For church leadership, making investment decisions with church funds could be overwhelming. Many times, those in charge of making the decision are not sure where to even start. The name of the game is matching the needs and goals of the organization to the investment risk of the portfolio. Let’s walk through several steps that can help your church strike the right balance for your organization.

DETERMINE IF INVESTING IS RIGHT FOR YOUR CHURCH

Not every church is in a position where investing is right for them. Some churches may be in the beginning of their life cycle, where funds are tight, and the church is living Sunday to Sunday. A proper savings balance is an important precursor to a church investing and should be roughly three to six months of church expenses.

DEFINE FINANCIAL OBJECTIVES IN RELATION TO GOALS

After determining that the organization has sufficient savings, the next step in the process is to clarify the church’s financial goals. Churches often have a range of objectives, such as saving for a building fund, supporting growth in community outreach programs, or creating a nest egg for future periods in which giving may fluctuate.

Church leadership should document these goals and determine how they will influence future financial decisions. For example, a church focusing on stability may prefer a higher allocation to fixed income and alternatives, while one seeking to expand may be open to increased exposure to equities, as they present higher-return opportunities to accelerate growth.

ASSESS INVESTMENT TIME HORIZON

Understanding the church’s time horizon—how long it plans to hold investments—is another essential factor in setting risk tolerance. The longer investments can season, the more time there is to recover from potential downturns in higher risk investments.

One of my favorite metrics to illustrate this point is the historical rolling 1-year, 5-year, and 20-year returns of the S&P 500, which is one of the primary indexes for US stocks. Since 1950, the S&P 500 has averaged an 11.4% annualized return. The worst rolling 1-year return during that time frame was -37%. However, as you expand the time frame, the worst rolling 5-year period has only been -2%. If we expand that even further, the worst rolling 20-year return is +6%!

The longer an organization has to stay invested, the more acceptable it becomes to bring on more risk. The higher risk assets have time to ride through volatile periods, and a better chance at meeting the desired return objectives.

DISCUSS BIBLICALLY RESPONSIBLE INVESTING

Churches have unique moral considerations that can influence their investment choices. The Baptist Faith and Message does not line up with the most common form of values-based investing, known as “ESG” (Environmental, Social, and Governance). If Biblically responsible investing is a priority for your organization, then additional care and planning is required in determining investments that are suited for your portfolio.

At The Baptist Foundation of California, we are proud to manage equity funds that screen out producers of abortifacients, tobacco, alcohol, cannabis, gambling, and pornography. Our fixed-income funds help build and renovate Christian churches across California and the rest of the United States. Finally, our alternatives funds are invested for faith-impact where possible, focusing on opportunities to promote the Gospel, human flourishing, and care for God’s creation. We strive to provide investment funds that churches can be proud to be a part of.

WEIGH DIVERSIFICATION BENEFITS

A well-diversified portfolio helps churches manage risk by balancing growth-oriented investments with more secure, stable assets. Churches can reduce the risk of loss by spreading investments across various asset classes, such as equities, fixed income, and alternatives. These asset classes have historically not been fully correlated with one another, meaning that when one asset is experiencing a downturn, the other asset classes are not necessarily moving with it in the same manner or magnitude. Investing in different asset classes that lack correlation can help mitigate risks associated with market fluctuations, providing a smoother financial journey.

CONCLUSION

Setting an appropriate investment risk profile is crucial for any church aiming to support its mission sustainably. By clarifying financial goals, understanding time horizons, and diversifying the portfolio, church leaders can create a strategy that balances risk and growth. This approach not only will help safeguard the church’s resources but also ensure that the portfolio aligns with its mission and values. In this way, churches can continue to serve their communities while maintaining a stable financial foundation for the future.

If your church is interested in starting their investment journey, the Foundation would be honored to be a part of it.