A common question that comes up in the effective giving community is whether we should give to the best charities we can find now, or invest our money in order to give away a larger sum to the best charity we can find in the future.
A brief treatment of this topic is available on an old blog post of mine, and a fuller treatment of the considerations at donating versus investing. While this is a tricky question to answer, our current recommendation for donors focussed on global poverty is to give now.
The key reasons for this are:
Improving health today has significant flow-on effects to the future, by ensuring people and their children are healthier, and better able to learn, work and make their countries prosperous. The earlier in time these health improvements are achieved, the more people benefit from these flow-on effects.
The short-term 'social rate of return' from containing contagious diseases today has been estimated between 15-30%. We are skeptical about how these figures are produced, and intend to scrutinise them properly in future. Nonetheless, the short-term return probaby exceeds expected returns on the stock market, which have in the past fallen between 4-8%.
On balance, we don't expect unfunded poverty-reducing projects to be more effective than our current recommendations in the near future for three main reasons:
In general, the world is getting richer, and poverty declining.
The worst global health problems, which we believe provide the most promising giving opportunities, are being resolved even more quickly than poverty is declining.
While better information about charity effectiveness is being produced, there are also a growing number of donors drawn to take up these opportunities.
While we are not investment advisors, the expected returns on investment are not likely to be very high in coming years. We are currently at long-term lows in interest rates, which are correlated with low returns on both bonds and equities. Past returns in markets like the US tend to overstate the true expected returns in future due to survivorship bias among stock indices. Many stock markets in the 20th Century (for instance, Russia or Argentina) returned nothing to investors! All things considered, we anticipate a modest return of under 4%, which makes it easier for the 'return on investment' to be trumped by other considerations. Some others argue for even lower numbers than this.
It is possible that your will-power for serious giving will vary over years or decades. Leaving money in your own account, even for enthusisatic donors, means that you risk spending it on yourself during a moment of temptation. Forming the habit of giving each year means you are more likely to stick to your giving goals.
We find these reasons quite compelling. However, we understand that reasonable people may disagree with this conclusion. For example, they may be more optimistic about the prospects for better giving opportunities to be identified using emerging strategies, like mass media education, or novel technologies such as vaccines for important diseases. This essay on Rational Altruist provides a well-thought through alternative view. For this reason, we are in the process of setting up a Donor Advised Fund (DAF) that would help combine the best of both approaches. Giving to our DAF means that:
You gain the tax benefits of donating this financial year.
It will be invested and earn some interest until it is donated.
It is easy to donate money to using a regular direct debit.
The money is out of your hands, so you can be sure it will be given to an effective charity (DAF's are legally required to dispurse funds to a registered charity).
You no longer have to think about what to do with it, and can delegate the decision to Giving What We Can's trustees.
However, you can still influence who it is given to, if you would like.
It is clear that you're keeping to the pledge, whereas if you are saving your money, it might appear that you have dropped out.
Unfortunately, to begin with, it will only be available to UK members but we hope to expand to other jurisdictions in the future. This blog will feature more information about how to give to our DAF in the near future, and this page will track any changes in our advice on when to give.
I look forward to hearing your view on the relative merits of giving now, versus investing and giving in the future!
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