What’s The Rush? Giving Now Instead of Later

Most charities spend money as quickly as they receive it, while most US-based foundations pay out just five percent of their assets each year, the legal minimum. Which strategy does more good? The answer matters to you as well as to non-profit organizations: you can give away your money as you earn it, or you can invest it in a donor-advised fund (DAF) and allow it to grow indefinitely before donating it. DAFs offer tax savings and require that the funds be given to charity; that means that you won’t be tempted in the future to blow your charity dollars on a sports car or yacht.

One factor in whether to give now or later is the expected rate of return on investments. From 1950 to 2009, the S&P 500 index (a broad measure of the US stock market) returned 7 percent a year after inflation. At this rate, an investment of $10,000 would grow to about $212,000 over 50 years after fees and inflation.* But the stock market may be less profitable in the future: Jeremy Siegel, the author of “Stocks for the Long Run” and a prominent advocate for investing in stocks, forecasts inflation-adjusted returns of around 5 percent a year. This lower rate of return would cut the expected value of a $10,000 investment in 50 years to $82,000 after expenses and inflation.

Delaying your giving would increase the amount you could donate, but each dollar would probably do less good. When charities spread concern for animals, the animal-welfare movement gains activists and donors. This growth helps even more people to be reached, so an additional supporter today may be worth several in the future. Another reason to give now rather than later is that factory farms may disappear owing to competition from plant-based or lab-grown meat alternatives. If this were to occur, the remaining giving opportunities might be less cost-effective.

Although you would probably do more good by donating to the best animal-welfare charity today than you would by investing the money and donating it later, you might be unsure about which charity that is. Charities that make a big difference are the exception, not the rule, which is why EAA has prioritized research on effectiveness. If you think further research would cause you to give to a different organization, waiting might make sense. Most people, however, would find giving money to a DAF less fulfilling than donating to a charity. Because of this, and because the returns on donating may outstrip those on financial investments, donating now is probably the better choice for most people.

* Fidelity, Vanguard, and Charles Schwab—the three biggest providers of DAFs—all charge the same administrative fee to small investors for this service: 0.6% a year on the first $500,000. I deducted this amount, plus 0.1% a year for mutual-fund expenses, from the annual-return figures.