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September 29, 2016 Article 1 min read
Lower expected portfolio returns are challenging institutions to fulfill their existing spending policies. Institutional investors should reassess their spending policies and choose among these three strategic paths to long-term organizational health and longevity.

The latest Special Commentary by Plante Moran Financial Advisors explores spending policies for non-profit organizations and institutional investors.

Executive summary

  • A 5 percent spending policy has become the most widely utilized policy among nonprofit organizations and other institutional investors today.
  • While a 5 percent real return target seemed appropriate and was achievable for most institutions based on historical standards, interest rates and equity market valuations today may make this challenging in the years ahead.
  • Committees should re-evaluate their spending policies within the context of the portfolio’s overall investment policy, and ultimately choose between three available options: increase their risk levels with the hope of achieving a higher return, do nothing and accept potentially lower returns in the future, or find ways to reduce their current spending.
  • Research shows that spending a lower percentage of the portfolio (say 4 percent rather than 5 percent) may actually be the best solution for the long-term health and longevity of the organization. However, there is no “right” answer that works for all institutions.

Read the full PMFA special commentary >>