Top 3 Takeaways

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1. A strong Investment Policy Statement (IPS) establishes clear governance by documenting the specific decision-making authority and fiduciary responsibilities for the board, committees, and investment advisors.
2. By formalizing investment objectives and spending policies, the IPS ensures that the portfolio is managed to support both immediate operational needs and long-term organizational goals.
3. Documented guidelines for asset allocation and rebalancing provide a consistent framework that keeps investment decisions grounded during market volatility and leadership transitions.

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What Every Nonprofit Investment Policy Statement Should Include

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An Investment Policy Statement (IPS) is one of the most important financial governance documents a nonprofit can have. It establishes a clear framework for how the organization’s investment assets are managed, overseen, and protected in support of its mission.

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For board and committee members, an IPS helps fulfill fiduciary responsibilities by documenting objectives, decision-making authority, and oversight processes. For staff and advisors, it provides clarity and continuity, particularly as leadership and committee membership change over time.

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A strong IPS should create discipline, alignment, and consistency so investment decisions remain grounded during both calm and volatile periods.

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Below are the core elements every nonprofit Investment Policy Statement should include.

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1. Statement of Purpose

The IPS should clearly describe:

• The organization and the funds covered by the policy
• The purpose of the document
• How the policy is intended to be used

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This section connects the investment program to the organization’s mission and establishes the IPS as a governance and oversight tool.

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↪ Why it matters:

A clear purpose ensures all stakeholders understand the scope of the policy and the decisions it is meant to guide.

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2. Duties and Responsibilities

An effective IPS clearly defines the roles and responsibilities of:

• The Board of Directors
• The Finance or Investment Committee
• Organizational staff (if applicable)
• The investment advisor 

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This section should clarify who is responsible for decision-making, oversight, monitoring, and reporting.

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↪ Why it matters:

Clear accountability supports strong governance and helps protect the organization by documenting fiduciary processes.

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3. Investment Objectives and Spending Policy

Investment objectives establish the portfolio’s purpose and reflect how and when funds will be spent. Objectives should reflect how the funds are intended to support the organization - both today and over time.

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This section typically outlines:

• Return objectives, risk tolerance, and time horizon
• Liquidity needs and expected distributions
• Spending rate and calculation methodology
• Authority for approving spending decisions

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↪ Why it matters:

Spending decisions directly affect portfolio sustainability. Clearly defining objectives alongside spending expectations helps align asset allocation decisions with real-world cash needs and fiduciary responsibilities.

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4. Asset Allocation

This section outlines the organization’s approach to diversification and risk management for each portfolio, including:

• Target allocations for major asset classes
• Acceptable allocation ranges
• The role each asset class plays in the portfolio

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The focus should be on structure, not individual investments.

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↪ Why it matters:

Asset allocation is the primary driver of long-term investment outcomes and provides discipline during periods of market uncertainty.

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5. Asset Class Guidelines

Asset class guidelines establish guardrails for what is and is not permitted in the portfolio. This may include:

• Permissible asset classes
• Prohibited investments
• Liquidity requirements
• Constraints related to credit quality, geography, or alternative investments

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↪ Why it matters:

Clear guidelines promote consistency and ensure the portfolio remains aligned with the organization’s risk tolerance and fiduciary obligations.

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6. Rebalancing Policy

The rebalancing policy outlines:

• How often the portfolio is reviewed
• When action is taken if allocations drift from targets
• Who is responsible for executing rebalancing

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↪ Why it matters:

Rebalancing reinforces discipline by maintaining the portfolio’s intended risk profile over time.

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7. Performance Review and Monitoring

This section defines:

• How frequently performance is reviewed
• Appropriate benchmarks
• Reporting standards and expectations

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It may also address how results are communicated to the committee or board.

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↪ Why it matters:

Regular performance review supports informed oversight and ongoing fiduciary engagement.

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8. Policy Review and Amendment

The IPS should specify:

• How often the policy is reviewed
• Who is responsible for recommending changes
• How updates are approved

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↪ Why it matters:

An IPS should evolve as the organization grows, while still providing continuity and consistency over time.

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When Should a Nonprofit Update Its Investment Policy Statement?

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An Investment Policy Statement is not a “set it and forget it” document. While many organizations review their IPS annually, certain changes should prompt a closer look, even if the policy was recently approved.

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You may want to update your IPS if:

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• Significant board or committee membership has changed
• Spending needs or cash flow assumptions have shifted
• The size or purpose of invested assets has changed
• New funds or reserves have been established
• Market conditions or fiduciary expectations have evolved
• The policy no longer reflects how decisions are actually made
• The IPS has not been reviewed in several years

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A helpful question to consider: Does your IPS clearly guide current investment and governance decisions? If not, it may be time to review it for potential updates.

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Putting It Into Practice 

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An effective Investment Policy Statement provides clarity and consistency for fiduciary decision-making. Whether your organization is developing an IPS or reviewing an existing one, having the right elements in place helps ensure alignment with your mission and financial needs.

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To support that process, we’ve created a one-page Investment Policy Statement Checklist to help boards and committees quickly assess whether their IPS includes the core components outlined above.

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Download the IPS Checklist to create or review your Investment Policy Statement with confidence.

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Not Sure If Your Organization’s IPS Is Providing Enough Guidance?

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Some nonprofits have an Investment Policy Statement but aren’t confident it reflects current governance, spending needs, or fiduciary responsibilities. Others are operating without a formal IPS and want to establish clear direction and oversight.

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eCIO is an investment advisor that works exclusively with nonprofits.  We commonly review existing Investment Policy Statements and work with our nonprofit clients to develop an IPS from the ground up—providing clarity and continuity for boards and committees.

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Contact us to learn more about the steps to developing an Investment Policy Statement.

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FAQs

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Why does our nonprofit need a formal Investment Policy Statement (IPS)?

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An Investment Policy Statement (IPS) is one of the most important financial governance documents a nonprofit can have. It establishes a clear framework for how the organization’s investment assets are managed, overseen, and protected in support of its mission. For board and investment committee members, an IPS helps fulfill fiduciary responsibilities by documenting objectives, decision-making authority, and oversight processes. For staff and advisors, it provides clarity and continuity, particularly as leadership and committee membership change over time. A strong IPS should create discipline, alignment, and consistency so investment decisions remain grounded during both calm and volatile periods.

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How often should we review and update our Investment Policy Statement (IPS)?

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Generally, your board should review the IPS annually to ensure it remains aligned with your financial goals. The IPS should evolve with your organization as there are significant changes; It is not a “set it and forget it” document. You should review it for potential updates if:

• Leadership Changes: Significant board or investment committee membership has changed.
• Financial Shifts: Spending needs, cash flow assumptions, or the size and purpose of invested assets have shifted.
• New Objectives: New funds or reserves have been established.
• Operational Misalignment: The policy no longer reflects how decisions are actually made or has not been reviewed in several years.

External Factors: Market conditions or fiduciary expectations have evolved.

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