40+% average return is… too good to believe. Have you updated the numbers for this year as well or this is only for last year?
I am also very much against statements like “Your invested donation generates a profit” which are misleading. The donors should be made aware that their donation may as well generate a loss and I don’t see this warning anywhere on the site.
Did I read the financial statement correctly, that the organization is currently running at a loss? How are you currently covering costs? How do you expect your expenses to scale if the donations scale?
thanks for your reply: yes it is pretty good right!! We got lucky, to be honest. It is quite common for the annual interest to vary a lot year by year, see for example here. Give For Good was established in 2020, and the two financial years that followed were very good investments years.
Yes you are correct that this year is not so great :), so after we update the investments the next time, the average will likely be lower. We update everything early in the year after the closure of the financial year, so I expect these numbers to be updated by February/March.
Re your second point, it is actually a common misconception that all stock investments are risky. Investing in stocks definitely CAN be risky, e.g. when you pick certain stocks or invest for a short time. But there is solid evidence available that shows that if you spread your investments over a lot (really a lot!) of companies, eg 1000s of 10000s, plus if you hold those investments for a very long time, that investing is safe and generates a reliable interest. A good example is investing in ‘index funds’ which enable you to invest in all companies that offer stocks. This allows you to achieve the average interest of all companies combined and is what we do at Give For Good. A nice way to show this is the graph at the bottom of this page, which shows the range of interests that you would have achieved if you invested in such index funds. As you can see, if you had only done this for 1 year, the interest varied between −60% and +150% in the past 150 years. However, if you had invested for a period of 25 year, the interest varied between +2% and +12%. So for these index funds, there has never been a period of 25 years with a negative interest. The longer you invest, the more these ranges move towards the average (7%, corrected for inflation, 9,1% not corrected for inflation).
This is precisely the system we make use of at Give For Good and it is the same system that many other public-benefit organizations make use of, for example pension funds. Our big advantage at Give For Good is the same advantage that they (the pension funds) have: our investment horizon is very long, in our case we intend it to be infinite, so we want our donations to keep generating income for charities in perpetuity. This makes the investment system we adhere too safe and reliable in terms of the interest you can expect it to generate.
Re your final question, the financial statement: correct, we are fully run by volunteers at the moment. The few costs that there are currently each year (mainly some IT costs for hosting and software) we cover using no-interest loans that only have to be paid back if Give For Good is ever financially healthy enough to pay them back. For the medium-term, we do have a revenue model with which we hope to be able to hire staff in the future: asking a % of the interest we achieve on the donations. This is on purpose a % of the interest, and not of the donations themselves, so we only get operational funding when we actually generate profits for the charities. The % is currently set at 5%. Our long-term plan is for people’s donations to our own non-profit, Give For Good, to be enough to generate an income to support our operational expenses. This would allow us to decrease the 5% that we ask on the generated profits to 0%, so that 100% of the profit from the invested donations goes to the charities.
Regarding your question about scaling, we can scale almost infinitely with our current IT-system and volunteer efforts: it was set up on purpose to be manageable at a low cost, so that we have time to get our medium- and long-term revenue models going. Extra operational income in the future would be spent mostly on onboarding new charities and on convincing donors that this way of donating to charity is long-term the smart and effective way to donate!
Thanks for the answer, Rik, I appreciate it, even though I disagree with some points.
I don’t agree that the evidence is solid that the investment is safe, mainly because “Past performance does not guarantee future results”. For good or bad we live in interesting times, black swan events seem to happen more often and I don’t think the way the stock marked moved in the 1900s is indicative of how it will go in the 2000s.
Also there have been long periods where the stock market has been negative, for example Japan’s “Lost decade” (more like lost 30 years). If such a think happens you will not generate any interest and thus there will be no profit. How do you plan to cover operational costs if you have few consecutive years with no interest?
sure, my pleasure. I’ve posted here to convince people of the effectiveness of the donation system at Give For Good, so I appreciate the questions and feedback.
Re “Past performance does not guarantee future results”: I think it matters a lot which stocks you look to see if this statement is true. It is correctly used for trading in individual stocks or basket of carefully picked stocks. Also correct for when you look at holding broad index funds for a short amount of time. But when you are looking at holding index funds for a long period of time, I do not think this sentence makes sense, for 2 reasons:
The evidence is really good from the past that the longer you hold index funds, the more your interest moves towards the mean (around 9% uncorrected for inflation, 7% corrected).
Perhaps more importantly with regards to your question, there is a good theoretical reason for why stock index funds have a positive interest + a better interest than saving or bonds. We explain this here. In a nutshell: this is how our (capitalist) economy works. Economic theory dictates that in capitalism, you can earn ‘rewards’ (e.g., money) for two things: labor and capital. With labor the reward is a wage. With capital (eg by investing, loaning out money, renting out land or a house etc), the reward is profit/rent/interest etc. It is logical that lending out capital (which is what investing is) over long periods of time pays off on average. Otherwise, no one would lend out money or invest anylonger and the capitalist system would no longer work. It is also logical that this nets more rewards on average than saving at a bank or bonds, because those two carry less volitality in the short term. So you get a premium for the higher short-term volatility.
Hope that convinces you !
I’ve heard about the Japan argument before, but the same applies there as to all other markets that have seen a downturn, however short or long: A) if you increase the number of years of the analysis, the average interest becomes positive again and moves towards the mean, B) if you increase the geographical scope of the investment, the interest over the same time period also becomes positive. So the best strategy is to invest in world-level index funds for dozens of years. Which is what we do at Give For Good.
Re the operational costs: we buffer our income from investments. So instead of taking all operational revenue each year and using that to fund our expenses, we take what amounts to around 5% interest (so on purpose a bit below the historical average). Any money that is left over, we save for years with losses.
40+% average return is… too good to believe. Have you updated the numbers for this year as well or this is only for last year?
I am also very much against statements like “Your invested donation generates a profit” which are misleading. The donors should be made aware that their donation may as well generate a loss and I don’t see this warning anywhere on the site.
Did I read the financial statement correctly, that the organization is currently running at a loss? How are you currently covering costs? How do you expect your expenses to scale if the donations scale?
Dear m(E)t(A),
thanks for your reply: yes it is pretty good right!! We got lucky, to be honest. It is quite common for the annual interest to vary a lot year by year, see for example here. Give For Good was established in 2020, and the two financial years that followed were very good investments years.
Yes you are correct that this year is not so great :), so after we update the investments the next time, the average will likely be lower. We update everything early in the year after the closure of the financial year, so I expect these numbers to be updated by February/March.
Re your second point, it is actually a common misconception that all stock investments are risky. Investing in stocks definitely CAN be risky, e.g. when you pick certain stocks or invest for a short time. But there is solid evidence available that shows that if you spread your investments over a lot (really a lot!) of companies, eg 1000s of 10000s, plus if you hold those investments for a very long time, that investing is safe and generates a reliable interest. A good example is investing in ‘index funds’ which enable you to invest in all companies that offer stocks. This allows you to achieve the average interest of all companies combined and is what we do at Give For Good. A nice way to show this is the graph at the bottom of this page, which shows the range of interests that you would have achieved if you invested in such index funds. As you can see, if you had only done this for 1 year, the interest varied between −60% and +150% in the past 150 years. However, if you had invested for a period of 25 year, the interest varied between +2% and +12%. So for these index funds, there has never been a period of 25 years with a negative interest. The longer you invest, the more these ranges move towards the average (7%, corrected for inflation, 9,1% not corrected for inflation).
This is precisely the system we make use of at Give For Good and it is the same system that many other public-benefit organizations make use of, for example pension funds. Our big advantage at Give For Good is the same advantage that they (the pension funds) have: our investment horizon is very long, in our case we intend it to be infinite, so we want our donations to keep generating income for charities in perpetuity. This makes the investment system we adhere too safe and reliable in terms of the interest you can expect it to generate.
Re your final question, the financial statement: correct, we are fully run by volunteers at the moment. The few costs that there are currently each year (mainly some IT costs for hosting and software) we cover using no-interest loans that only have to be paid back if Give For Good is ever financially healthy enough to pay them back. For the medium-term, we do have a revenue model with which we hope to be able to hire staff in the future: asking a % of the interest we achieve on the donations. This is on purpose a % of the interest, and not of the donations themselves, so we only get operational funding when we actually generate profits for the charities. The % is currently set at 5%. Our long-term plan is for people’s donations to our own non-profit, Give For Good, to be enough to generate an income to support our operational expenses. This would allow us to decrease the 5% that we ask on the generated profits to 0%, so that 100% of the profit from the invested donations goes to the charities.
Regarding your question about scaling, we can scale almost infinitely with our current IT-system and volunteer efforts: it was set up on purpose to be manageable at a low cost, so that we have time to get our medium- and long-term revenue models going. Extra operational income in the future would be spent mostly on onboarding new charities and on convincing donors that this way of donating to charity is long-term the smart and effective way to donate!
best regards, and a Merry X-mas,
Rik
Thanks for the answer, Rik, I appreciate it, even though I disagree with some points.
I don’t agree that the evidence is solid that the investment is safe, mainly because “Past performance does not guarantee future results”. For good or bad we live in interesting times, black swan events seem to happen more often and I don’t think the way the stock marked moved in the 1900s is indicative of how it will go in the 2000s.
Also there have been long periods where the stock market has been negative, for example Japan’s “Lost decade” (more like lost 30 years). If such a think happens you will not generate any interest and thus there will be no profit. How do you plan to cover operational costs if you have few consecutive years with no interest?
hi,
sure, my pleasure. I’ve posted here to convince people of the effectiveness of the donation system at Give For Good, so I appreciate the questions and feedback.
Re “Past performance does not guarantee future results”: I think it matters a lot which stocks you look to see if this statement is true. It is correctly used for trading in individual stocks or basket of carefully picked stocks. Also correct for when you look at holding broad index funds for a short amount of time. But when you are looking at holding index funds for a long period of time, I do not think this sentence makes sense, for 2 reasons:
The evidence is really good from the past that the longer you hold index funds, the more your interest moves towards the mean (around 9% uncorrected for inflation, 7% corrected).
Perhaps more importantly with regards to your question, there is a good theoretical reason for why stock index funds have a positive interest + a better interest than saving or bonds. We explain this here. In a nutshell: this is how our (capitalist) economy works. Economic theory dictates that in capitalism, you can earn ‘rewards’ (e.g., money) for two things: labor and capital. With labor the reward is a wage. With capital (eg by investing, loaning out money, renting out land or a house etc), the reward is profit/rent/interest etc. It is logical that lending out capital (which is what investing is) over long periods of time pays off on average. Otherwise, no one would lend out money or invest anylonger and the capitalist system would no longer work. It is also logical that this nets more rewards on average than saving at a bank or bonds, because those two carry less volitality in the short term. So you get a premium for the higher short-term volatility.
Hope that convinces you !
I’ve heard about the Japan argument before, but the same applies there as to all other markets that have seen a downturn, however short or long: A) if you increase the number of years of the analysis, the average interest becomes positive again and moves towards the mean, B) if you increase the geographical scope of the investment, the interest over the same time period also becomes positive. So the best strategy is to invest in world-level index funds for dozens of years. Which is what we do at Give For Good.
Re the operational costs: we buffer our income from investments. So instead of taking all operational revenue each year and using that to fund our expenses, we take what amounts to around 5% interest (so on purpose a bit below the historical average). Any money that is left over, we save for years with losses.
Merry X-mas!