By Carlos Zayas
Over the past several weeks, financial markets have experienced sharp volatility, driven by ongoing macroeconomic pressures such as inflation and policy uncertainty. The S&P 500 and other indices have dipped noticeably, prompting concern among investors and nonprofits alike. For mission-driven organizations that depend on endowments or investment reserves as part of their annual operating budget, these fluctuations raise an important question: How do we respond wisely in moments like this?
Endowments Are Mission Tools, Not Just Financial Assets
Nonprofit endowments exist to generate income that supports the organization’s long-term mission. Whether funding scholarships, protecting environmental resources, advancing justice, or improving public health, these funds are intended to serve people, not to sit idle.
That’s why it’s important to see an endowment not as untouchable treasure, but as a strategic resource. When markets drop, nonprofits may hesitate to draw funds, even when programs are strained, or revenue is down. But downturns are precisely when these funds are most valuable.
This perspective was echoed in recent remarks made at Hamilton College, where former President Barack Obama, emphasized the importance of using institutional funds to uphold core values during turbulent times. While the original context was higher education, the takeaway applies broadly: organizations with invested reserves should be prepared to use them—thoughtfully and strategically—to uphold their mission when it matters most.
Long-Term Perspective Is a Nonprofit’s Superpower
While short-term market dips can feel alarming, history shows that markets recover, and well-structured portfolios rebound. Nonprofits that panic and de-risk too aggressively during downturns may miss the recovery that helps fund future operations.
Endowments are built with decades in mind, not quarters. Organizations that maintain a steady, disciplined draw, even in hard times, often fare better than those that try to time the market or freeze spending entirely.
Diversification Still Matters
One of the most powerful defenses against market turmoil is diversification. A drop in one area shouldn’t sink the entire endowment. Diversification allows organizations to withstand shocks, recover faster, and maintain a stable spending policy. It’s also essential to rebalance during market downturns to maintain your intended asset allocation strategy.
What About Non-Endowed Reserves?
Not every organization has a formal endowment, but many have board-designated reserves, sometimes referred to as quasi-endowments. These funds can be even more flexible in times of uncertainty. Unlike true endowments, reserves can be drawn more easily, giving nonprofits the agility to respond to urgent needs or seize strategic opportunities.
However, this flexibility requires strong policies:
- Clear guidance on when and how reserve draws are allowed
- Decision-making authority (full board approval or executive discretion under thresholds)
- A plan to replenish funds after they’re used
These policies help prevent reactive decision-making and reinforce the idea that reserves are part of long-term planning, not just emergency cash.
This Moment Is a Test and an Opportunity
The market downturn, combined with broader economic challenges, is a test of every nonprofit’s financial planning and leadership. But it’s also an opportunity:
- To re-center on your mission
- To make value-based investment decisions
- To engage your board in meaningful financial discussions
- To use your endowment or reserves the way they were intended: to advance impact even in difficult moments
As President Obama noted, this is the time, not to retreat, but to be bold, intentional, and prepared.