For many not-for-profits, charities and NGOs, holding a large amount of cash in the bank feels like the safe thing to do.
And to a point, it is.
An organisation needs cash available to pay staff, fund programmes, meet grants and commitments, and deal with unexpected expenses. The problem arises when all of an organisation’s reserves are treated as though they may be needed tomorrow.
Cash may feel safe because its dollar value does not move around. But that does not mean it is risk-free.
One of the biggest risks is inflation.
Inflation reduces what every dollar can buy over time. At the time of writing, annual New Zealand inflation is 4.1%. The Reserve Bank’s longer-term target is still 1–3%, centred around 2%.
If the return being earned on an organisation’s cash does not keep pace with inflation, the real value of those reserves is gradually falling.
That matters because a not-for-profit’s future costs, salaries, rent, equipment, programme delivery and almost everything else are generally increasing at the same time.
The first question isn’t “Should we invest?”
The first step is understanding when the organisation is likely to need its money.
This can be difficult for not-for-profits. Donations and grants can be unpredictable, programmes change and unexpected funding requirements arise.
But uncertainty does not necessarily mean every dollar needs to remain in cash.
Instead, an organisation can start by separating its reserves according to their likely purpose and timeframe.
For example:
- Money required for normal operations and immediate commitments should remain highly liquid.
- Money likely to be required within the next one or two years should generally be invested conservatively.
- Reserves that are unlikely to be required for five years or more may have the ability to take more investment risk in exchange for greater long-term growth.
- Permanent reserves or endowment capital can potentially be invested with an even longer timeframe.
The investment strategy therefore starts with the liabilities of the organisation, rather than simply asking which investment will produce the highest return.
This is also consistent with Macquarie’s guidance for not-for-profits. It argues that an appropriate NFP portfolio should seek the best possible return for an acceptable level of risk and generally combine defensive and growth investments rather than simply defaulting to cash.
Cash can fund today’s mission. Investments can help fund tomorrows.
Some of the world’s most established charitable organisations have taken this concept much further.
They have built investment portfolios or endowments designed to generate returns for the organisation over generations.
A good New Zealand example is the Halberg Foundation.
Halberg is a registered charity supporting young New Zealanders with physical disabilities to participate in sport and recreation. Alongside the Foundation sits the separately registered Halberg Endowment Fund.
At 30 June 2025, the Endowment Fund had approximately $2.71 million under management, with a total fund balance of approximately $2.75 million. Halberg describes the purpose of the Fund as growing a capital base to create a long-term perpetual source of income for the Foundation.
That distinction is important.
Instead of every dollar raised eventually being spent, some capital is being deliberately retained and grown so it can support the organisation in the future.
At a much larger scale, the UK-based charitable foundation Wellcome shows what this model can ultimately become.
Wellcome’s investment portfolio was worth £39.9 billion at September 2025. Unlike a traditional charity that continually needs to raise funds from the public, Wellcome says its work is funded from its investment portfolio. In the 2024/25 year alone it spent approximately £1.9 billion on charitable activities, while its investment portfolio returned 10.2%.
Obviously, most New Zealand charities are never going to operate at that scale.
But the principle is exactly the same.
Capital can become another source of funding.
Over time, that can create a positive cycle.
The investment portfolio grows.
The portfolio contributes more towards the organisation’s activities.
The organisation can provide more services.
Its impact and profile increase.
That can help it attract more funding and donations.
And more capital can potentially be set aside for the future.
The organisation becomes less dependent on continually raising every dollar it intends to spend.
What could an investment portfolio look like?
In my experience, one of the most practical solutions for not-for-profit organisations is a globally diversified managed-fund portfolio.
There are several reasons for this.
1. Liquidity
An organisation does not necessarily need to lock its money away for ten years to invest for ten years.
Many managed funds are daily valued and can generally be redeemed within a matter of days, subject to the particular fund’s terms and market conditions.
That means an NFP can invest long-term reserves while retaining significantly more flexibility than it would have with assets such as property or private investments.
Liquidity is particularly important for not-for-profits because circumstances can change quickly.
2. Global diversification
New Zealand represents only a very small proportion of global investment markets.
A globally diversified portfolio gives an organisation access to thousands of companies, governments, markets and investment opportunities around the world rather than relying solely on New Zealand assets.
Managed funds can also provide exposure across shares, fixed interest, property, infrastructure and other investments.
Diversified portfolios combining defensive and growth assets allow NFPs to structure investments around different risk levels and time horizons.
3. Risk can be matched to each timeframe
Not every dollar needs to be invested the same way.
Imagine an organisation has $3 million in reserves.
It might determine that:
$750,000 could reasonably be required within the next 12 months.
$750,000 may be required over the following two to three years.
$1.5 million is unlikely to be needed for at least five years.
Those three pools of money should not necessarily have the same investment strategy.
The short-term money might remain in cash or defensive investments.
The medium-term allocation could hold a diversified but relatively conservative portfolio.
The long-term reserve could have a greater allocation towards growth assets designed to increase the organisation’s capital over time.
This is very different from simply deciding to “invest the charity’s money”.
It is about matching assets to liabilities.
Good governance still comes first
Investing reserves does not mean taking unnecessary risk.
In fact, a well-designed investment approach can improve financial governance because it forces an organisation to clearly document:
- how much liquidity it needs;
- when money may be required;
- its tolerance for investment volatility;
- what level of reserves should be maintained;
- any ethical or responsible-investment restrictions;
- who is responsible for investment decisions; and
- how the portfolio will be monitored and reviewed.
New Zealand Charities Services says officers are responsible for overseeing how a charity uses its money and assets, including approving budgets, monitoring finances and managing risks. Registered charities are also required to periodically review their governance arrangements.
For many organisations, establishing an investment policy and reserve strategy is therefore just as much a governance exercise as it is an investment exercise.
The goal isn’t to maximise returns
The objective of an NFP portfolio should not be to chase the highest possible investment return.
The objective should be to make sure every dollar has a job.
Money required tomorrow should be available tomorrow.
Money required in two years should be invested appropriately for a two-year timeframe.
But money that may not be needed for five, ten or twenty years should not automatically be treated as short-term cash.
For organisations fortunate enough to build meaningful reserves, investing some of that capital can help protect its purchasing power and potentially create an additional, sustainable source of funding.
Ultimately, that means more money available to support the purpose the organisation was established for in the first place.
The question for a not-for-profit board shouldn’t simply be whether investing involves risk. Holding too much cash for too long can carry a risk of its own.
Disclaimer: This article is provided for general information only and does not constitute personalised financial advice. It does not take into account the objectives, financial position, liquidity requirements, governing documents or risk tolerance of any particular organisation. Investments can rise and fall in value and returns are not guaranteed. The suitability and liquidity of any investment will depend on the specific investment and the circumstances of the organisation. We recommend obtaining appropriate financial, legal and accounting advice before making investment decisions.