The Power of Endowment
Endowments are magic!
One of your first decisions when creating a fund at the Hampton Roads Community Foundation is whether you choose to make it last forever. That's an endowment, and endowments are our specialty.
Though Virginian-Pilot publisher Perry Morgan and his wife Bunny died in the 1990s, since 2000 they have granted $6.2 million to 56 nonprofits and 177 college scholarship recipients. And, their charitable fund keeps growing in value. Thanks to their charitable bequest, Morgans will always help others lead better lives. That's the power of endowment!
An endowment will:
- Provide dependable, perpetual income to your chosen causes
- Carry on your family’s name – and legacy – forever
- Grow bigger over time, which fuels even more grants or scholarships
Gifts from a community fund endowment can make all the difference to a nonprofit's work -- allowing it to innovate and address new challenges. That's a big part of the magic.
Thoughtful spending, prudent investment
The other part of the magic is a "Spending Rule" that would have worked through the Great Depression and did work through the 2008 Recession.
In the 1980s and 1990s, economists reviewed stock market returns dating back to before the 1920s. They determined this remarkable finding: if a college, nonprofit, trust fund or foundation limited its spending from 4.5 to 6 percent of their endowment’s corpus, the endowment would
- ultimately pay out more than the original gift
- grow in size, above and beyond the rate of inflation
- survive all bear markets allowing for steady grant amounts
The formula assumes that any additional investment earnings above the 4.5-6% remain in the endowment. The extra income makes up for years when the market under performs. At the Hampton Roads Community Foundation our spending rule allows for 4.5% of a fund (computed over 12 trailing quarters) to be distributed each year.
Read Leave Your Mark to see how you can start an endowment.