WealthForTheWorld invests donations to grow them over time, aiming to donate a larger amount in the future. Which is better: donating directly now or donating a larger amount later?
By saving and investing assets, charitable purposes can be supported with more money in the long term than through direct donations. This assumption is based on the historical observation that the return on money invested in the capital market is greater in the long term than its loss of value due to inflation. For example, from 1970 to 2020, the global stock market averaged an annual return of about 5% after inflation. Thus, money invested in 1970 was worth over ten times its original amount by 2020.
However, this positive long-term capital return on charitable assets is not sufficient to justify preferring this approach over direct donations. The decisive factor is comparing the long-term social impacts (or social returns) of both methods. It's possible that the social return on money donated directly in 1970 could be higher in the long term than the social return on money invested in 1970 and donated in 2020, even if the latter amount is more than ten times larger. For instance, if money donated in 1970 had funded a clean water project preventing illness, the improved health and increased productivity of the community over the decades might result in a higher social return than the same money invested in 1970 and donated 50 years later.
The crucial question, therefore, is: Is the social return of charitable assets overall greater than the social return of directly donated money?
Social returns are more difficult to calculate and compare than financial returns. Reliable data on the long-term impact of philanthropic interventions is often lacking, and there is debate about how to effectively measure and compare social returns.
Despite these challenges, the social return on money invested is likely to be higher than that of direct donations, argues Philip Trammell of the Global Priorities Institute at Oxford University. Trammell writes:
Donating directly means giving to a cause that has other funders, such as people in extreme poverty. The main motivation for investing instead of donating to these causes is the belief that people, including the poor, generally save too little. Most people tend to prioritize immediate benefits over future ones or care less about future generations (e.g., their descendants) than about the current generation. This impatience results in more spending now, less saving for the future, and consequently less long-term well-being.
There is skepticism that the global poor typically have access to investments with returns high and persistent enough to outweigh the benefits of investing first and giving later. If such high-return opportunities existed, there would be incentives for outsiders to invest in these local opportunities, such as local farms. This motivation was behind profitable microlending, which has generally not met expectations.
While individuals in undeveloped regions might have somewhat higher investment opportunities due to local knowledge, it is unlikely that these opportunities consistently surpass equity returns. If money were given today to people in a region that grew faster than equity returns, the region would eventually catch up economically with the rest of the world. At that point, investing in those local opportunities would no longer be as difficult. If local and global investment returns eventually equalize, initially, a dollar invested today might be more valuable than a dollar with interest in the future due to similar returns. However, once this equalization happens, the value comparison changes: giving in 10 years might be less effective than giving today if the region develops quickly, but giving in 20 years could be as effective as giving today, and giving in 30 years could be more beneficial.
Additionally, invested money does not have to be allocated to the same beneficiaries over time. Even if some regions grow rapidly, there will always be other areas where future aid can be more impactful. For example, the Democratic Republic of Congo has a lower real GDP per capita today than in the 1960s, indicating persistent needs that might benefit from future-focused giving.
Adapted from an email conversation with Philip Trammell from the Global Priorities Institute (University of Oxford), edited by WealthForTheWorld.
Philip Trammell provides an extended discussion on this topic and related issues here.
A podcast with Trammell is available here. You can also find a lecture by Trammell on this topic here.
If you find this argument plausible, WealthForTheWorld offers a transparent, non-profit, tax-exempt platform for making donations through long-term investments. If you prefer to donate directly to effective non-profit organizations, we recommend visiting effektiv-spenden.org.
We are neither experts in development economics, nor do we have the know-how to make serious scientific assessments of the work of charitable organizations. We cannot and do not want to audit and evaluate effective organizations. We therefore trust the regular and extensive research of GiveWell's independent experts.
Detailed information on the selection criteria of our partners.
Our goal is to contribute as much as possible to solving pressing global problems.
To achieve this goal, we support organisations that work as effectively as possible on solutions to these problems
with monetary donations.
The following applies: the greater the WealthForTheWorld assets, the greater the future donations, the greater the
chance of overcoming problems such as extreme poverty, the pandemics, climate crises and so on.
Every euro invested in the WealthForTheWorld assets generates future donation payouts greater than the invested euro. Accordingly, there is no amount above which it would make sense to cap the WealthForTheWorld assets.
The WealthForTheWorld assets are dissolved when
The larger the WealthForTheWorld assets and the resulting donations, the more attention (media perception) our commitment to effectively altruistic positions gets.
The association faces monthly costs of approximately 15€
| Overview of expenses | |
| Legal Entity Identifier (LEI) | ~6€ |
| Hosting of the website and domain | ~4€ |
| Transaction fees on the purchase and sale of shares/ETFs | ~5€ |
| Expenditures per month | ~15€ |
|---|---|
WFTW is exempt from capital gains tax as a German nonprofit association. The calculation of the return, the design of the website, the newsletter and other activities of the association are provided on a voluntary basis and free of charge.
The specific annual income and costs of the association can be found in our current updated annual report.
WealthForTheWorld is manages its assets like a passive investment fund. The performance of the portfolio follows the performance of the global equity markets. We do not make active investment decisions in selecting stocks and in terms of an optimal time to buy/sell stocks.
Whether actively managed funds generate higher returns than passive funds is a controversial question. For example, in a comprehensive 2010 study, Nobel Prize-winning economist Eugene Fama states that, in principle, actively managed funds do not generate higher returns compared to the market.
Explanation of terms:
Active funds make timing (optimal buy/sell) and selection decisions to optimize the return of a portfolio.
Passive funds follow the performance of an index (e.g. the performance of the DAX).
The MSCI World Index is considered the most important benchmark index of global economic development. Composed of approximately 1650 individual positions from 23 countries, the MSCI World reliably tracks the development of the economies of the most important industrialized nations and thus the global economy. In addition, the MSCI World is one of the broadest investment products and thus allows to participate in the development of the entire economy instead of only one specific sector. In addition, the MSCI World is considered extremely reliable in terms of its long-term performance. Since 1970, it has been able to achieve an average annual return of around 7 percent. Even several substantial crises could not jeopardize the return of the index in the long run.
For these reasons, the MSCI World is well suited for our purpose of long-term passive investment. The WFTW fund is intended to enable people without capital in particular to participate in the long-term upward trend of the global economy.
The aim of WFTW's investment strategy is to passively participate in the growth of the global economy. To achieve this goal, we are also invested in companies that do not operate sustainably via the MSCI World ETFs.
Unfortunately, it is not straightforward to exclude these companies. Of course, we could invest in other ETFs.
However, this is not an optimal solution:
One one hand, there are not many similarly diversified ETFs. This means that with alternative investment products with
less diversification comes a risk and possibly a performance premium. We would end up moving closer to an active fund
management strategy. This is something we do not want.
On the other hand, we want people in the global south to benefit from the positive economic development of the
industrialized nations. The further we would adapt the investment strategy, the further we would also move away from
this idea.
WFTW is a registered and nonprofit association. As such, it is an independent legal entity and can accumulate assets.
In this sense, the WealthForTheWorld association owns the money donated to it. However, it may only use the money in accordance with its charitable statutes:
The executive committee of the association (selected over the annual meeting of the members of the WFTW registered association) represents the association and takes all important decisions, also with regards to the assets of the association. The work of the executive committee is controlled and examined through two ways: Firstly, via the general meeting, before which the board must declare itself annually and which can dismiss the board. On the other hand, the tax authorities regularly audit whether the activities of the association comply with the charitable purposes.
The assets of the WealthForTheWorld are legally bound exclusively to the statutory purposes such as development cooperation. Should the e.V. be dissolved, the assets flow - in accordance with the statutes - to 100% into charitable projects.
Donations to WealthForTheWorld are being collected until there is at least €10,000 in the fundraising account. Then, the donations are invested in the WealthForTheWorld (WFTW) portfolio. This way we ensure that transaction costs are low. Donors have no claim to repayment of the initial donation or its returns.
Every euro donated is used 100% for charitable purposes. Should the WealthForTheWorld project be discontinued, the entire capital will flow to charitable organizations.
We do not try to find the perfect time1 to buy or sell, but always calculate return and donation
amount for the same time period:
Annually between the first of Novemver and October 31.2
WealthForTheWorld is a nonprofit project and not a professional investment fund. Our goal is not to be better than the market, but to passively follow its long-term upward trend.
Furthermore, this procedure creates transparency. It becomes comprehensible and verifiable at any time how the WealthForTheWorld donations have come about.
[ 1 ] The perfect time!?
Many investors try to match the perfect moment to buy securities as cheaply as possible and sell them expensively.
Whether this approach - even in terms of professional fund managers - in the long term yields better returns, is
controversial.
. For example, in a
comprehensive study from 2010, Nobel Prize-winning economist Eugene Fama notes that, in principle, actively managed funds do not produce higher
returns compared with market returns.
Yes, WealthForTheWorld is recognised as a non-profit organisation in Germany. The non-profit status of the organisation is regularly reviewed by the German tax authorities. In order to ensure that GeldFürDieWelt does not lose this status in the long term, we have had our work and donation practices extensively audited by lawyers.