From The Desk of Kevin Hodson

As we get the ball rolling in 2024, I’ve been working with clients on IRA contributions and tax filings. I’m also preparing to present at AAFCPAs’ Nonprofit Seminar in April. (We sent you an invite recently.) This event is a complimentary day of education we provide annually geared toward our nonprofit clients, primarily heads of finance and operations along with executive directors. With our close affiliation with AAFCPAs, we see many opportunities to help nonprofits better optimize their reserve funds. Unfortunately, we also see common barriers and hesitancy. These include risk aversion, lack of expertise on financial management or investment strategies, caution around fiduciary duties, concerns about liquidity, and economic uncertainty, to name a few.

It’s an important topic, especially now with so many nonprofits holding large cash reserves in low-interest bank accounts, where it earns very little and doesn’t contribute in any meaningful way to their longer-term goals.

This also poses a significant risk.

The first risk, and what I see so often, is that many have not changed their banking habits since the failures we saw last year. It’s important for us to understand our financial limits and the real risk of losing money if another bank fails. We can’t assume the government will always step in to save us.

Another risk for those holding too much at a bank is that you’re earning only a limited yield versus the alternative. We want to see your money grow. Which leads to the third risk—inflation. At the end of the day, inflation is here most of the time. So, if you look at a dollar bill, the only way to maintain its value over time is to exceed the rate of inflation.

To avoid this type of risk, we encourage nonprofits to invest in a way that looks at long-term gains versus short-term temporary loss.

Off the desk.

In February, my wife, kids, and I headed to New Hampshire for some skiing and family time. In the near future, I’m headed down to DC to check out the Bruins and visit an old friend of mine from the Marines. Other than that, I’ve been busy toting our daughter to softball, our son to his guitar lessons, and Harley around the neighborhood.

I hope you, too, are enjoying these last few months of winter. Please reach out if you have questions or if you’d like to connect one on one.

AAF Wealth Management is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where AAF Wealth Management and its representatives are properly licensed or exempt from licensure. This blog is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by AAF Wealth Management unless a client service agreement is in place.