GivingFund is a nonprofit organization registered in the state of California. The aim of our blog is to educate and inform everyday individuals on strategies to be more effective philanthropists. We do not provide investment advice. Just so you feel extra comfortable, here’s how we make money.
Five Things to Know:
Finding the right philanthropy strategy is a lot like finding the right investment strategy. Consider making your decision based on:
Time Horizon: When will your impact materialize?
Risk Tolerance: How willing are you for the program to fail, in the hopes of a major success?
Thematic Area: Which impact area(s) do you want to focus on?
Liquidity: How much of your donation strategy is ad-hoc, versus long-term?
Diversification/Asset Allocation: How do you balance your portfolio across organizations, and how many organizations do you choose to give to?
Let’s Get To It:
When it comes to seeking advice on effective giving, most people jump to ask “which single nonprofit is the best choice to donate to?” And while we are all for impact analysis, at GivingFund, we’re here to tell you - that’s not the right first question.
Finding the right philanthropy strategy is a lot like finding the right investment strategy. But just like any investment advisor will tell you, developing a financial strategy is less about picking a single winning stock, and more about developing the right portfolio for what you’re trying to achieve.
Still Skeptical? We’ll explain.
Investment Approaches Versus Philanthropy Approaches
Real Estate | Some professionals invest their finances in companies they help run - think a real estate investment where you also help to fix-up the property and get it ready for rental. Well, perhaps you’d like to take the same approach to your giving - donating to nonprofits where you volunteer, or where you are closely involved with the community they serve. Just like an investor who spends countless hours finding the “right” opportunity for investment, you may volunteer at multiple organizations before you find the one that’s most worth your investment in time and dollars. For help finding that perfect fit, check out Volunteer Match for local opportunities or Taproot for pro-bono, skills based opportunities.
Exchange Traded Funds | On the other end of the spectrum, you have investors that prefer ETFs or mutual funds - products that are already diversified across sectors to hedge against risk and expose them to a wide variety of sectors. These products may have management fees, but investors are happy to pay to have smart folks determining strategy and integrating feedback across the portfolio. You can think of these ETFs the same way you would think of large diversified nonprofits - for example, CARE International or Oxfam Worldwide. In this sense, rather than funding a direct program, you’re contributing to a fund of programs that the leadership of the nonprofit is managing and reporting on.
Venture Capital |Another example is the Venture Capital investor. Many times, these investors are knowledgeable or passionate about a particular area. They seek out innovative businesses that have the potential for outsized returns. Venture capitalists know that sometimes their investments won’t pay out. They’re ok with taking on that risk, because while some investments fail, the few that pay out, will have high enough returns to cover their losses. Some donors take a similar approach - they identify a couple causes they are particularly passionate about, and fund nonprofits that they feel are doing innovative, exciting work to address that cause (we like the research provided by the Stanford Social Innovation Review, where you can search for articles on the latest innovations by impact sector). The nonprofits may be small, and run only a few, specific programs, but the donor feels strongly about those programs based on their own knowledge of the social issue. For example, the Prison Entrepreneurship Program and the Delancey Street Foundation both run specific, targeted programs that use entrepreneurship as a way to fight prison recidivism.
The Best Questions to Ask
Of course, there are very few investors that use only one type of approach, be it real estate, ETFs, or Venture Capital. In fact, it’s much more common to mix your investment strategies based on a variety of factors. Here are a couple factors that financial investors consider when they make an investment, and the corrollary for how strategic philanthropists think about the same challenges. It’s time to move away from “stock picking” in your philanthropy portfolio, and time to start thinking across criteria.
What’s my Investment Time Horizon?
Investment Criteria | If investing for retirement, perhaps you’re willing to wait a fair bit of time before your investment pays off. If you’re investing for a down payment in the next 2-3 years, you’ll want an investment that matures more quickly.
Donation Criteria | A long time horizon may be donating to things like advocacy work. Advocacy work, or prevention programs often take a long time for impact to materialize, but when it works, it can change entire systems. A quick time horizon might be a donation to a hurricane relief fund, where money is immediately use to buy shelter or food for those in need
How Risk Tolerant Am I?
Investment Criteria | The difference between your super safe bank account with barely-there returns, and an all-or-nothing equity investment that could pan out big-time, or completely tank. Investment opportunities usually fall somewhere across this spectrum in terms of fluctuation in value
Donation Criteria | Investing in tried-and-true programs means that your impact is a sure bet. Alternatively, you can donate to nonprofits that are piloting programs. These programs may still be in development, but could have the potential to become a scalable solution in the future - without your funding, we’ll never know!
Do I Value a Thematic Area?
Investment Criteria | Some investors focus on specific industries, either because they think the the prevailing macros will help their investment, or because they are trying to diversify away from sectors they are already heavily involved in.
Donation Criteria | It’s common to be drawn to one type of issue over another - be it the environment, education, affordable housing etc. No one cause is superior to another, but donors can choose to focus in or diversify across their interest areas.
How Liquidity Should My Assets Be?
Investment Criteria | Some investors want to be able to either sell their investments or allocate them at any time. Others stick to the same investments year over year.
Donation Criteria | Keeping some of your donations liquid (perhaps set aside in a bank account or Donor Advised Fund) is a good strategy if you like to make ad hoc donations based on current events or friends. Another strategy is to invest in a stable strategy with your favorite non-profits each year.
How Diversified Should My Strategy Be?
Investment Criteria | Investors usually make investments across products and asset classes to limit risk, or to diversify their time horizon, thematic area, and access to liquidity. Ultimately, a portfolio’s concentration or breadth is dependent on the investor’s end goals
Donation Criteria | You can have a highly concentrated portfolio in a few number of causes of charities, or spread your donations across more, fewer charities. You can also diversify you impact though large charities that split your donation across the programs they run.
At GivingFund, we help our members determine the right giving strategy for them - based on their passions and their goals. You can use the GivingFund platform to analyze your donation patterns and set goals. Interested? Sign up to join the waiting list to use our Donor Advised Fund product and we’ll add you to our community.