Serving Clients Full Circle

Writings by Randall

Investments, Endowments, and The Market

It’s hard to miss. Even through all the chaos of the pandemic and primary elections, the economy is the number one issue on most people’s minds. While there are a number of data points, the one most used to have a quick view of economic conditions, the stock market through the Dow Jones industrial average, is one of the biggest.

Over the past 3 to 5 months, the Dow is down some 5,000 points. That’s about 14%, give or take, and many anticipate even more negative news coming out of Wall Street. For most, they look at this as it applies to them personally, their invested funds or retirement, and what will have to happen for them to maintain their “nest egg.” What we don’t hear often is what about nonprofits who have some type of endowment invested in the market? What happens to them?

Unfortunately, my experience is that many nonprofits, in particular during the pandemic, were quite aggressive with their investment strategy, making more and more of their dollars be invested in equities (stocks). And while that was very good for their endowment bottom lines, it produces more risk. Now that risk is coming to bear. A 14% drop, just following the Dow as a basic comparison, for a nonprofit is significant. That’s a loss of income of tens of thousands of dollars, potentially, that the organization might be depending on for use that is no longer available.  And that isn’t even thinking about the balance sheet and the loss of assets.  What is that nonprofit to do? How do they find other resources to meet needs?

I’m deeply concerned about nonprofits announcing, maybe in 6 months or more, that because the markets are down, the nonprofits’ ability to be as effective in fulfilling their mission is being greatly reduced. Some have lived financially “fortunately” during the pandemic with an ever-increasing stock market. The next 12 to 18 months may not be as beneficial for those that rely on their endowments.