THE BLOG
01/07/2014 02:43 pm ET Updated Mar 09, 2014

Time to Manage Your Charitable Portfolio?

Whether you select your own stocks and bonds or invest in mutual funds and other vehicles, those with funds to invest put a good deal of effort into managing their portfolios, seeking the right balance of return and capital preservation or capital growth, whatever the objective at one's stage of life. Many of us are not particularly good at managing investments, however, so we seek professional help -- brokerage firms, financial advisors and the like. But when we give two percent of our household incomes (on average) to charitable causes and nonprofit organizations, we tend to be pretty darned passive about it.

You're probably shocked at the two percent figure, particularly if you tithe or are otherwise unusually generous. However, the fact is that Americans contribute plus-or-minus two percent of their household incomes annually and have for many years in succession. The same plus-or-minus two percent applies to the percentage of Gross Domestic Product we contribute, and it's been at that level for many decades. Still, two percent of a very large number is also a very large number.

The catch is, we are such a generous and activist people that we create new causes and nonprofit organizations all the time. The IRS is the only significant national regulator of charities and it has had little inclination or resources to ensure all are worthy of the designation, and so the numbers of nonprofits grew at pretty steep rates up until the last couple of years, when organizations that did not meet certain basic standards and reporting requirements were winnowed out. Good start, IRS.

The upshot of dramatic growth in the number of nonprofits and the stagnancy in the rate of giving is more and more causes and organizations vying for a relatively fixed piece of the economic pie. But then you know that from all the mailings and phone calls and sidewalk intercepts and charity events, etc. that you experience almost every day. (Adding to the problem are all the small-p political and business interests masquerading as charities that raise money for their special interests, but that is a subject for another day.)

It is literally impossible to cope with all the causes and organizations out there, so we tend to respond to who's in front of us, who asks us. They are probably good organizations and maybe we have done our research (I tend to think the BBB Wise Giving Alliance is the most methodical so-called-charity watchdog), but responding to requests is not a strategy. We're making investments. Why don't we bother to balance our giving portfolio to ensure that what we care most about, what is most important to us, is where we share our wealth?

We can all take a page from the Bill and Melinda Gates Foundation, the Annie E. Casey Foundation, the Kresge Foundation and other well-run foundations. There is a standing joke among nonprofits (grant-seekers, in foundation lingo) that foundations (grant-makers, in foundation land) are always working on new strategic plans, especially when there are changes in foundation leadership: new CEO = new strategy. That said, major, professionally run foundations tend to examine their founders' intent, the nature of social issues relating to that intent, and a host of other factors to determine where they think investments of dollars for which they are responsible can make a difference. (I put "they think" in italics because there are not definitive societal priorities; there is always a significant element of subjectivity.) In other words, foundations set priorities and tend to do so in the context of a strategy, allowing the foundation to invest in several different thrusts and activities within each, just as we could as individual and family donors.

I tend to think of a charitable portfolio having the following key elements:

1) Stage of life, family-related giving. Supporting one's kids' sports leagues, community centers, etc. and later in life the programs that assist our grandparents or parents or relatives with disabilities throughout the lifespan is often at the core of our charitable activities and changes with our responsibilities at different stages of life.

2) Issues that touch us in personal ways. Whether it is cancer or heart disease or learning for learning-disabled kids, these are the issues that affect people we care about, so we give these issues a greater urgency than other charitable choices.

3) Issues that ignite our passions. Maybe you care a lot about access to family planning or reducing poverty or music or the visual arts. These are issues that relate to our values as citizens of the whole, but may or may not affect us quite as personally (except in aesthetic ways relative to the arts). Yet, they have their place in the queue of giving.

4) Religion, religious community. Many of us want to support our chosen faith institutions and we may also want to support faith-related programs or causes that primarily benefit a given faith community, so perhaps we support the institution itself as well as individual religion-affiliated entities or umbrellas, like Catholic Charities or Jewish Federation.

5) Ethnic identity giving. Some of us are quite melting-potted but many of us remember and honor our roots or perhaps identify with those roots and want to do something about the continuing challenges and well-being of our national or ethnic peoples.

6) Community giving. United Way has morphed from an umbrella campaign to an entity that takes on big issues of community concern with community strategies. There are other kinds of organizations in this total-community space, most of them home-grown and often issue-oriented. Given that United Way raises over four billion dollars annually, it appears that "community" matters to many donors and should be budgeted for.

This will drive you crazy but there is another level of priority-setting and portfolio-building --big buckets, like education, the arts (and within the arts, visual arts, music, etc.), health, and however else you think of the big elements that comprise what we think "community" should include. One could approach this cut as a separate priority or portfolio or as an element of "Issues that ignite our passions."

With the exception of the so-called charities and solicitors that actually generate very little for the cause, so many of the organizations we are asked to contribute to appear very worthy of a gift, but I suggest resisting... unless that cause or organization holds a place in your charitable portfolio. There is really very little to be gained by passivity in charitable giving. Make your investments in issues and in organizations that matter to you. You will be far less likely to fall for anything bogus, far more likely to have a discernible impact, and infinitely more fulfilled and at peace with your investment in community.

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