ECCU Blog

by Mark Jones

In a survey by the Association of Financial Professionals, 98% of financial professionals say that the safety of principal is their organization’s most important short-term investment objective. Yield is second.

This survey makes clear that a mixed economic outlook is still impacting investment decisions. Perhaps most telling is that 51% percent of these organizations feel bank deposits are their safest choice for short-term investments. This is up from 23% in 2006, which is not surprising given the fragility of the stock market. And this number may continue to rise, according to survey respondents, if pending regulations by the SEC on money market mutual funds (MMF) make it less attractive to hold cash in MMF accounts.

Is this true for your ministry? Is protecting donor gifts your highest investment priority? It should be.

Preservation of your principal investment is always the most important goal, whatever the economic or rate environment. With MMF and treasury rates at historical lows for the foreseeable short-term future, bank deposits continue to offer safety and provide some of the best yields.

(You know we aren’t going to leave you wondering. ECCU offers some excellent account options to help keep your ministry’s money safe while it earns a competitive return.)

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3 comments

  1. Sean Monroe @ 2012-08-31 07:41

    I agree that safety of principal is the number one concern. However, I have started to wonder how safe principal really is sitting in a bank account earning .1%-1.5%(if you’re fortunate) while inflation is running at 3.2% (2011). (I won’t even get into the discussion about the accuracy of this number, as the US has changed the way it’s calculated several times over the last 15-20 years to take into account such nonsense as “hedonics” and substitution. Finally, from a traditional economic perspective inflation is the increase in the supply of money, and that rate, while no longer officially published, exceeds the official CPI number by multiples) So even if you believe the official CPI number you are losing between 1.7-3.1% of your principal every year.

    Does anyone ever consider holding on to traditional money/hard assets such as gold and silver? Volatility is a major concern, however over the long-term it seems to me that they both maintain stable purchasing power (i.e. a 1964 silver dime still buys a gallon of gas, same as it did back then). Storage is also a concern.

    Just curious if any religious institutions out there are currently holding gold and/or silver or are considering it.
    Thanks,
    Sean

  2. Mark Jones @ 2012-09-06 14:14

    Sean thanks for your comment.

    You asked for feedback on whether a ministry might want to consider holding precious metals as a hedge against inflation as well as an investment option within their portfolio.

    I first go to why a ministry holds operating reserves in the first place. There are three main reasons; first to cover the normal cash flow fluctuation which occurs during the course of a year, second for unplanned expenses and events and third for potential ministry opportunities. For all these purposes, you will want to have quick access to your money to fund any or all these situations. You really don’t want to put these operating reserves at risk given what the reserves are being held for in the first place. So having them invested in precious metals doesn’t meet the requirement of preservation of your principle balance.

    You can certainly argue that the rate of return on bank deposits are not keeping up with the consumer price index (CPI) but again that is not why you keep operating reserves in the first place. You are keeping reserves to ensure your ministry will be able to continue to accomplish its mission even in uncertain times, like the “great recession” we just experienced.

    I am not aware of ministries holding precious metals as a part of their long-term investment portfolio (which is different than their operating reserves) but there may be some that do. If they do, I know they would limit the percentage invested as you don’t want all your eggs in one basket. I also know of many investment professionals who would suggest investing in precious metals brings too much risk into the portfolio so they would not advise a ministry to pursue that type of investment.

  3. Sean, you bring up a good point about other investment options. However, most churches have or should have an Investment Policy that describes the level of risk and types of investments the Board is comfortable with. We have a member encouraging our church to invest in gold, but that is not allowed by our Investment Policy.

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