Doing double the good with your charitable money sounds like a no-brainer, but investors are just starting to catch on.
A growing number are using special accounts called donor-advised funds, which allow investors to designate assets for charitable giving.
Around 500 000 donor-advised fund accounts across the US had total assets of $100 billion in fiscal 2017, up 23 percent from the prior year, according to the National Philanthropic Trust.
Donations grew about 20 percent to about $19 billion over the year.
Many donors use such funds when they have a large cash infusion from say, the sale of a company or an inheritance, said Gil Crawford, chief executive of MicroVest, an asset management firm based in Bethesda, Maryland which focuses on sustainable investments.
Donor-advised funds may become more popular as U.S. tax laws that went into effect this year encourage saving up charitable donations over several years until they surpass the new, bigger standard deduction.
Money in a donor-advised fund is typically put into a general selection of mutual funds and exchange-traded funds (ETFs). This is where socially responsible investing is gaining a foothold - instead of a general S&P 500 mutual fund, donors are clamoring for options that weed out environmentally irresponsible companies.
“Many people have a generalised feeling – this is my charity wallet, I want to do no harm and - better yet - do good,” said Sarah Gelfand, vice president at Fidelity Charitable, the largest account holder of donor-advised funds.
About eight years ago, Gelfand said, clients started saying they wanted their money to work toward doing good, even when it was not being sent directly to charities.
Fidelity Charitable offers a selection of sustainable investing options. Three are ETF index funds selected for their ratings on environmental, social and governance issues, such as the Fidelity U.S. Sustainability Index Fund or the TIAA-CREF Social Choice Equity Fund, and one is fossil-fuel free, out of about two dozen total options.
Vanguard Charitable and Schwab Charitable, the other major players, have similar offerings on their menu of funds available for donors.
TAKING MORE CONTROL
Some large institutions will allow your personal financial adviser to oversee the investments, but that is not as common as the option of picking from a menu of funds, said Jonathan Harrison, a certified financial planner, whose company Sound Stewardship directs impact investing with a Christian purpose.
The typical entrepreneur client is not satisfied with a simple 60-40 portfolio mix of stocks and bonds, said Harrison, who previously worked at the National Christian Foundation, a large donor-advised fund.
“They say, ‘It’s not there to pay my mortgage or feed me. So if I’m going to invest it, and I have an opportunity to invest it in something that has a bigger impact, that’s what I want to do,’” Harrison said.
Donors also have other ways to make more direct investments through charitable organizations. Firms like Crawford’s MicroVest and advisers like Harrison help connect clients who want to do more than just make a straightforward donation to a nonprofit.
Instead, they can direct their funds to groups like ImpactAssets or Water.org, which can turn charitable donations into microinvestments in developing countries. Returns can be reinvested or go back into their donor-advised fund to be given away to another organisation.Reuters