Upwelling philanthropy logo for mobile devices

Donating and Investing

Donating and investing are similar in intent.

The intent in donating and investing is the same.  In both cases you are putting your resources into someone else’s hands with the expectation of producing a result.  With your investments that result is a financial return.  With your donations the result is a social impact.  Our work is rooted in the belief that the results we want to achieve through our donations are just as important as the returns we try to achieve through our financial investments.  Consequently, donating and investing require the same level of effort and care.    If you agree with that statement you face a significant challenge because the two sectors provide very different levels of resources for their participants.  The investment world is sophisticated and has well developed tools to assist the investor.  The nonprofit world is the opposite.  Upon realizing how different the two sectors were one donor said, “It is more difficult to give money away well than it is to earn the money in the first place!”  I quick review of the two sectors will reveal why he reached that conclusion.

Not everyone who participates in the stock market has a positive experience, but all investors have basic resources available to them to facilitate the process of buying and selling.  First and perhaps most importantly the investor has unlimited educational opportunities on the topic of investing.  These opportunities include advanced degrees, books, magazines, television shows and seminars.  If an investor wants to learn how to invest or he/she wants to teach their children how to invest the resources are available.  Next, there is an infrastructure that makes the investment process possible.  This includes the SEC, the Federal Trade Commission, banking laws, and many other regulatory agencies that standardize and regulate the trading process.  Equally important, there exists a global network of trained, licensed, and non-biased brokers who can assist the investor in the trading process and even in the process of evaluating each transaction with the standardized and current information that is available on each stock offering.  The potential investor can even get a report on an individual broker by contacting the Financial Industry Regulatory Authority (FINRA).  Finally the stock market investor is able to get immediate and continuous feedback on the results of their investment.

The philanthropist who wants to earn a social return faces a completely different environment.  There is no SEC in the NFP world and there are few standardized protocols for how a NFP is to perform.  The regulatory agencies in this sector are weak and they struggle to maintain compliance to the few standards that do exist.  Educational opportunities are now available to the philanthropist but they are new, often difficult to locate, and unequally dispersed.   The Internal Revenue Service now lists over 1.5 million NFPs that are registered in the U.S., but there is no standardized clearing house for information on these groups to assist the donor in making a strategic decision.  Compounding the difficulty for the donor is the fact that “brokers” in this sector, frequently called fundraisers, are anything but objective.  While the vast majority of fundraisers have a high degree of professional ethics, most are untrained, uncertified by any central authority, and they are all beholden to the agency that hires them.  The final challenge in this sector is that updated information on the NFP is only published once a year as a tax document and that information does not provide any objective metric on the outcomes or “returns” that have been achieved.

We began this discussion by stating that the results from our philanthropy are just as important as the returns from our investments, yet we would never make an investment decision the way most donors make donation decisions.  Would you buy a stock based on 12 month old data?  Would you buy a stock from a sales man who wasn’t licensed and worked for the company who was selling the stock?  Would you buy a stock if you didn’t know what if any results the company was producing?  A reasonable person would have to answer no to all of those questions, yet that is how donation decisions are made all the time.  We could do better if we approached our donation decisions with the mind of an investor.  Donating like investing requires the hard work of planning, due diligence, and monitoring.  Elsewhere on this web page we will discuss how these steps can be taken by the individual donor, but that process starts with a commitment to value our donations as much as we do our investments.  The causes we all care about deserve nothing less.