Like any investor, I could talk for days about the importance of diversity in one’s portfolio, how to approach difficult investment decisions, and when the promise of reward is or isn’t worth the risk. I’m also one of a growing number of investors to whom philanthropy is incredibly important—and not necessarily on its own, but as a reflection of my investment philosophy. I’ve found that an investment-minded approach to charitable giving can maximize altruism by intelligently allocating donations where they will create the most impact.
The traditional mindset approaches charity as an extension of consumption: we give to make ourselves feel better, giving a limited amount to causes we think are important. The consumer isn’t concerned with the impact of what they spend, but what the product itself can do for them right away. And charity as a product is different than charity as an impact: it’s a good feeling or bragging rights, but it’s ultimately ephemeral.
Investing is different than consuming, even though the idea is similar: both decrease your funds, and both can provide happiness and satisfaction. The difference is that investing promises a tangible reward in the future, while consuming (or spending) offers immediate satisfaction. If you’re buying food, you’re consuming, yes, but also (potentially) investing in your health. In other words, investments are more than products: they have an entire life-cycle of fluctuating value.
When charity acts as a form of consumption, the benefits end right where they begin, at the warm, fuzzy sensation (the product) you feel when you give. When you treat charity as an investment, by contrast, you’re taking into consideration long-term benefits. It’s a difference in due diligence, efficiency, and outcome.
A shift from consumption-minded charity to investment-minded charity would be beneficial all around, especially considering the number of fraudulent charities out there, and the discrepancy between causes that need funding and those that actually get it.
How, then, should an investor or investment-minded philanthropist approach charity? A good start is to screen charitable organizations as thoroughly as you would a company you invest in. You can seek out third-party evaluations and even tax returns to make sure they are spending donations to your liking. You might also check out GiveWell, which conducts in-depth charity research to identify high-impact giving opportunities.
Second, perhaps it makes sense to find charities that have a measurable impact that you understand and can be kept informed of. Evidence-based nonprofits are great for this, because they can show you the exact correlation between your money, what they do, and what the result is.
Next, don’t buckle under the pressure to give. Take your time, and choose causes that align with your goals and values. If you’re buying any product, you want to know it’s the best for you, rather that throw money at the first salesmen who knocks at your door. Investigate and make informed choices.
Investors might also consider investing in humanitarian startups that integrate societal good as a core value while also retaining the ability to scale and turn profit. Doing so gives you ROI, but just as importantly provides transparency about the difference your money is making along the way. Your investment isn’t a donation in this case, but it’s an investment driven by philanthropic appeal — the best of both worlds.
Lastly, starting a private foundation is an intelligent way to streamline charitable giving and leave a lasting legacy through endowments. Private foundations can employ loans and equity investments as forms of giving, making more out of your philanthropic capital overall. There is also the added bonus of an upfront tax deduction that lets you make charitable gifts over time, without pressure, and according to your unique values.
Whatever the case, it seems clear that the more all of us treat our donations as investments, the greater the overall results will be. A strategic approach to both generating wealth and giving it is the only true way to truly get what we give.