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First and foremost, that rule of thumb is meant for retirees, not institutions looking to sustain themselves in perpetuity. Secondly, a 4% withdrawal rate offer

by nickles 10y ago

First and foremost, that rule of thumb is meant for retirees, not institutions looking to sustain themselves in perpetuity. Secondly, a 4% withdrawal rate offers a decently high chance that the principal can be drawn upon for 30 years. Withdrawing 80k per student per year would be exceptionally irresponsible on the part of the school administrators.

Retric 10y ago
I doubt they would actually need 80k/year per student preserving their capital. More broadly though, what's the point of a foundation if you never extract anything. Further they will receive donations and tuition, but they clearly don't need 'help'. In fact not having a long term plan to use their foundation is more irresponsible as they really could just lose all that money in 200 years without using it for anything.
- nickles 10y ago
  > what's the point of a foundation if you never extract anything These institutions do utilize their endowments. As nonprofit entities they are only allowed, by law, to retain a portion of their gains. > Further they will receive donations and tuition, but they clearly don't need 'help'. At least some are currently operating at a deficit. > In fact not having a long term plan to use their foundation is more irresponsible as they really could just lose all that money in 200 years without using it I hope you see that there's a contradiction in that statement. You're encouraging rampant short term spending while simultaneously claiming centuries old institutions have no long term plan.
  - Retric 10y ago
    do utilize their endowments Not really, if they receive donations of X and take less than X out of their foundation every year they are not utilizing their endowment while complying with the law. > At least some are currently operating at a deficit. Good, if none of them every operate at a deficit they are not pulling enough money out. On average you should draw down an endowment so it's growth over 20 years is just below inflation letting new donations top it off. PS: Your model of indefinite investment fails the societal instability test. There are no fortunes from even just 3,000 years ago because institutions are not stable. Further, people may not exist in even 100 years so investing for the ultra long term is a mistake.
    - nickles 10y ago
      > Good, if none of them every operate at a deficit they are not pulling enough money out. It is a death sentence for an organization to draw down its endowment. Please refer to the source I provided previously about the NYC Opera for an example. > On average you should draw down an endowment so it's growth over 20 years is just below inflation letting new donations top it off. It would be great if you could substantiate your claims. MIT provides a description of its endowment objectives [0] and provides the following formula for its distribution: Distribution = 80% x (Distribution in Prior Year, Increased by Inflation) + 20% x (5.1% x Market Value of Endowment) Nowhere in their endowment spending policy do I see any reference to factoring donations into their decisions about drawing from the endowment. > Your model of indefinite investment fails the societal instability test I searched for "societal instability test" Google returned 'No results found for "societal instability test"'. Although it's convenient to fabricate evidence for claims, doing so does not actually make the claims true. > There are no fortunes from even just 3,000 years ago because institutions are not stable. Again, a cursory search [1] seems to contradict your claims that institutions are inherently unstable. While The Kongo Gumi Company is not quite 3000 years old, clearly institutional longevity is possible. > Further, people may not exist in even 100 years so investing for the ultra long term is a mistake. By that line of reason, people may not exist in even 100 hours, so investing for any period of time is a mistake. However, I assume you're not spending any money you have as soon as you acquire it. [0] http://web.mit.edu/fnl/volume/205/alexander_herring.html http://web.mit.edu/fnl/volume/205/alexander_herring.html [1] https://www.quora.com/What-is-the-oldest-institution-organization-that-exists-today https://www.quora.com/What-is-the-oldest-institution-organiz...
      - Retric 10y ago
        Societal instability is a common issue with any form of long term planning. It is a very basic idea, and ignoring it will 100% guarantee failure. EX: "It risks a host of problems, including the possibility of reprocessing, social instability, leaks and accidents, or destruction of waste storage containers by natural disasters or terrorism." http://ieer.org/resource/commentary/yucca-mountain/ http://ieer.org/resource/commentary/yucca-mountain/ PS: Using google is no substitute for basic competence.

by nickles 10y ago

Retric 10y ago

I doubt they would actually need 80k/year per student preserving their capital. More broadly though, what's the point of a foundation if you never extract anything. Further they will receive donations and tuition, but they clearly don't need 'help'. In fact not having a long term plan to use their foundation is more irresponsible as they really could just lose all that money in 200 years without using it for anything.

nickles 10y ago
> what's the point of a foundation if you never extract anything These institutions do utilize their endowments. As nonprofit entities they are only allowed, by law, to retain a portion of their gains. > Further they will receive donations and tuition, but they clearly don't need 'help'. At least some are currently operating at a deficit. > In fact not having a long term plan to use their foundation is more irresponsible as they really could just lose all that money in 200 years without using it I hope you see that there's a contradiction in that statement. You're encouraging rampant short term spending while simultaneously claiming centuries old institutions have no long term plan.
- Retric 10y ago
  do utilize their endowments Not really, if they receive donations of X and take less than X out of their foundation every year they are not utilizing their endowment while complying with the law. > At least some are currently operating at a deficit. Good, if none of them every operate at a deficit they are not pulling enough money out. On average you should draw down an endowment so it's growth over 20 years is just below inflation letting new donations top it off. PS: Your model of indefinite investment fails the societal instability test. There are no fortunes from even just 3,000 years ago because institutions are not stable. Further, people may not exist in even 100 years so investing for the ultra long term is a mistake.
  - nickles 10y ago
    > Good, if none of them every operate at a deficit they are not pulling enough money out. It is a death sentence for an organization to draw down its endowment. Please refer to the source I provided previously about the NYC Opera for an example. > On average you should draw down an endowment so it's growth over 20 years is just below inflation letting new donations top it off. It would be great if you could substantiate your claims. MIT provides a description of its endowment objectives [0] and provides the following formula for its distribution: Distribution = 80% x (Distribution in Prior Year, Increased by Inflation) + 20% x (5.1% x Market Value of Endowment) Nowhere in their endowment spending policy do I see any reference to factoring donations into their decisions about drawing from the endowment. > Your model of indefinite investment fails the societal instability test I searched for "societal instability test" Google returned 'No results found for "societal instability test"'. Although it's convenient to fabricate evidence for claims, doing so does not actually make the claims true. > There are no fortunes from even just 3,000 years ago because institutions are not stable. Again, a cursory search [1] seems to contradict your claims that institutions are inherently unstable. While The Kongo Gumi Company is not quite 3000 years old, clearly institutional longevity is possible. > Further, people may not exist in even 100 years so investing for the ultra long term is a mistake. By that line of reason, people may not exist in even 100 hours, so investing for any period of time is a mistake. However, I assume you're not spending any money you have as soon as you acquire it. [0] http://web.mit.edu/fnl/volume/205/alexander_herring.html http://web.mit.edu/fnl/volume/205/alexander_herring.html [1] https://www.quora.com/What-is-the-oldest-institution-organization-that-exists-today https://www.quora.com/What-is-the-oldest-institution-organiz...
    - Retric 10y ago
      Societal instability is a common issue with any form of long term planning. It is a very basic idea, and ignoring it will 100% guarantee failure. EX: "It risks a host of problems, including the possibility of reprocessing, social instability, leaks and accidents, or destruction of waste storage containers by natural disasters or terrorism." http://ieer.org/resource/commentary/yucca-mountain/ http://ieer.org/resource/commentary/yucca-mountain/ PS: Using google is no substitute for basic competence.