Geopolitical conflict, natural disasters and the global health crisis that has surfaced following the COVID-19 pandemic have depleted resources and strained capital reserves in almost every country.
Private philanthropy has long been an alternative source of capital when corporate and government resources are insufficient. The events of the last several years affirm the important role that charitable giving and the nonprofit sector play in supporting sustainable, equitable and healthy communities.
The 2022 volatility in investment markets, however, has caused even committed philanthropists to reconsider the amount and timing of their charitable gifts in an effort to preserve endowments and protect the principal of their investment portfolios.
With careful planning, donors and philanthropists can continue to be nimble and responsive to the goals and needs of their favorite charities while ensuring that their contributions align with their core interests and values. Taking time to assess how your financial assets can be effectively leveraged to support philanthropy, and then looking further at the additional value you can provide to mobilize resources for social good, is the key to continuing to make a positive impact even in a down market.
Giving Your Time and Talent
You have likely heard of the three Ts of philanthropy which refer to time, talent and treasure. In recent years, practitioners in the nonprofit sector and philanthropists have added a fourth “T” to the mix: ties or, in other words, using your networks of colleagues, friends, family members and other funders to gather charitable gifts for and increase awareness of the charitable causes you are supporting.1
Certainly, financial contributions and unrestricted gifts are the lifeblood of nonprofit organizations, without which they would not be able to achieve their missions. But some nonprofit organizations would have to close their doors if their non-cash resources, namely their pool of volunteers, decreased significantly — even if they remained well-funded.
We’ve seen this occur most recently when the pandemic forced many organizations to limit access to their premises to only essential workers. If the organization relied on volunteers to complete the tasks necessary to achieve their goals and mission, certain activities in service to their missions were abruptly halted.
Many effective philanthropists will, from time to time, volunteer at the organizations they support. They may serve in leadership roles as board members or trustees or sign up to do the manual work to execute the organization’s mission, such as deliver food and care packages to those home-bound due to disability or illness. Others will lend their expertise, skills or talents as accountants, real estate consultants, legal advisors or investment managers on an ad-hoc or pro bono basis to charitable organizations.
Donors who volunteer and volunteers who eventually become donors are often considered the most valuable resources of charitable organizations. They are committed, energetic, and they are often willing to do what it takes to support the issues and causes that are important to them.2 The point to remember here is that financial support may not necessarily be the most effective way to give.
Connecting Your Favorite Charities With Your Networks
For donors and philanthropists who have a fairly robust personal and professional network, making connections between and among their networks and their favorite charities may be the most meaningful contribution they could make. The work of building new relationships with individuals, funders and corporations while cultivating existing donors is a constant endeavor for nonprofit leaders and development professionals. When an existing donor is willing to open doors to prospective donors, these introductions can have a ripple effect and quite often will encourage other donors to join the effort. In fact, you may be able to achieve an even greater impact and help your favorite charity build its capacity by creating opportunities to connect a cause with individuals within your network and stakeholders who are uniquely positioned to help advance the mission of the charity.
Giving of Your Treasure
When investment markets are down, when interest rates are rising, when the stock market is a rollercoaster of volatility, or when inflation is climbing, it stands to reason that individuals may make fewer and smaller gifts to charities. But that doesn’t change the principal importance of financial contributions from individuals, trusts and corporations, specifically for general operating support and unrestricted grants. There are a surprising number of ways to continue to make financial contributions in difficult times.
Even in a down market, certain financial assets, including stocks, continue to be an effective way to build wealth over time and support your favorite charitable causes. In fact, certain marketable assets may still hold significant appreciation even after several months or quarters of a down market.3
Careful, strategic planning is required to match the right assets with the right kind of charitable gift. For example, if you had planned to diversify your investment portfolio and sell a particular stock which has subsequently lost value in the current down market, it might still make sense to donate that stock to charity. If you normally donate cash to charity and now you’d like to hold onto your cash to be ready to invest in real estate or another non-cash asset, donating stocks instead of cash can be a viable alternative.
Privately-held securities, restricted stock and equity compensation are also acceptable assets to donate to charitable organizations. These assets are often overlooked. But more and more charities have set up processes to facilitate the receipt of these kinds of assets. Donor advised funds can also accept gifts of these complex assets and convert them to charitable dollars that can be readily used to support their efforts. Moreover, if you’re able to fund a donor advised fund when it is financially advantageous, you will have funds available to make grant recommendations to charitable organizations even when the economic and market conditions are less than favorable.
Finally, if market volatility has resulted in a lower balance within your retirement account, this might be a good opportunity to convert a traditional IRA or 401(k) to a Roth IRA. A charitable deduction in the same year can offset the increase in taxable income triggered by the conversion.
In order to build and maintain an effective portfolio of assets for charitable giving that will weather the storm of volatile markets, it is equally important to keep a long-term perspective while considering how you might harness the power of the four Ts to sustain or even increase the value of your philanthropic contributions.