For Canadian nonprofits and charities, the financial landscape has been difficult. Equity markets have moved sharply. Central bank decisions have affected borrowing costs. Inflation has also reduced the purchasing power of reserve funds. Financial leaders are under real pressure to protect resources while planning for the future.
In a recent Enkel webinar on nonprofit investment policies, we asked attendees one question: How is your organization responding to market volatility?
The answers showed a divided sector. Some organizations are staying with their long term investment strategy. Others have moved funds to cash. Some are unsure of the right approach. Others have not yet discussed the issue with their board.
When markets become uncertain, the natural instinct is to act quickly. Leaders may want to protect funds or pull back from risk. However, reactive decisions can create greater problems for nonprofit financial management. As we discussed during the webinar, organizations rarely struggle because of market volatility alone. They struggle when they lack a clear policy, discipline and consistent execution.
Here is how Canadian nonprofits can navigate market volatility, guide a more productive board conversation and protect their long term mission.
The Danger of "Doing Something"
When a nonprofit lacks a disciplined financial framework, market volatility inevitably triggers emotional and reactive decisions. The most common—and most damaging—reaction is panic selling.
When boards see the value of their reserve funds or endowments dropping, the fear of losing principal often overrides long-term logic. They vote to move assets to cash or low-risk, low-yield fixed-income vehicles.
This is a critical mistake. Moving to cash during a downturn does not protect the organization; it simply locks in temporary losses. More importantly, it ensures that the organization will miss the subsequent market recovery, permanently damaging the long-term earning power of the funds.
Conversely, some boards react to budget shortfalls or rising inflation by "chasing returns", taking on inappropriate levels of risk in a desperate attempt to generate more income quickly. Both extremes result from operating without a financial compass.
The 2026 Nonprofit Financial Checklist
Read More
Reframing the Board Conversation: The Real Question
During periods of volatility, board meetings often get derailed by a single, flawed question: "What returns are we getting?"
When markets are down, the answer to this question will be disappointing, leading to anxiety and pressure to change course. But for a nonprofit board fulfilling its fiduciary duty, this is the wrong question to ask.
The key to navigating volatility is shifting the focus from absolute returns to risk-adjusted returns. The real question the board and the finance committee should be asking is: "Are these returns appropriate for our risk and timeline?"
This reframing changes everything. It forces the board to measure returns in relation to the risk taken and the mission timeline, rather than comparing them to an arbitrary benchmark or a recent high-water mark. If your organization has an endowed fund designed to last in perpetuity, a 15% drop in a single year is a temporary fluctuation, not a crisis—provided the portfolio is appropriately balanced for a multi-decade timeline.
Fiduciary Duty in the Canadian Context
For Canadian nonprofits and registered charities, sticking to a disciplined strategy is not just good financial sense; it is a legal obligation.
Board members and trustees have a fiduciary duty to act in the best interests of the organization. Under provincial Trustee Acts across Canada, this includes adhering to the "prudent investor" standard. This standard requires directors to exercise the care, skill, diligence, and judgment that a prudent investor would exercise in making investments.
Crucially, the prudent investor standard does not require boards to perfectly time the market or avoid all losses. It requires them to have a sound, documented rationale for their investment decisions.
This is why having an up-to-date Investment Policy Statement (IPS) is so critical. An IPS provides the pre-defined rules that remove emotion from the boardroom. When volatility strikes, the board's primary responsibility is not to invent a new strategy, but simply to verify that the organization's current portfolio still aligns with the risk tolerance, asset allocation, and time horizons defined in the IPS.
When Is It Appropriate to Move to Cash?
Sticking to a strategy does not mean ignoring reality. There are times when moving funds to cash or highly liquid assets is the correct fiduciary decision—but it should be driven by the organization's needs, not the market's mood.
You should adjust your portfolio toward cash if:
1. Your Time Horizon Has Changed: If a long-term capital project has been accelerated and you need the funds in six months instead of three years, those funds should be moved to liquid, low-risk vehicles to protect the principal.
2. Your Operating Runway is Depleted: If your cash flow forecast indicates you will not have enough cash to cover payroll in 90 days, you must access operating reserves.
3. It is Required by Your IPS: If a market swing has pushed your asset allocation outside the allowable ranges defined in your policy (e.g., your policy mandates 60% equities, but a market run-up has pushed it to 75%), you must rebalance. Undisciplined rebalancing is a risk; rebalancing on a timely, policy-driven basis is about managing risk and not letting gains get away.
Navigating the Storm
Believe it or not, we have been here before. Markets go through cycles of volatility, interest rate uncertainty, and inflation. The organizations that emerge from these periods stronger are the ones that rely on clear governance, not reactive guesswork.
If your board is struggling to navigate current market conditions or if your organization lacks the financial visibility to make confident decisions, expert guidance can help. Enkel’s CFO Advisory and Fractional Controllership services provide Canadian nonprofits with the strategic oversight, scenario planning, and board-ready reporting needed to weather any economic storm.
To ensure your organization is prepared for the future, download our free 2026 Financial Governance E-Book and learn how to strengthen your governance, systems, and oversight for long-term financial health.
