finance
Can You Keep on Giving When the Market Keeps on Taking? by DouGLas GoLDstein, cfP®
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I’ve got charitable commitments to several organizations,” a client told me recently. “But look at the market! How can I sell my stocks at this price to make good on my promise?” Would you say the same thing to your kids? “Sorry, son. The stock market went south, so instead of going to school this year, you’ll be working in the factory.” Would you turn to the soup kitchen you’ve been supporting and tell them you can’t afford to write a check because the market crashed? Hopefully, you’ve developed enough of an investment strategy to deal with the blows that the market sometimes deals. Intellectually realizing that the market is volatile and you have the potential of losing principal is very different than seeing real losses on your monthly statements. Since the domino effect of the market’s drop is just beginning to reveal itself, we must all reevaluate our budgets and investment strategies – that means your personal spending as well as your charitable giving. Will it get better? Before addressing the issue of when/if the economy will improve, think about your own situation. Is the money that you will need in the next year or two properly invested? In other words, have you placed the money for your personal needs and charitable requirements in the bank, in short-term CDs, or in a money market fund? If not, move it there now. Since these are funds you need for current spending, you can’t afford to lose the principal. If you will need the money in shekels, it may be best to keep the funds in shekels so you don’t add the risk of currency movement and conversion to the already uncertain markets. It would be great if the stock market would shoot up tomorrow, but you can’t count on it. Even changing political realities may not improve the American markets. In fact, the day after Barack Obama was elected, the stock market tumbled – not a glorious Wall Street welcome for the upcoming commander-in-chief.
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Everyone has a responsibility Philanthropists often feel a moral obligation to stick to their word if they’ve made pledges, even if that means they need to reevaluate other spending and restructure their finances. Similarly, in tight times charitable organizations should engage in fiscal soul-searching and budget reviews, too. At a time when their donations may be shrinking and their population base expanding, charities must consider such issues as:
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Have you placed the money for your personal needs and charitable requirements in the bank, in short-term CDs, or in a money market fund? If not, move it there now.” ° Do we waste too much time in committee meetings? ° Is the right person running the organization? ° Is the organization run like a business, always focusing on the bottom line? ° How much overlap is there in responsibility? ° Does the board actively demand accountability? ° Are salaries high enough to attract good people, but low enough to make sure only the most committed people join the team? ° Do all sizeable contracts get put up for tender rather than someone hiring, say, the director’s brother-in-law, “because he’s the best in town”?
auditing procedures, speak to a charitable advisory company that can do the handson due diligence for you. They go into the “kishkas” of the organization to make sure that your charity is properly handled. I promise to give … but only if the market goes up. No one can predict when the market will go up. Though some analysts will remind you that since 1926 the average bear market has popped up 46% the year after it bottomed, others will cautiously remind you that past performance is no guarantee of future returns [Source: Fidelity Management & Research, October 21, 2008; see www. profile-financial.com for a free download of the report]. As such, your financial plan should consist of something else other than trying to predict the market’s movements. Waiting is a fine interim move, but while you are waiting, make sure you can meet all your budgetary obligations. Don’t make supporting your family and your gifts to charity dependent on Wall Street. Instead, carefully lay out your goals, and then make sure you have enough cash on hand to meet your obligations. ° Email doug@financial-profile.com
In the same way that individuals should be in touch with their financial advisers to review their personal financial plans, charities, too, must bring together their teams of advisers. As a donor, if you’re not sure whether a particular charity has internal | December 2008