Investment Portfolio for a Not for Profit
3 July 2018 at 8:28 am
Is it appropriate for not for profits with a surplus of funds to consider investing in growth assets like shares and property? When deciding on an investment strategy there is no “one-size-fits-all” approach, writes Simon Hopkins, an investment adviser at Morgans.
Traditionally a not-for-profit organisation (NFP) with surplus funds to their operating requirements will have a low tolerance for investment risk.
This causes a natural bias towards cash and fixed interest investments. It is important that an investment strategy at least considers investing in growth assets like shares and property.
When deciding on the investment strategy there is no “one-size-fits-all” approach and consideration needs to be given to a number of factors.
The first step is to develop an “investment policy”.
An investment policy states your unique goals, tolerance to investments risk, investment time frame and asset allocation. The policy should provide a vision and flexible framework in which a portfolio can be developed to deal with things such as: change in investment markets, change in organisational circumstances and replacement of board members. It is also important to give consideration to factors such as: income, growth, investment risk and capital liquidity.
A NFP could consider investing in a balanced portfolio. A balanced portfolio is a method of investing between growth assets (equities and property) and defensive assets (cash and fixed interest). The allocation towards equities is important because share dividend can grow over time while fixed-interest income is pegged against the principal investment.
Australian equities provide NFP organisations exposure to franking credits. A franking credit is a type of dividend imputation and a way to reduce or eliminate the double taxation of dividends. These credits can boost overall investment return. Franking credits are a benefit of investing in Australian shares and should be considered as part of an investment strategy.
Risk management is a key aspect of any successful investment program. The risk of having a capital loss with shares reduces over time as you average out returns. By implementing a balanced portfolio your risk of capital loss also reduces as you are never 100 per cent exposed to shares. Having an allocation to fixed interest adds to capital stability of the portfolio and is an important component of balanced investment strategy.
The balance between cash and fixed interest versus shares and property will determine: risk profile, volatility in capital value, growth expectations and income level. It is important to regularly review the asset allocation mix to take into account changes to organisational requirements and economic factors that influence investment markets. It should not be a buy-and-hold investment approach.
Successful management of a sound investment strategy can be a complex issue for NFP’s not au fait with managing portfolios. It is important to consider all the relevant factors and seek professional advice from experts in the area. An experienced investment professional can assist with both developing an investment policy and management of the portfolio.
Please note: The author has not taken into account your objectives, financial situation or needs; and you should consider the appropriateness of the advice, before acting.
About author: Simon Hopkins is an investment adviser at Morgans in Melbourne’s Hawthorn. Simon has been advising clients for more than 20 years, previously working as a director with Goldman Sachs JBWere. Simon takes a conservative disciplined approach to protecting and growing wealth for both families and not for profits. Simon has a commerce degree, Graduate Diploma in Applied Finance and Investment and a Diploma of Financial Planning. Simon can be contacted at simon.hopkins@morgans.com.au
Simon Hopkins: Authorised Rep: 344383 | Morgans Financial Limited | AFSL 235410
