PREMIUM SEARCH Search by job title, geography and build a list of executive contacts
Making mistakes in investing comes with the territory. Alas, the same can happen when making charitable donations. Witness the American Red Cross and other groups that solicited donations for September 11 relief funds now struggling -- red-faced -- to distribute the outpouring of money in the spirit it was given. America has its latest case study in charitable giving gone awry.
Curiously, investing well and giving wisely aren't all that different. Perhaps that's obvious to the rest of humankind, but it only dawned on me the other day while I was talking with Foster Friess, veteran manager of the Brandywine Fund (BRWIX
) and famously generous giver. At his 60th birthday bash a few years back, Friess handed out an unusual party favor: $25,000 checks for each guest's favorite charity.
AVOIDING BLUE CHIPS. The ultragenerous Friess, who is far more famous for finding hot growth stocks before they're hot, thinks finding worthwhile charities has similar characteristics to growth-stock hunting. "Investing in small-cap, mid-cap stocks you have much more leverage," he told me. "If you're in a big company, what's the chances of tripling or quadrupling if you have a Microsoft?" Applying that principle, Friess looks for "entrepreneurial" charities with low overhead, as opposed to big organizations.
"At some of the 'blue chip' charities -- the Red Cross and the United Way are probably examples -- the salaries coming out are very significant, and there are layers of bureaucracy and money spent on fund-raising," he points out. So Friess instead looks for "some policeman who, after work, goes out and starts playing catch with a couple of neighborhood kids. And about four or five years later he's got a little athletic league with 300 kids and their total expenditures are a few baseball bats and balls."
The principle of investing in a company or mutual fund with operations and a strategy that you understand has an analogue in charitable giving. Jack Brennan, chairman of mutual-fund giant Vanguard Group, told me the biggest mistakes he has made in giving to charity always came back to doing the research -- or not doing it. "Do I think that every gift we make is used as effectively as possible? I would be naïve to say yes," he told me.
OVERSIGHT. Just as it's important to track your investment portfolio and rebalance your assets, it's important to keep an eye on a group to which you donate your money. What once fit your goals may not always, Brennan noted. "There have been organizations that have kind of come in and gone out of our sphere of interest over time because either it drifted in a direction or it didn't end up being as effective as we thought it should be," he said. "It's not always a perpetual love affair with a charity."
And just as investing requires the discipline to say "No" to any number of pitches from brokers and advisers, charitable giving demands a thoughtful way of turning aside most requests. This is something Alexandra Lebenthal, president of brokerage firm and municipal-bond specialist Lebenthal & Co., told me she's still working on.
"The biggest mistake that I have made was not being savvy enough about how one is approached for large gifts and how to develop a way to tell that organization that you're not going to give them any money, and at the same time not feel horrible for doing that," she said. "You have to focus your giving on the few organizations that you are passionate about." For Lebenthal, it is the United Jewish Appeal, in part because it's relatively efficient, in part because it distributes money both in the U.S. and abroad, and in part because it benefits a variety of causes benefiting a broad group of people, not just Jews.
GIVING PLAN. Having an investment plan, such as dollar-cost averaging on a monthly basis, is key to meeting financial goals. Charitable giving is no different, but few people make a plan or set an annual budget for their donations. People tend to give spontaneously, when they get a fund-raising call from their alma mater, for example, or when disaster strikes. "People on the higher end just kind of pick numbers out of the air," says former money manager and philanthropist Claude Rosenberg. Big mistake.
That's why Rosenberg's NewTithing Group has developed a calculator at its Web site (www.newtithing.org) to help people figure out what they can afford to donate. Its research indicates that people with adjusted gross incomes, as reported on Internal Revenue Service forms, of $200,000 to $500,000 can afford to give 0.75% of their investment assets each year to charity. That percentage grows with a person's wealth, to 3% of investment assets for those with adjusted gross incomes of $1 million or more.
DOING WELL, DOING GOOD. All told, NewTithing reckons the nation's well-off can afford to make $127 billion more this year in charitable contributions. "We're not pointing our fingers at them and saying that they're penurious or that they don't care," Rosenberg said. But "we've gone through it and have tried to show people in a very conservative way that what might be a very comfortable [donation] level for them would be significantly more."
Can donating too little truly be considered a mistake in charitable giving? Perhaps -- but only if you define your quality of life solely by what happens to you and your family. The nation's generosity after September 11 demonstrates that such a self-centered outlook is the exception. The challenge now: making sure your charitable dollars go where you know they're needed most.
Barker covers personal finance in his Barker Portfolio column for BusinessWeek. His barker.online column appears every Friday, only on BW Online Edited by Patricia O'Connell
Get BusinessWeek directly on your desktop with our RSS feeds.
Add BusinessWeek news to your Web site with our headline feed.
Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video.
To subscribe online to BusinessWeek magazine, please click here.
Copyright 2001, Bloomberg L.P.
Printer-Friendly Version
