Investing Four Steps to Smart Giving By applying principles used in investing strategies, donors can make better, more effective, philanthropic choices Investing Investing By Eric Kessler Americans donated more than $260 billion in 2005, making us the most philanthropic citizens in the world. We support everything from education, the arts, and faith-based organizations to medical research and environmental protection. We do not, however, always approach our giving with the discipline it deserves. <BR /><BR /> Too many donors rely on the good intentions of the organizations they support and their oftentimes vague or minimal financial reporting. This can be a shortsighted if not irresponsible strategy, especially given some of the recent Enron-like scandals within some of the country’s most venerable nonprofit organizations. <BR /><BR /> For large contributions from wealthy individuals or family foundations, sound decisions may best be made by an independent adviser whose primary concern is seeing that the donor’s good intentions are maximized. However, even smaller gifts can benefit by adapting four strategies of prudent financiers. <BR /><BR /> By giving your philanthropy some thought, you can realize your desire to be socially responsible and personally gratified while also maximizing the impact of your contribution to the causes about which you feel passionate. Borrowing some concepts from finance, and our new "donor evaluator survey" (www.givesomethought.com), taking these four simple steps can make a powerful difference in the impact of your giving. <BR /><BR /> <leadin>Strategy 1—Portfolio Management: Developing a strategy</leadin> Begin by understanding your style of giving. Do you respond spontaneously and emotionally to every organization that solicits your support? If so, at the end of the year your record of charitable giving might well resemble an impulsive shopping spree. <BR /><BR /> Consider seeking out organizations you want to support instead of waiting for them to come to you. Also, instead of giving, in general, to a category such as "the arts," consider targeting a specific program or multiple programs in the same category and earmark your donation. <BR /><BR /> Allow for some rainy-day flexibility. At times, your favorite nonprofit may need a little extra assistance, or a natural disaster may warrant a change in your strategy. Just as a savvy Wall Street investor keeps part of his or her portfolio liquid enough to respond quickly to unforeseeable opportunities, you as a donor can be ready to react without diverting already-committed funds from deserving organizations. <BR /><BR /> <leadin>Strategy 2—Due Diligence: Doing your homework</leadin> Words and phrases like "sustainable," "values driven," and "community-based" are found frequently on nonprofit Web sites and in their annual reports. But what do they all mean? <BR /><BR /> Doing due diligence before contributing to a nonprofit is just as important as when investing in a publicly traded company, new venture, or mutual fund. Evidence that the organization is as effective as it claims to be should not be limited to its glossy images of smiling children. <BR /><BR /> Have you ever sought out copies of your favorite charity’s tax returns? They’re publicly available and can help make an organization’s finances and expenditures more concrete. But they still won’t tell you entirely what contributed to their increase or decrease in revenue, how effective or qualified senior management is, and what contribution and level of participation a celebrated individual on its board is making. And if the organization is effectively documenting its performance, how does it stack up to other nonprofits working on similar causes? <BR /><BR /> <leadin>Strategy 3—Asset Allocation: Knowing how much and how often</leadin> "Your contribution is needed and appreciated no matter how little you are able to afford." Well, not really. Just as crafting a strategy means saying no more often than you say yes, effectively allocating your assets means staying focused within predetermined parameters. <BR /><BR /> In fact, the cost of administering a small gift takes a greater percentage of the contribution than does administration of a large gift. If you're inclined to give multiple donations to a short list of favorite charities throughout the year, consider that single but bigger contributions will be more effective in realizing each recipient’s goals. <BR /><BR /> <leadin>Strategy 4—Return on Investment: Measuring your impact</leadin> Accountability by a nonprofit should be as important a component in philanthropic planning as it is in investment planning. Remember, your giving should not be evaluated based on how much you gave, but instead on how much was accomplished as a result of your giving. <BR /><BR /> However, results are not just measured in the number of meals served in a soup kitchen or books added to a library. Some donors shy away from general support contributions, fearful that they lead to excessive overhead or because they want their dollars to be used only toward direct program expenses. However, pens, rent, and efficient administration are also crucial to a program’s success and rarely receive needed support. <BR /><BR /> By giving your charitable gifts the same thought that you give your financial investments, your confidence as a philanthropic investor is sure to increase, and your charitable portfolio will have a more meaningful return. http://www.businessweek.com/investor/content/nov2006/pi20061122_718408.htm http://www.businessweek.com/investor/content/nov2007/pi20071125_439951.htm,http://www.businessweek.com/investor/content/nov2007/pi20071126_163403.htm,http://www.businessweek.com/investor/content/nov2007/pi20071126_946554.htm False