What is the purpose of an Investment Policy Statement (IPS) for a nonprofit?

• A. To guide investment objectives, risk tolerance, asset allocation, and roles of managers, ensuring prudent stewardship of funds.
• B. To outline fundraising goals for the year.
• C. To describe grant application procedures.
• D. To set staff salaries.

Answer: (A)

The main idea here is that an Investment Policy Statement (IPS) provides a formal framework for how a nonprofit manages its investments. It sets the investment objectives (what the funds are aiming to achieve over time), defines risk tolerance (how much volatility or potential loss the organization is willing to accept), and designates the asset allocation and the roles of investment managers. This combination guides all investment decisions and ensures prudent stewardship of the funds, meaning decisions are made consistently, transparently, and in a way that protects the nonprofit’s ability to fulfill its mission over the long term.

An IPS also clarifies governance: who is responsible for making and approving investment decisions, how performance will be monitored, how often portfolios will be reviewed and rebalanced, and how spending or income will be managed in line with donor expectations and the organization's needs. This helps the nonprofit stay accountable to donors, auditors, and regulators by showing there’s a disciplined process behind investment choices.

The other options don’t fit because they concern fundraising goals, grant procedures, or staff compensation—areas that belong in operating budgets, grant policy, or human resources policies, not in the framework that governs investment decisions.