Finding the right balance between reserves, liquidity and long-term goals
Once charities begin to explore investing, the conversation often moves on to a practical question: how much should our charity invest?
There is no single answer. The right amount will depend on your charity's objectives, financial position and future plans. What is appropriate for one organisation may not be suitable for another.
Rather than looking for a ‘recommended’ percentage or target figure, trustees are often better served by taking a structured approach that considers how reserves are currently used, when funds may be needed and the role investment could play in supporting the charity's long-term sustainability.
Start with your reserves
For most charities, the starting point is a review of their reserves.
Reserves exist for different purposes. Understanding those needs can help trustees identify funds that may be suitable for long-term investment while ensuring sufficient resources remain available for day-to-day operations.
Many charities find it helpful to think about reserves in three broad categories:
- Funds needed to support ongoing operational activity
- Funds held as a contingency against unexpected events
- Funds unlikely to be required in the short to medium term
The final category is often where investment discussions begin. If funds are not expected to be needed for several years, trustees may wish to consider whether holding all of those resources in cash is the most effective approach.
Balancing competing priorities
Deciding how much to invest is rarely a simple calculation. Instead, it involves balancing several important considerations.
On the one hand, trustees need confidence that funds will remain available when required. On the other, they may also want to protect the purchasing power of reserves and help fund future charitable work.
In practice, this means finding an appropriate balance between:
- Access to funds in unforeseen circumstances
- Taking reasonable risk for the potential of better returns
- The need for income, growth or a blend
- Supporting future organisational needs and / or growth plans
Each charity will place different weight on these factors depending on its circumstances, financial resilience and strategic ambitions.
Think in ranges rather than fixed numbers
One common misconception is that trustees need to determine the exact amount that should be invested, e.g. ‘we will invest 20% of our reserves’
In reality, it is often more helpful to think in terms of ranges rather than precise figures.
For example, a charity may decide that a modest allocation allows it to gain experience while maintaining a high level of flexibility. Another organisation, with significant reserves and a longer planning horizon, may feel comfortable allocating a larger proportion of funds.
The objective is not to identify the perfect number. It is to develop an approach that reflects the charity's needs and can be reviewed as circumstances change.
Questions trustees should consider
To help structure discussions, trustees may find it useful to ask a series of practical questions:
- How much cash must remain immediately accessible?
- When are reserves likely to be needed?
- What future projects or commitments could require funding?
- What time horizon is available for any invested funds?
- How would the organisation respond if investment values fell in the short term?
- How does the decision align with the charity's wider financial strategy?
These conversations can help create a clearer picture of which funds may be suitable for investment and which should remain readily available.
Putting practical guardrails in place
To support decision-making and ensure investment activity remains aligned with organisational needs, many charities establish simple parameters such as:
- Maintaining an agreed level of readily accessible reserves
- Keeping funds required for short-term expenditure out of investment portfolios
- Establishing a minimum and maximum range of overall investment exposure
- Reviewing where the funds are invested on a regular basis to ensure risk levels remain appropriate
- Defining clear responsibilities for monitoring performance and risk
Governance remains central
Investment decisions are also fundamentally governance decisions. Trustees must ensure that any allocation of charitable funds is appropriate, proportionate and aligned with the charity's objectives.
This means understanding the risks, documenting the rationale behind decisions and reviewing the approach regularly so that it remains suitable as the organisation evolves.
The aim is not to find the perfect outcome, but to make informed decisions in the best interests of the charity.
Bringing it together
A useful starter question may be: how much of our reserves can support our long-term objectives while still maintaining the flexibility and security we need today?
The goal is not to maximise investment exposure or chase returns for their own sake. It is to ensure charitable resources are working effectively to support both current needs and future impact.
