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30.10 20140

RE: RE: Should I Give Now or Give Later?

The good folk at REG Charity took the time to write a rebuttal to my earlier post on donating to charities. I have to say, despite writing this blog for 9 years now, I still kind of assume no one reads it and use it more of a rambling soapbox of things that pop into my head or almost as quite literally a web log of things I’m doing, so it’s quite an honour to have someone write a full blown article about something I wrote!

To the point. The article makes some good points and some I disagree with so I’ll go through it.

Statistics show that most folks have never written a will. And even if you’re not a millionaire, it’s totally crazy to walk around without one.

This is completely true. Having witnessed my father deal with the pain of being one of six children and having to sort my grandfathers estate, I made it a priority to sort my will as soon as possible. It’s going to happen eventually, don’t leave people close to you with either a bill for solicitors/lawyers or even worse, nothing at all. It costs about £100-£150 to get it done in the UK and pretty much every high street solicitor can do it in under 30 minutes. So do it!

Almost every country offers 100% tax breaks on money donated to charity. So if your marginal tax rate is something like 35%, then giving to charity is actually 35% better than it otherwise seems to be (before taking this consideration into account).

I didn’t consider this as I fall under the tax bracket for the UK where we have the cushy lifestyle of having gambling be tax free. If you plan to give at some point in your life or death, and tax deductions are applicable to you, then you absolutely should take advantage of this. It effectively means the government donates to the charity as well and it’s hard to beat a matching bonus.

The example you set could easily be worth more than everything you give

To the mass population I’d say this is either inapplicable or has a negligible effect.

Consider what would happen if you backtested the idea of giving to charity 100 years in the future. So you’re transported 100 years into the past but you still want to “raise the quality of living for the most amount of people as much as possible per dollar spent”. What would happen? Should you save all your 1914 money and invest it in a massively clever and prescient scheme to help improve the lives of people living in the distant future of 2014?

If you took this from time dot when charities first started to exist then I would suggest that the amount raised by donating in wills (as long as people followed through – big if and more on that later) would be substantially higher.

Take this example:

  • Charity starts at time zero
  • People who have capital dependent jobs and want to donate have option between 2% gross earnings a year or 2% net assets at death

As people are dying all the time, to this population, assuming they are sound investors of their own money, I believe the 2% net assets would come out on top. Why? Because their wealth has compounded over their entire lifetime. Compounding 100% of their gross income over 98% with a 2% annuity amounts to a helluva lot more.

Now my assumptions here are broad and assuming perhaps a bit too much rationality that may only exist in Warren Buffet.

I don’t think it’s reasonable to compare modern day 2014 as straight back to 1914 as all those years prior to 1914 people would have been donating (and were).

“Non-profit organizations can have endowments and those endowments can invest in securities just like individuals. So if long term-investment in the stock market were really a superior strategy, the charity you’re intending to give your money to could do the exact same thing. They could tuck all your annual contributions away in a big fat, tax-free fund to earn market returns until they were ready to unleash a massive bundle of money just like you would have. If they aren’t doing this already, it’s probably because the problem they’re trying to solve is compounding faster than the stock market compounds interest. Diseases spread, poverty is passed down, existential risk increases.” – Louie Helm

While this is true, their human capital lies in effective giving, not playing poker or investing in securities. So while they can invest in other securities, I think it would be a poor use of their time to spend several years becoming a winning poker player. Good poker players have a financially valuable skill that can make a lot of money and don’t run in to diminishing returns for quite a while. Good investors probably won’t run into diminishing returns in their lifetime, unless they’re as good as Buffet and made too much money to efficiently invest.

I should make it clear that I think for the vast majority of the population, and even most poker players, I believe it is better to donate now rather than later. But under the circumstances where someone has a) a capital dependent job b) a high return on that capital c) strong growth potential for that capital (little diminishing returns) c) has a credible will then I think later is better than now. Lots of big ifs of course. It would be foolish of me to not recommend donating 2% of your gross winnings to REG, you’re all fish anyway 😉

Thanks for the reply REG and I’ll consider putting you in my will if I ever get around to updating it!

The post “RE: RE: Should I Give Now or Give Later?” was first posted on Rupert Elder’s Blog.

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