By Brandon Allen
Executive Director | Fortify Foundation
One of the questions I get asked the most is related to the investment strategy that Fortify provides. To this I would initially say… Rightfully so!
Risk
This should be the foundation for anyone that is considering investing either their own or their institution’s money. Sad to say, there have been many institutions that have shared horror stories in relation to their investment experiences. It turns my stomach every single time I hear some of the details surrounding those. Some instances honestly should have been followed up with lawsuits due to the poor management that was provided (but that’s just my opinion). If you’ve ever had a poor experience, this most likely causes a bit more reluctance when you think of any kind of investing due to the potential loss it may incur. Some have even concluded that any risk isn’t a good stewardship of their money. If we are honest with ourselves, we hesitate even more with things that may be outside of our control.
Compare this to our investment of time. It’s often said that time is our most valuable asset. If you’re reading this, you’ve probably committed a good portion of your life investing in the next generation through education. Is there a certain level of risk involved? Can you guarantee the returns received due to your dedicated time to this noble effort? It may be that you even take extra time with certain students to make an even greater impact. If you’ve been in your role for any length of time, you know that there are no guarantees that your time invested will reap the return desired. It may be that the student(s) completely reject what you are attempting to pass along. That would most certainly be a loss. But we still know that this never dictates our calling or willingness to continue investing in others.
Matthew 25:14-30 reminds us that it’s better to use our resources in anticipation of returns rather than bury it, or keep it in a holding account, where it is not doing anything. Verse 27 even shares it would have been better to give the money to investors so at least interest could have been gained on the money!
Due Diligence
Then there’s the other extreme. Being so tenacious in our investing that we fail to wisely distribute the funds in a responsible manner. This often happens when people invest based on an individual OR too good to be true schemes that always overpromise and underdeliver. Unfortunately, many of the sad stories I mentioned above were a direct result of these scenarios. It often comes in the form of… ‘there was a Christian individual that really had a heart to see us do well and promised double digit returns.’ It’s never my aim to focus on the past or further point out the factors that took place. Many times, it’s the promises associated with the opportunity that put up the blinders.
In other words, invest in the strategy, not in the person (regardless of how well meaning they may be). Yes, even beloved family / friends and trusted board members may not always be the best fit to manage the investments. I’ve discovered that oftentimes they aren’t as careful to follow the SEC or UPMIFA standards set forth for endowments. They may promise lower fees or inflated returns but for the sake of relationship and a good strategy, it’s usually not worth it.
Compare Apples to Apples
So, what should you do when looking for a fund manager?
What I am about to say holds especially true in the endowment world. Look at the 10 or even 20-year averages!
This past summer I spoke with an individual that was excited to share their school had an endowment fund already set up. This truly was encouraging to hear! She offered to read their school’s report sharing they had a 15% return in the previous year. Well, since she offered the information, I inquired about the return the year prior (aka 2022). She seemingly (and maybe incidentally) couldn’t find a report for that. It very well could be that their loss was more than the current reported gain. Average loss for many index funds was 16%+ that year.
This is where I encourage everybody to truly compare apples to apples. If you receive a report with double digit returns, walk away! Even the world’s largest endowments are reporting in the 8-9% return range for their 20-year averages. This means there will be highs and lows BUT the key is to look at the long-term and plan accordingly.
Spending Limits
With the typical return numbers stated above, a standard spendable balance falls in the 3-5% range on average. The key is finding an amount that can truly create a guaranteed perpetual income stream. To high and it may start drawing to the point of impacting the principal. Moving it each year may cause an ability to produce more in a given year but none in another year. Prudent management dictates a consistent number based on consistent returns. If your plan is to build a fund that produces a revenue stream to offset $50k of your annual budget, then we want to guarantee that amount as much as possible regardless of what economic climate we may be in.
Because endowments provide a long-term strategy, they also give the ability to build an algorithm in them to buffer the valleys with the mountains. Have you ever encountered somebody that wished to retire but the drop in markets hit their retirement fund in such a way that they needed to work longer? Once a fund has a certain level of history, we can offset this from happening by calculating a spendable balance based on the average daily balance of the previous 12 trailing quarters allowing for a good consistent return. Once your strategy is in place and initial goals are reached, this is when we start to reap the rewards of proper financial planning!
One of the greatest blessings I get in my role is the ability to see and learn about the history of Christian schools all across our amazing country! God has afforded an incredible opportunity to impact the next generation for Christ. We want to ensure that ability continues for generations to come!
Brandon Allen is the Executive Director for Fortify Foundation. Fortify is a strategic ministry partner formed exclusively to benefit Christian education. Brandon, and the Fortify team, is ready to help you, your donors, and stakeholders through fundraising, capital campaign management, and endowment support to benefit your short and long-term financial goals.
As you explore the concept of endowment, I would love to have a conversation with you about how this can create a more sustainable future for your school!
Contact Brandon at 803-615-3037 ext. 1 or Click HERE to schedule a call.
As you explore the concept of endowment, we would love to have a conversation with you and your board about how this can create a more sustainable future for your school! Contact us at 803-615-3037 ext. 1 or Click HERE to schedule a call.