Establishing an endowment fund is one of the wisest decisions a Lutheran church or ministry can make. But as with any significant financial endeavor, there are pitfalls that can undermine even the best intentions.
After helping hundreds of Lutheran organizations establish and grow endowment funds, we’ve seen patterns emerge. The good news? These mistakes are entirely preventable. Here are the five most common endowment missteps—and how to avoid them.
Mistake #1: Treating the Endowment Like an Emergency Fund
The Problem:
It’s tempting. Your church needs a new roof. Giving is down this quarter. A key staff member requires a raise you didn’t budget for. And there sits your endowment fund with $100,000 just waiting to solve the problem.
This is perhaps the most common mistake churches make: raiding the endowment for operating expenses or one-time capital needs.
When you dip into the principal for current needs, you’re not just reducing today’s balance—you’re eliminating decades of future distributions. That $20,000 taken for today’s emergency is $1,000 annually (at 5% distribution) that future generations will never receive. Over thirty years, that’s $30,000 in lost ministry funding, plus all the compound growth that money would have generated.
The Solution:
Establish crystal-clear endowment policies from day one:
• Principal remains permanently invested—no exceptions
• Only distributions (typically 4-5% annually) can be spent
• Create a separate reserve fund for emergencies and capital needs
• Write policies into your endowment agreement and church bylaws
Think of your endowment like Social Security—it’s meant to supplement other income, not replace it. Operating budgets should stand on their own, with endowment distributions providing enhancement, not life support.
Mistake #2: No Clear Spending Policy
The Problem:
Your endowment has grown to $75,000—wonderful! But now what? Can you spend 3% annually? 5%? 7%? Should you reinvest earnings until the fund is larger? Can you spend more in years when the market performs well?
Without clear guidelines, endowment committees make inconsistent decisions that either drain the fund too quickly or hoard resources that could be funding ministry today.
We’ve seen churches spend 8-10% in strong market years, assuming growth will continue, only to face difficult decisions when markets decline. We’ve also seen churches refuse to take any distributions for years, letting resources sit idle while ministry opportunities go unfunded.
The Solution:
Adopt a clear spending policy that balances current needs with long-term sustainability. Lutheran Legacy Foundation typically recommends:
• Annual distributions of 4-5% of the fund’s rolling three-year average balance
• This approach smooths out market volatility
• Allows for meaningful ministry impact today
• Preserves and grows principal over time
• Protects against sequence-of-returns risk
For example, a $100,000 endowment with 5% distribution policy provides $5,000 annually for ministry while allowing the principal to grow with inflation and market appreciation.
Review your spending policy every 3-5 years to ensure it remains appropriate for your ministry context and market conditions.
Mistake #3: Competing with Annual Giving
The Problem:
Some church leaders fear that promoting endowment giving will cannibalize annual stewardship campaigns. “If people give to the endowment, they’ll reduce their regular offerings,” the thinking goes.
This fear leads churches to barely mention their endowment, hide it in the back pages of annual reports, or actively discourage contributions to it. The endowment languishes while leadership privately hopes it will somehow grow. Ironically, this approach often becomes a self-fulfilling prophecy: a weak endowment that nobody talks about doesn’t attract gifts.
The Solution:
Research consistently shows that churches with healthy, visible endowments typically see increased annual giving. Here’s why:
- Different pools of money
Annual offerings come from current income. Endowment gifts typically come from accumulated assets, estate plans, windfalls, and once-in-a-lifetime events (inheritance, property sale, retirement accounts). - Different motivations
Annual giving says, “I support current ministry.” Endowment giving says, “I want to ensure ministry continues for my grandchildren.” These aren’t competing priorities—they’re complementary. - Confidence building
A strong endowment signals that the church is here for the long haul. That confidence actually encourages increased annual giving.
Practical strategies:
• Talk about both annual giving AND endowment giving
• Feature endowment in stewardship campaigns without apology
• Celebrate endowment milestones publicly
• Share stories of how distributions enhance ministry
• Make planned giving conversations routine, not rare
Your endowment should be as visible as your annual budget. Both matter. Both deserve support.
Mistake #4: Investing Too Conservatively (or Aggressively)
The Problem:
Endowments occupy a unique position in church finances. They must be conservatively managed (this is God’s money stewarded for generations), yet they need enough growth to overcome inflation and fund distributions indefinitely.
Some churches, fearful of any risk, park endowments in savings accounts or CDs earning 1-2%. Others swing to the opposite extreme, investing aggressively in individual stocks or trendy investments.
Both approaches fail. Ultra-conservative investing guarantees the endowment loses purchasing power to inflation. Overly aggressive investing exposes the endowment to unnecessary volatility and potential catastrophic losses.
The Solution:
Endowment funds require professional, balanced investment management designed for permanence. This typically means:
• Diversified portfolios across asset classes (equities, fixed income, cash)
• Professional management by experienced investment advisors
• Time-tested strategies rather than speculative approaches
• Regular rebalancing to maintain appropriate risk levels
• Inflation protection built into the investment strategy
Lutheran Legacy Foundation provides professional investment management specifically designed for church endowments. Our approach balances:
• Growth sufficient to fund distributions and beat inflation
• Stability appropriate for funds meant to last forever
• Values-aligned investing consistent with Lutheran principles
Churches shouldn’t attempt to manage endowment investments through volunteer committees. The stakes are too high, the time horizon too long, and the complexity too great.
Mistake #5: Forgetting to Promote Planned Giving
The Problem:
Many Lutheran church endowments are established with an initial burst of enthusiasm—perhaps $25,000 raised through a campaign, matched by Lutheran Legacy Foundation. Then… silence.
Years pass. The endowment grows modestly through investment returns but receives few new contributions. Leadership assumes, “We already have an endowment. That’s done.”
Meanwhile, faithful members reach retirement, downsize homes, update wills, and make charitable plans. But because the church never mentions planned giving, these members direct their legacy gifts elsewhere—or nowhere at all.
The Solution:
Promoting planned giving must be ongoing, gentle, and normalized. Here’s how:
Annual reminders:
• Include endowment updates in newsletters (quarterly)
• Feature endowment in annual reports with stories of impact
• Mention planned giving in stewardship seasons
• Celebrate donors who include the church in estate plans (with permission)
Make it easy:
• Provide sample bequest language on your website
• Offer simple guides to IRA charitable distributions
• Connect members with Lutheran Legacy Foundation resources
• Normalize these conversations in member care visits
Pastor’s role:
• Preach occasionally about legacy and stewardship
• Meet with aging members to discuss their legacy wishes
• Train other staff to have comfortable planned giving conversations
Key insight:
Most people don’t resist planned giving—they simply don’t think about it. Your job isn’t to pressure people but to plant seeds and keep the opportunity visible. Studies show that churches that consistently promote planned giving receive 5-10 times more estate gifts than churches that rarely mention it. The difference isn’t member generosity—it’s visibility and invitation.
Bonus: The Mistake of Never Starting
We’d be remiss not to mention the biggest mistake of all: churches that recognize the value of endowments but never take the first step.
“We’ll do it someday.”
“We need to be larger first.”
“Let’s wait until we have everything figured out.”
These perfectly reasonable thoughts keep many congregations from ever establishing the endowment that could transform their ministry’s future. The truth? The best time to start an endowment was twenty years ago. The second-best time is today.
Your Next Step
If your church has an endowment fund, review these five common mistakes honestly. Are any present in your ministry? If so, course corrections now can pay dividends for decades. If your church doesn’t yet have an endowment, don’t wait for perfect circumstances. They’ll never come.
Lutheran Legacy Foundation makes starting simple, provides matching grants to help you with a strong launch, and offers professional guidance to avoid these common pitfalls. The churches that will thrive in the decades ahead aren’t necessarily those with the largest budgets or biggest campuses today. They’re the churches that made wise decisions about permanent funds, avoided common mistakes, and trusted God with their long-term stewardship.
Ready to start an endowment fund or strengthen an existing one? Contact Lutheran Legacy Foundation today. Our team will help you establish clear policies, avoid common mistakes, and build an endowment that serves ministry faithfully for generations to come.
With over $80 million in assets under management and 250+ active organization funds, Lutheran Legacy Foundation has helped countless Lutheran ministries establish endowments built to last.
