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I don't think 5% is a safe level. There are many charities that intend to operate in perpetuity, and this practice would eliminate this possibility.

krn 8y ago
Foundations often make more than 10% / year by keeping 60% of their funds in S&P500, and 40% in bonds[1]. Therefore, 5% seems to be a completely safe level. [1] https://www.foundationmark.com/indices https://www.foundationmark.com/indices
- charlesdm 8y ago
  Can yes. In good years. They can also lose 30% in a down year.
  - krn 8y ago
    The average return has been 8.8% since 1926, including 20 years with loses[1]. [1] https://www.vanguard.com/us/insights/saving-investing/model-portfolio-allocations https://www.vanguard.com/us/insights/saving-investing/model-...
    - kgwgk 8y ago
      These are nominal returns, real returns are worse. And the returns over 10 years, for example, are quite irregular and can be negative. And over the next 10 years one should expect to get lower-than-average returns because valuation is high currently. https://www.researchaffiliates.com/en_us/publications/articles/313_year_end_capital_markets_commentary_and_forecast_yesterdays_gone.html https://www.researchaffiliates.com/en_us/publications/articl...
- CompelTechnic 8y ago
  If you look at safe withdrawal rates that do not result in portfolio depletion, 4% is about the most you could hope for from a fairly stock-heavy portfolio, and this is a rate really intended for funding a 30-year retirement, not indefinite. 3% is more realistic for a permanent withdrawal. 10% is absurd.
  - usaar333 8y ago
    It matters how you are defining rate. The 4% rule is using a withdraw amount fixed to an initial start time, only increasing with inflation. If your withdraw in a given year is percentage of current portfolio size, you can tolerate a higher percentage.
- jermaustin1 8y ago
  Maybe there should be a minimum distribution of 5% of revenue from the previous year. So if you are adding money to the pot, or the investments are up last year, the organization has to either distribute or pay taxes. If in the prior year it doesn't take in any money (no donations, market down turn, etc), the organization can still operate in perpetuity.
bluGill 8y ago
Seems like a good thing in general. I don't want a 1850s charity whose purpose is to stop women from voting to still have money. (I doubt such a thing ever existed) Maybe a charity with the sole purpose to preserve some specific artifact (a piano) or the like, but somehow I want it to not get more money than is required for that purpose.
- icebraining 8y ago
  What about something like the Internet Archive?
  - rectang 8y ago
    Or the Free Software Foundation, the Apache Software Foundation, Software in the Public Interest, the GNOME Foundation, the Python Software Foundation, the Wikimedia Foundation... all of which are 501(c)(3) charities.
    - karmajunkie 8y ago
      To the extent that they continue to reflect the morals of later generations, all of these should have to renew themselves with the dollars of those generations. (And I'm sure these in particular will have no problems doing so.) edit: typo
- strictnein 8y ago
  What about a charity founded in 2020 to make sure everyone has access to vote? Should they also be punished, because of the non-existent example you cited?
  - karmajunkie 8y ago
    Not GP, but first off, if we're relying on charity to ensure voting rights, something has already gone horribly wrong. Secondly, as I've stated elsewhere, any charity or foundation ought to be required to get buy-in in the turn of new funds to keep operating. If it's truly a social good, that should be pretty easy. Let's turn your example around: what about a foundation founded in 1910 who's purpose is to protect the family unit by preventing women's suffrage? Should they be able to operate in perpetuity without additional support from the generations whose lives their work affects?
logfromblammo 8y ago
The lesser of 3% of the value of assets, or 80% of any increase in value from the previous year, would allow operation in perpetuity. That said, anything operating in perpetuity, under the direction of the dead, eventually becomes obsolete and potentially dangerous. The Earth belongs to the living. The charity should be required to distribute 100% of its assets immediately upon the death of the last of the heirs of the founders, who were alive at the time the founder from which they inherited died.
karmajunkie 8y ago
I don't think that's a bad thing. Allowing the social mores of the wealthy to continue driving society generations later is at best aristocratic. When we die, our influence should die with us, at least to the extent that later generations no longer share our present moral inclinations. A foundation that wants to live in perpetuity should have to continually refresh itself with the dollars of later generations. edit: typo

krn 8y ago

Foundations often make more than 10% / year by keeping 60% of their funds in S&P500, and 40% in bonds[1]. Therefore, 5% seems to be a completely safe level. [1] https://www.foundationmark.com/indices https://www.foundationmark.com/indices

charlesdm 8y ago
Can yes. In good years. They can also lose 30% in a down year.
- krn 8y ago
  The average return has been 8.8% since 1926, including 20 years with loses[1]. [1] https://www.vanguard.com/us/insights/saving-investing/model-portfolio-allocations https://www.vanguard.com/us/insights/saving-investing/model-...
  - kgwgk 8y ago
    These are nominal returns, real returns are worse. And the returns over 10 years, for example, are quite irregular and can be negative. And over the next 10 years one should expect to get lower-than-average returns because valuation is high currently. https://www.researchaffiliates.com/en_us/publications/articles/313_year_end_capital_markets_commentary_and_forecast_yesterdays_gone.html https://www.researchaffiliates.com/en_us/publications/articl...
CompelTechnic 8y ago
If you look at safe withdrawal rates that do not result in portfolio depletion, 4% is about the most you could hope for from a fairly stock-heavy portfolio, and this is a rate really intended for funding a 30-year retirement, not indefinite. 3% is more realistic for a permanent withdrawal. 10% is absurd.
- usaar333 8y ago
  It matters how you are defining rate. The 4% rule is using a withdraw amount fixed to an initial start time, only increasing with inflation. If your withdraw in a given year is percentage of current portfolio size, you can tolerate a higher percentage.
jermaustin1 8y ago
Maybe there should be a minimum distribution of 5% of revenue from the previous year. So if you are adding money to the pot, or the investments are up last year, the organization has to either distribute or pay taxes. If in the prior year it doesn't take in any money (no donations, market down turn, etc), the organization can still operate in perpetuity.

bluGill 8y ago

Seems like a good thing in general. I don't want a 1850s charity whose purpose is to stop women from voting to still have money. (I doubt such a thing ever existed) Maybe a charity with the sole purpose to preserve some specific artifact (a piano) or the like, but somehow I want it to not get more money than is required for that purpose.

icebraining 8y ago
What about something like the Internet Archive?
- rectang 8y ago
  Or the Free Software Foundation, the Apache Software Foundation, Software in the Public Interest, the GNOME Foundation, the Python Software Foundation, the Wikimedia Foundation... all of which are 501(c)(3) charities.
  - karmajunkie 8y ago
    To the extent that they continue to reflect the morals of later generations, all of these should have to renew themselves with the dollars of those generations. (And I'm sure these in particular will have no problems doing so.) edit: typo
strictnein 8y ago
What about a charity founded in 2020 to make sure everyone has access to vote? Should they also be punished, because of the non-existent example you cited?
- karmajunkie 8y ago
  Not GP, but first off, if we're relying on charity to ensure voting rights, something has already gone horribly wrong. Secondly, as I've stated elsewhere, any charity or foundation ought to be required to get buy-in in the turn of new funds to keep operating. If it's truly a social good, that should be pretty easy. Let's turn your example around: what about a foundation founded in 1910 who's purpose is to protect the family unit by preventing women's suffrage? Should they be able to operate in perpetuity without additional support from the generations whose lives their work affects?

logfromblammo 8y ago

The lesser of 3% of the value of assets, or 80% of any increase in value from the previous year, would allow operation in perpetuity. That said, anything operating in perpetuity, under the direction of the dead, eventually becomes obsolete and potentially dangerous. The Earth belongs to the living. The charity should be required to distribute 100% of its assets immediately upon the death of the last of the heirs of the founders, who were alive at the time the founder from which they inherited died.

karmajunkie 8y ago

I don't think that's a bad thing. Allowing the social mores of the wealthy to continue driving society generations later is at best aristocratic. When we die, our influence should die with us, at least to the extent that later generations no longer share our present moral inclinations. A foundation that wants to live in perpetuity should have to continually refresh itself with the dollars of later generations. edit: typo