Charities can play a crucial role - but why do so many lean towards conservative investments? Photo / 123RF
By Andrew Austin, Jarden director and wealth management adviser based in Wellington.
Charities play a crucial role in New Zealand, addressing societal challenges and enriching communities.
To maintain impact, charities must strategically manage accumulated funds - resources such as cash, assets, and investments, which ensure they can meet immediate needs while planning for the future.
Many New Zealand charities lean towards conservative investments such as cash and term deposits.
This is often because of beliefs driving behaviour like “we are for purpose, we should be conservative,” or “bank interest is the safest income source”.
Although low-risk assets provide short-term stability, they may not deliver sufficient growth to support long-term objectives, or to adequately protect an organisation’s capital against inflation.
Reserves are funds retained by charities to support operations, safeguard against future challenges, and invest in growth.
Unlike private enterprises, every dollar must ultimately serve a charitable purpose.
Building reserves is not about hoarding wealth but ensuring the charity’s sustainability and resilience.
Along with being a financial safety net, reserves act as a strategic asset that can support innovation, programme expansion, and operational resilience.
When managed prudently, they can generate sustainable income streams and contribute to a charity’s purpose-driven initiatives.
Reserves are typically classified into three categories.
First, there are short-term reserves - funds set aside for immediate needs or emergencies, typically held in cash or short duration term deposits to ensure liquidity.
Then there are medium-term reserves - resources earmarked for projects or asset replacement within a three to seven-year timeframe.
And then there are long-term reserves - investments designed for growth over a longer period, supporting future initiatives or sustaining the organisation’s mission.
Each type of investment requires thoughtful consideration to risk management and returns, while aligning with specific timeframes.
Reserves must be managed well to perform well.
Board members and leadership teams must build financial literacy, understand growth assets, and embrace informed risk management.
Creating a robust reserves policy is essential.
It should complement the organisation’s investment policy and provide clarity to stakeholders about the purpose, management, and expected outcomes of accumulated funds.
A robust reserves policy should include defined capital “buckets” which separate reserves into short, medium, and long-term categories.
It should also include risk parameters, to align investments with the organisation’s risk tolerance.
And it should have longevity considerations, to ensure reserves support both current and future generations.
A clear reserves policy strengthens public trust and builds internal accountability.
New Zealand regulations now require charities with annual operating expenses exceeding $140,000 to disclose and justify their accumulated funds.
By explaining why reserves are held, whether for specific projects, contingency purposes, or asset replacement—charities can demonstrate their commitment to sustainability and long-term impact.
Recent trends in the sector are showing an increase in investment balances alongside a decrease in cash holdings, reflecting a shift towards optimising resource needs.
By adopting sound financial practices, diversifying investments, and communicating transparently with stakeholders, charities can enhance their ability to deliver meaningful impact now and in the future.
Jarden Wealth Limited is an NZX Advisory firm. A financial advice disclosure statement is available free of charge at jarden.co.nz/our-services/wealth-management/financial-advice-provider-disclosure-statement/.
Full disclaimer available at https://www.jarden.co.nz/disclaimers/wealth-management.
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