News and Information about the nonprofit sector in Massachusetts. Check back frequently to keep informed.
October 25, 2020
Get Ready for the New Year with a Portfolio Review
By Deborah Dillon Pearce

Deborah Dillon Pearce
Deborah Dillon Pearce
The start of a new year is an excellent time for nonprofits to assess their fiscal health, by examining their financial portfolio, which means looking at everything from organizational investment policy to asset allocation and market conditions.

The fundamentals of a portfolio review include the following:

Investment Policy

An investment policy is the essential piece of prudent portfolio management. It is the road map established by the board. Does your organization’s formal stance on investing reflect the appropriate level of asset allocation and risk tolerance within the context of the organization’s fiscal outlook? Does the structure of the portfolio take into consideration the impact of management fees and asset classes? Does the portfolio management team understand the organization’s primary investing goals within the context of its development capabilities and expertise?

When it comes to portfolio management, boards should undertake thorough review of the portfolio construction and historical performance. There are many resources in the Greater Boston community that are able to provide helpful pro-bono advice on drafting an investment policy. Many nonprofit advisors trust officers and nonprofit membership organizations have experts that are available to assist.

As a general rule, the majority of nonprofits do not have such complex assets that they are obligated to hire a consultant or legal counsel when drafting an investment policy. There are many good ones available for review online, including The Essex County Community Foundation. It is also advisable to work with organizations that manage endowments, as they are well-equipped to craft policies that suit the needs of nonprofit organizations.

Spending Policy

Every nonprofit organization should adopt a spending policy. These are modeled after the private foundation minimum distribution rules, which were adopted in the Tax Reform Act of 1969. These rules require foundations to distribute a minimum amount to charity based on a five-year rolling average of market values. A spending policy which uses a five-year average allows a nonprofit to budget more effectively and restricts same from over-distributing during good years.

By adhering to a spending policy, boards and executive staff will approve budgets that expend resources based on true investment income and will never have to worry about spending that exceeds returns. At the same time, nonprofits will create stable levels of annual spending from year to year, while creating confidence among donors that their gifts are well-managed and that the board of directors is actively engaged in the supervision of spending.

Development Goals

Comprehensive development planning starts with the board of directors. Any organization that seeks to reach their fundraising goals understands the value of actively engaging the board in fundraising. But when gifts are less available than in previous years, establishing annual short and long-term revenue goals are essential in terms of supporting and growing an organization’s the mission.

The creation of clear development goals will force an organization to identify whether all directors, trustees and advisors are active ambassadors in fundraising efforts. Because the financial stability of an organization relies on development, a specific, articulated set of goals ensures that board members understand the critical responsibility they share in fundraising endeavors.


When reviewing their portfolios, boards of directors should understand the investment approach, experience, and philosophy of their outside fund managers and asset classes. This will ensure that fund managers are adequately defining performance criteria for investments, undertaking portfolio monitoring, and re-balancing on a regular basis, and make all investment decisions based on fiduciary and governance direction from the board.

In summary, the New Year is the ideal time for nonprofits to assess their basic portfolio policies and goals. This will allow boards and executive leadership to assess their overall financial position and adjust course for the rest of their fiscal year.

Deborah Dillon Pearce authored this article while serving as vice president/director of Non Profit Solutions with Cambridge Appleton Trust’s and Cambridge Savings Bank’s Community Partner Solutions program.
January 2013
SUBSCRIBE FREE – Keep current with the Wednesday Report emailed to you free each week. Click here.
Got news, advice, resources? Send it to