EAs Should Invest All Year, then Give only on Giving Tuesday

[Epistemic Sta­tus: Fairly con­fi­dent un­der the as­sump­tions pro­vided be­low]

TL;DR: Many in­di­vi­d­ual EA donors should not donate through­out the year (e.g., at each pay­check). In­stead, they should prob­a­bly reg­u­larly in­vest those funds (e.g., in an in­dex fund) and donate the money therein to a matched Face­book fundraiser on Giv­ing Tues­day. The ex­pected value of a coun­ter­fac­tu­ally matched dona­tion out­weighs the dis­count­ing of fu­ture dona­tions, even if saved for a whole year. This im­plies many EAs are mak­ing a mis­take by donat­ing through­out the year in­stead of sav­ing all dona­tions for Giv­ing Tues­day.

How Much to Dis­count?

I as­sume that the proper dis­count­ing rate for pre­sent-vs.-fu­ture dona­tions is 16%/​yr., as that was the me­dian re­sponse in the lat­est 80,000 Hours sur­vey. In re­al­ity, this is prob­a­bly too high. If so, my con­clu­sions are even stronger.

EAs can hedge against this by in­vest­ing dona­tions in an in­dex fund.* I use and recom­mend Van­guard as a bro­ker­age firm be­cause they have no trans­ac­tion fees for buy­ing and sel­l­ing nearly all U.S. ex­change-traded funds. I also recom­mend us­ing Van­guard ETFs and mu­tual funds be­cause they es­sen­tially op­er­ate at cost. For the sake of this anal­y­sis, I as­sume you in­vest money you would oth­er­wise presently donate in their in­ter­na­tional small-cap in­dex ETF, VSS.† VTI has his­tor­i­cally earned an­nual re­turns of 9.28%.

Of course, if you think that giv­ing later is gen­er­ally bet­ter, then this whole post is moot. See this post for sources on this ques­tion.

Prob­a­bil­ity of Match­ing on Giv­ing Tues­day ’19

For my anal­y­sis, I as­sumed (con­ser­va­tively, I think) that a donor has a 30% chance of get­ting her dona­tion matched by Face­book on 2019. This year, 65% of dona­tions were matched. How­ever, my sub­jec­tive prob­a­bil­ity of get­ting a dona­tion matched on GT 2019 is sub­stan­tially lower due to:

1. Uncer­tainty about whether Face­book will run an­other Giv­ing Tues­day;

2. If so, what the de­tails will be (e.g., in­di­vi­d­ual match­ing limi­ta­tions);

3. In­creased com­pe­ti­tion for matched dona­tions;

4. Re­gres­sion to the mean.

Note that my con­clu­sion holds even if this prob­a­bil­ity is as low as 11%.

EAs Should In­vest-to-Give, Then Donate on Giv­ing Tuesday

Un­der the above as­sump­tions about dis­count­ing and match­ing, ac­cord­ing to my calcu­la­tions, EAs should:

1. In­vest their dona­tion money all year in an in­dex fund;

2. Donate all that money in matched EA fundraiser on Giv­ing Tues­day. Join this Face­book group to co­or­di­nate for this.

This holds even for money a year in ad­vance, which, us­ing the above num­bers, has an ex­pected value of 118% its nom­i­nal value us­ing this strat­egy.

Caveats

Ob­vi­ously this only ap­plies to donors who can donate through the Face­book Giv­ing Tues­day plat­form. Join the afore­men­tioned Face­book group for more dis­cus­sion of this.

If you dis­agree with my nu­mer­i­cal as­sump­tions—or have spe­cial con­sid­er­a­tions not cap­tured above—I en­courage you to down­load my spread­sheet and ad­just them on your own.

*If you are risk-averse in your dona­tions, then you should choose a lower-risk, lower-yield op­tion for your sav­ings. Bren­don Wong lists recom­men­da­tions for such sav­ings amounts here, and rea­sons one might want to be some­what risk-averse in dona­tions here. Even if you as­sume 2% an­nual yields, it makes sense to save all year then give on GT.

† I origi­nally recom­mended a large-cap ETF. How­ever, small cap ETFs gen­er­ally get bet­ter re­turns on in­vest­ment (with higher as­so­ci­ated risk). So, in the in­ter­est of pro­mot­ing and en­dors­ing risk neu­tral­ity, I’m recom­mend­ing VSS.