How to Structure Nonprofit Investment Accounts: 3 Steps to Implementing a Bucket Approach

How to Structure Nonprofit Investment Accounts: 3 Steps to Implementing a Bucket Approach

Many nonprofit organizations struggle to structure their operating and investment accounts effectively. This resource aims to guide you in developing a framework to optimize your organization’s assets and ensure they are utilized efficiently.

What is the Bucket Approach to Organizing a Nonprofit’s Assets?

The Bucket Approach to structuring investment accounts

Organizations often find it beneficial to employ a bucket approach when structuring their accounts. This involves creating separate accounts for assets based on their purpose and time horizon. By categorizing assets into distinct "buckets" aligned with their intended use, nonprofits gain better insight into financial management and improve decision-making.

What Are the Benefits of a Bucket Approach?

Clarity and Transparency

By segregating funds according to their designated use, the organization’s financial position becomes clearer to stakeholders, including board members, committee members, and donors.

Ease of Understanding

Adopting a mental accounting framework through the bucket approach makes it easier for stakeholders to comprehend, quantify, and prioritize the investment and utilization of funds.

Improved Decision-Making

With assets clearly earmarked for specific purposes or timeframes, decision-makers can make more informed choices regarding resource allocation, investment strategy, and strategic planning.

What Are the 3 Steps to Implementing a Bucket Approach?

Step 1: Categorize Your Assets Into Buckets

When determining your buckets, it’s helpful to consider four key areas: Operating Reserves for daily stability, Capital Expenditure Reserves for infrastructure investments, Long-Term Reserves for future security, and Designated Funds for specific projects.

Operating Reserves

These reserves are allocated for routine expenses and maintaining steady operations. Generally, these savings match the cost of several months’ operating expenses.

Long-Term Assets

Funds, such as an endowment, that are allocated for future objectives or unforeseen circumstances, securing the organization's financial resilience and flexibility.

Designated Funds

Funds that are earmarked for a particular purpose or project as directed by donors or the board.

Capital Expenditure Reserves

These savings are allocated for future capital investments, including facility upkeep, equipment upgrades, or infrastructure development.

Step 2: Decide on an Investment Strategy and Monitor Performance

Tailor investment strategies for each asset bucket based on time horizon, liquidity needs, and the capacity to withstand volatility. Allocating funds strategically and regularly adjusting these to reflect changing needs and conditions ensures a dynamic and goal-aligned investment approach.

Strategic Asset Allocation

Determine the appropriate mix of stocks, bonds, and cash to meet the objectives for each bucket. Getting this decision right is essential - asset allocation drives 90%+ of long-term investing results.

Investment Strategies

Consider appropriate investment strategies for each bucket that effectively balance income and growth needs while minimizing costs and mitigating short to intermediate-term losses.

Regular Review and Adjustment

Continuously monitor the performance and usage of funds within each bucket, adjusting allocations as necessary to align with changing priorities and circumstances.

Step 3: Ensure Proper Oversight

Implementing the Bucket Approach requires active board oversight, delegation of financial duties to specific entities, and a commitment to transparency and accountability. This ensures effective financial management and builds trust through clear governance.

Board Involvement

Ensure active involvement and oversight from the board of directors in managing the organization’s financial buckets, including regular reporting and decision-making processes.

Committee Responsibilities

Delegate specific responsibilities related to financial management and oversight to relevant committees or individuals within the organization.

Transparency and Accountability

Maintain transparency regarding the allocation and utilization of funds, providing stakeholders with regular updates and financial reports.


Implementing a bucket approach to structuring accounts can enhance nonprofit organizations' financial management and sustainability. By categorizing assets based on purpose and time horizon, nonprofits can streamline decision-making processes, improve transparency, and ensure resources are effectively utilized to fulfill their mission and objectives. To read more about how to structure investment accounts, click here to download our resource, "A Nonprofit's Guide to Structuring Investment Accounts."


We’ve Helped Many Nonprofits Determine the Appropriate Investment Account Buckets! We can help you too!

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