David Kaufman on the best alternative investment.
When you donate your money or time to charity, both you and others are always better off for it
Over the years I have spent countless hours studying the various attributes of a wide array of alternative investments, from real estate and hedge funds to private equity and farmland.
Although many of these i nvestment strategies and asset classes have the benefit of providing investment portfolios with greater diversification, lower volatility and enhanced yield compared to those portfolios that only contain traditional asset classes, none is without risk and all have their shortcomings.
I have always hoped one day t o stumble upon t he Shangri- La of investing, a sort of Minotaur or unicorn with unlimited powers and no weaknesses: the perfect investment.
Until now, this search has been in vain. But I can now say that I have discovered what I once considered to only be available in mythology. And it was always right there, hiding in plain sight.
Turns out, the best alternative investment — in fact, the best investment of all time — is philanthropy. Here’s why: Low interest rates mean low investment returns
Even after a lengthy equity bull market following the financial crisis, we still find ourselves in an anemic investment environment where low interest rates have had significant downward pressure on the expected returns of all investments. In some cases, the notion of “risk- free return” has been replaced with “return- free risk.”
Investing in this environ- ment ( in the absence of taki ng on considerable risk) equates to very low returns on both an absolute and relative basis.
And with tax rates increasing again in 2016, the majority of the returns you do manage to achieve will be taxed more harshly, l eaving you with virtually nothing. Charitable donations always provide positive returns
Investors are always looking for investments that give positive returns in negative market environments.
Giving money to charity means you are always helping someone. And when times are tough on the markets, it can be especially difficult for some less fortunate people. So giving during these times enhances the positive return on your investment.
In addition to the positive returns to others, you can personally benefit from being charitable. Employers usually favour candidates who give back to their community, and the community always re- sponds well to those who are charitably minded.
And the tax breaks that you receive for charitable gifts give you a monetary return through lower taxes on your investment and employment income. Being philanthropic makes you feel good
When was the last time you invested in a mutual fund and felt better about yourself the next day? Take that same money and give it to people and organizations who need it, and you will no doubt feel good about yourself.
You will also receive the appreciation of the people whom you help, the ones you work with to achieve these results, and your peers.
Although it i s true that charity, in theory, is supposed to be devoid of personal gain ( hence the notion that pure philanthropy is anonymous), there is nothing wrong with feeling pride when you are recognized. It’s part of what you get back when you give.
Of course, not all charit- able organizations are created equal. As with traditional investments, philanthropic investments require a good deal of due diligence.
For example, you should investigate how much of your money is actually going to reach the people you’re really trying to help.
As in business, there are charitable organizations that are well run and others that are not. It is incumbent upon you to investigate who runs the charity you are supporting and how effective they are at achieving their goals. After all, it’ s your money, and you want to ensure that it is spent wisely.
Because of their charitable status, you can access most of the information regarding their finances, and many charities also publish detailed annual reports available for review.
Some of you are no doubt thinking, “All of this is fine for people with tons of money, but I have enough trouble making ends meet without giving any money away.”
For those who can’t donate money, you still may very well have the most valuable asset of all to donate — your time.
The real engine behind great charities and not-forprofits isn’ t money—it’ s people. And if you can find the time in your busy life to donate your time, you will benefit from having made a worthwhile and highly profitable investment.
At this time of year we hear a lot about giving to others. It’s a very good time to think about how giving can become a central part of your investment strategy. Many people will be better off for it — including you.