Are we aware of all assets for which we are responsible?

Take inventory. Have new funds been received, existing investments matured, or additional assets been transferred to or from our committee/board since we last met? If so, make sure these are documented and included in, or excluded from, your discussions.

Does the purpose of the funds we oversee match the objective of the portfolio in which they are invested?

Many of our churches manage a variety of funds held for different purposes. Some are holding significant balances in anticipation of a large capital improvement project scheduled to begin within the year, while also managing funds whose principal is invested in perpetuity. Still other assets may represent rainy day funds or funds that have a specific purpose, but an unknown start date. These all represent different purposes and should be matched with investments that have objectives that mirror these purposes. For example, assets being held in anticipation of a soon-to-begin capital project should not be paired with investments that have limited liquidity or experience considerable market fluctuations. This represents a risk that, in our opinion, is much greater than the potential reward.

We encourage you to take the inventory compiled from step 1, determine the purpose of each asset, and compare it with the purpose of the investment in which it is invested. If the objective and purpose match, leave it alone. If not, changes should be made. If we can help with this step, please feel free to contact us.

Have our convictions AND/OR strategies changed?

This is a tough question to consider, but also a very important one. Over the past 30 years many of our churches have moved from investments with little market risk to ones that comprise at least some risk of market fluctuations. More often than not, these were decisions made from a combination of need for higher returns and a better understanding of, and comfort with, the long-term average returns that could be the result of accepting a greater level of market risk. This question encourages the committee to both remember the conversations that resulted in its current investment strategies, and confirm their convictions as they move forward with these strategies.

What are our near and long-term expectations?

One might think this question relates to returns on investments, which, in part it does, but it should also consider the realistic expectations of market fluctuation over both short and longer periods of time. For example, we expect that the Foundation’s Diversified Moderate Portfolio will average a return between 6% and 7% over the next five to ten years. During that same period we expect that the portfolio will see considerable fluctuations in its value as it experiences market cycles that have influenced this type of investment strategy for decades. Another important reason to consider this question is that each member of your committee/board could be called upon from time-to-time to explain these expectations. The more often you consider your expectations, the easier it will be to answer these questions with confidence and conviction.

How are our investments doing?

If your investments are with the Foundation, it’s easy to check fund balances online and view our one, three, and five year returns on our investment page. In our quarterly letter, we contextualize these numbers.

As easy as it is to find the facts and figures, answering this question completely may be one of the most difficult responsibilities you may face. It is difficult due to the many variables that might be assumed within the question. Are you considering short-term results, long-term, benchmark comparisons, peer comparisons, or others of the unlimited number of criterion that could be applied? While volumes have been written on this topic, our advice is to find the best way to compare apples to apples in answering this question. Remember that while you may bask in the exceptional returns earned in one year, the result of these excellent returns might create expectations on the next year which could be disappointing. Wespath, the Foundation’s investment partner uses an index that covers the returns earned by over two-hundred fifty plus accounts (see attached Peer Group Performance Comparison) that are held by foundations, trust companies, and pension funds who each have purposes, restrictions, and objectives that are very similar to those of our churches and agencies. Although not perfect, it seems to be the best fit given the conditions and responsibilities of fiduciary investors.

How do we best interpret the above to our congregations, boards, and agencies?

We suggest a synopsis of your responses to the previous 5 questions. In other words, something like this:

Our committee/board met to review the church’s assets for which we are responsible. We considered each asset as to its purpose and how well that purpose matched the stated objective of the investment where it is currently held. We reviewed our current investment strategy and convictions as they relate to these investments and considered any new information or input that might call for change. Our decision was to continue using the current strategy. We also talked about near and long-term investment expectations. In particular, we discussed how our long-term expectations may influence our short-term experiences. We believe that our strategy of long-term investment in a balanced portfolio of stocks and bonds will result in an average return of 6% to 7% over most 5 to 10 year periods. At the same time we realize that this strategy will result in periods of market reversals that will challenge us to remain steady in our convictions and strategies. We have reviewed the performance of our investment managers and are satisfied that their results are as good if not better than their peers and that they are investing our funds within the boundaries of prudent managers and the socially responsible guidelines of the United Methodist Church.