If there is one phrase that appears in nearly every endowment conversation, it is “long-term.” We use it in board presentations, put it in investment policy statements, and repeat it to reassure stakeholders during volatile markets.

But if we are being candid, and in this work, we should be, most organizations have never truly defined what “long-term” means for their endowment. And that ambiguity is quietly undermining the financial health of some of the institutions that need strong foundations the most.

This is not a theoretical concern. For nonprofits, foundations, and mission-driven organizations, the endowment is not just an asset. It is a promise, a commitment to sustain the work long after the people who built it have moved on. Getting the definition of “long-term” right is not a technicality. It is one of the most consequential decisions a board will ever make.

The Problem With Treating “Long-Term” as a Given

Most investment professionals will tell you that endowments are inherently long-term vehicles. And in one sense, that is true: unlike an individual investor nearing retirement, an endowment has no fixed end date. The organization intends to continue operating and draw on its investments indefinitely.

But “indefinitely” and “long-term” are not the same thing operationally. An endowment still needs to generate returns within specific annual cycles. It still needs to fund programmatic spending this year, next year, and the year after. It still needs to preserve purchasing power over time, not just in theory, but in practice, against inflation, against economic downturns, and against the very real possibility that donor contributions will not keep pace with institutional needs.

The concept of preserving purchasing power, not just nominal dollar value, is central to how endowments are meant to function. This principle is codified in the Uniform Prudent Management of Institutional Funds Act (UPMIFA), which was approved by the Uniform Law Commission in 2006 and has since been adopted in 49 states, the District of Columbia, and the U.S. Virgin Islands (1). UPMIFA replaced the earlier requirement that endowments preserve their original dollar value with a standard focused on preserving purchasing power over the long term, a distinction that has significant implications for how portfolios are constructed and managed (1).

When organizations default to a vague notion of “long-term” without grounding it in concrete parameters, the result is often one of two things: either a portfolio that takes on more risk than the organization can actually absorb, or one that is so conservatively positioned that it may gradually erode the endowment’s ability to fund the mission. Neither outcome serves the people these organizations exist to serve.

What “Long-Term” Actually Requires

A disciplined long-term endowment strategy is built on three pillars. Each one demands specificity, not aspiration.

1. A Clear Spending Policy, Not Just a Spending Rate

Most endowments operate with a spending rate typically somewhere in the range of four to five percent of the portfolio’s value annually. According to the 2024 NACUBO-Commonfund Study of Endowments, the average effective spending rate across participating institutions was 4.8 percent in fiscal year 2024, up from 4.6 percent the prior year (2). That number is familiar to most boards. What is less familiar and far more important is the policy behind it.

A spending policy is not simply a percentage. It is a framework that defines how much the endowment is intended to distribute, how that amount is calculated (based on market value, a rolling average, or a blended approach), and critically, what happens when market conditions make that level of distribution unsustainable (3). The most commonly used approach applies the spending rate to a moving average of market values over a defined period, typically three years or 12 quarters, to smooth out year-to-year volatility (4).

Organizations that have not revisited their spending policy in years, or that adopted one based on industry benchmarks without tailoring it to their own cash flow needs and risk tolerance, are operating with a plan that may no longer reflect reality. That is not long-term thinking. That is inertia dressed up as strategy.

2. An Inflation-Adjusted Growth Target

Preserving an endowment’s value over time does not mean keeping the dollar amount the same. It means keeping the purchasing power the same or, ideally, growing it. An endowment that earns three percent in a year when inflation runs at four percent has, in real terms, shrunk.

Commonfund has noted that both practical experience and economic modeling indicate that it is rarely possible to spend in excess of five percent of a portfolio each year without suffering an erosion in purchasing power over time (5). This is why a true long-term strategy sets growth targets that account for inflation explicitly. For most nonprofits, the long-term return target is typically constructed by adding together the spending rate, an assumed inflation rate, investment management costs, and, where desired, an increment for real growth of the corpus (5). Most institutions target somewhere in the range of seven to eight percent in annual returns to sustain their endowments over time, though the appropriate figure varies by organization (6).

For mission-driven organizations, this distinction is not academic. It is the difference between an endowment that is positioned to sustain the mission over generations and one that may quietly become inadequate over time.

3. A Risk Framework Tied to the Mission — Not Just the Market

Here is where endowment investing diverges most sharply from individual investing, and where mission alignment becomes a genuine strategic variable rather than a talking point.

The risk an endowment can tolerate is not determined solely by market benchmarks or industry averages. It is also shaped by the organization’s operational resilience. An organization with diverse, stable revenue streams, strong reserves, and a board that can weather a downturn without panic may be positioned to hold a more growth-oriented portfolio. An organization that is heavily dependent on its endowment for operating funds, or that has thin reserves, likely needs a fundamentally different risk posture even if both organizations are equally “long-term” in their outlook (7).

UPMIFA itself reflects this principle. The act requires that those managing and investing institutional funds consider, among other factors, the duration and preservation of the endowment fund, the purposes of the institution, general economic conditions, and the monetary and non-monetary resources of the institution (8). The mission, in other words, is not just the reason the endowment exists. It is one of the important inputs into how it should be managed.

The Role of the Board: More Than Oversight

For nonprofit and institutional leaders reading this, it is worth being direct about something: the board’s role in endowment management goes well beyond approving an annual investment report.

Boards set the strategic parameters within which investment professionals operate. They define the organization’s risk appetite, establish the spending policy, and perhaps most importantly, model the kind of long-term thinking they want to see reflected in the endowment’s management. When boards treat endowment governance as a rubber-stamp exercise, the investment strategy that follows tends to be generic, reactive, and disconnected from the organization’s actual needs.

Under UPMIFA, the governing board and each person responsible for managing and investing an institutional fund are required to act in good faith and with the care that an ordinarily prudent person in a like position would exercise under similar circumstances (8). This is not a passive standard. It requires ongoing engagement, informed decision-making, and a willingness to ask hard questions of investment advisors and of themselves.

The most effective boards do not try to pick stocks or time markets. What they do is engage deeply in the why behind the investment strategy. They demand clarity on fees, on risk, on how the portfolio is positioned to serve the mission, not just this year, but ten or twenty years from now. And they hold their investment advisors accountable for answering those questions with honesty and specificity.

That kind of governance is itself a long-term strategy.

Common Misconceptions Worth Addressing

“We just need to diversify and wait.” Diversification is necessary but not sufficient. UPMIFA imposes a duty to diversify, but a diversified portfolio that is not aligned with the organization’s spending needs, time horizon, and risk tolerance is still a misaligned portfolio (8). Patience without intention is not a strategy.

“Our endowment is too small to think about this differently.” The principles of endowment management do not change based on portfolio size. A $2 million endowment and a $200 million endowment face the same fundamental challenge: sustaining the mission over time while generating enough return to fund it. Scale affects complexity, but not the underlying logic. It is worth noting that in the 2024 NACUBO-Commonfund Study, nearly 30 percent of participating institutions had endowments of $100 million or less, and the median endowment was $243 million (2).

“We should avoid risk because we can’t afford to lose money.” Every endowment faces a trade-off between the risk of short-term losses and the risk of long-term loss of purchasing power. An endowment that avoids market risk entirely by holding only cash or low-yielding fixed income is not playing it safe. It is accepting a different kind of risk: the slow, gradual erosion of its ability to serve the mission. As Commonfund has observed, if an endowment is invested entirely in fixed income, it is unlikely to generate the investment returns necessary to cover both expenditure and inflation over time (5).

“Long-term means we don’t need to pay attention.” The opposite is true. Long-term investing requires more intentional governance, not less. It requires regular reassessment of whether the strategy is still aligned with the organization’s evolving needs, and the willingness to adjust when it is not. Annual review of spending rates and policy effectiveness is considered best practice among institutional fund managers (6).

A Framework for Moving Forward

If your organization is ready to take a more disciplined approach to what “long-term” actually means for your endowment, here is a practical starting point.

Start with your spending needs. Before you think about asset allocation or return targets, get clear on how much the endowment is expected to generate annually and how stable that number needs to be. This is the anchor around which everything else should be built.

Define your time horizon with precision. “Forever” is not a time horizon. Work with your board and your investment advisors to define meaningful planning periods: five years, ten years, twenty years and build milestones and checkpoints into each one.

Revisit your investment policy statement. If it has not been reviewed in more than two years, it is likely out of date. An IPS should be a living document that reflects the organization’s current reality not a historical artifact filed away in a drawer. The key points that should be addressed in any IPS include return targets, spending formula and rate, asset allocation, risk management, and liquidity (5).

Engage your board in the conversation. Share this kind of thinking with your full board, not just the investment committee. The decisions that shape an endowment’s long-term health are governance decisions first and investment decisions second. They belong to the whole board.

Ask your advisors hard questions. How is our portfolio positioned to handle inflation over the next decade? What does our spending policy look like if we have two consecutive down years? Are our fees justified by the value we’re receiving? If the answers are vague, that is important information in itself.

The Bottom Line

“Long-term” is not a strategy. It is a commitment and like any commitment worth making, it requires clarity, intention, and ongoing attention.

For the leaders and boards stewarding mission-driven organizations, the endowment is one of the most powerful tools at your disposal. It is also one of the most easily mismanaged, not through negligence, but through the quiet assumption that good intentions and a diversified portfolio are enough.

They are not. But the good news is that the path to a more intentional endowment strategy is well within reach. It starts with asking better questions and demanding clearer answers.

Your mission and the people it serves deserve nothing less.

Nina Milligan, CFP®

All written content is for information purposes only. Opinions expressed herein are solely those of Zenith, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.