having long-term goals and mission statements gives investment managers the broadest range of strategic options for two reasons.

First, when market volatility strikes, often the best thing investors can do is stay patient and keep perspective. Seeing unrealized losses might be difficult to stomach, but most non-profit organizations aren’t looking for short-term investment results. They’re looking for stable, sustainable growth over the long-run. This means that when markets fall, non-profits are especially well equipped to lean into the wind and either stay the course, or even to tactically add risk to portfolios. Reframing volatility from something to be feared to something that can be capitalized on is the first advantage long-term focused missions have.

The second benefit is about alignment. In the short-term, the financial markets can seem more like a popularity contest, with rapid swings from optimistic to pessimistic, to optimism again. But over the long-run, markets are driven not by sentiment and mood, but by the economy and underlying fundamentals. Investment managers that also deploy a long-term, fundamental approach are particularly well suited to match their investment strategies to the goals and objectives of most nonprofit organizations.

Staying Opportunistic Today

This year’s market selloff is impacting most global financial markets. The stock market is in correction, bonds are struggling as well, and cash is suffering from the dilutive effects of high inflation. It has been a difficult start to the year, but that doesn’t mean there’s nothing investors can do.

Having an investment approach with a wide range of tools that can adapt to fast changing market environments is always essential, and even more so during times like today.

Whereas some managers take a passive, one-size-fits-all ‘set it and forget it’ approach, a truly active manager will tailor your portfolios to both changing markets and your organization. Whether that’s staying nimble with asset allocation, utilizing alternative asset classes, or adjusting exposure across subfactors such as sector, size, style, and strategy, your investment manager should be proactively working for you in all market environments.

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Advance your mission by partnering with a team that provides a mix of investment management, fundraising support, and board & staff education. We're always available if you'd like to schedule a call to talk about any of these topics, ways we can help your organization, or other questions that might be top of mind.

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The information in this paper is not intended as legal or tax advice. Consult with an attorney or a tax or financial advisor regarding your specific legal, tax, estate planning, or financial situation.

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