Why not just donate directly?

Often, donations are made directly to nonprofit organisations. WealtForTheWorld, however, invests donations and then donates a larger amount in the future.
Which is better? To donate directly or a larger amount in the future?

Short answer:

Because in the long term more good can be done with with nonprofit assets - i.e. supporting charitable projects more extensively and thus preventing and alleviating more suffering - than through direct donations.

But why? The longterm return on money invested in the global stock market is higher than its loss in value (due to inflation). This means that people with access to the financial market can satisfy more needs in the future with the same amount of money - by investing in the global stock market - than they can today. For example, someone who likes to travel could book a train trip to Spain for 500€ or invest the same 500€ and go on a world trip in 30 years.
This also applies, of course, to assets that are used exclusively for charitable purposes: by investing donations, more people can be helped in the future than if the money is donated directly.

Building up nonprofit assets is therefore more effective in the long term than direct donations.

Nonprofit assets

= assets that are used exclusively in the interest of a charitable purpose. For example, the fight against and mitigation of extreme poverty, diseases and natural disasters or the minimisation of existential risks.

Extensive answer:

The following aspects play a central role in assessing whether it is more effective to donate today or to build up nonprofit assets and donate their returns in the future:

  • Future suffering.
    How should potential human suffering 20 years from now be weighted relative to the suffering of people alive today? We believe that the timing does not matter. Suffering should be prevented as best as possible today and in the future.
  • Patience.
    The longterm return on money invested in the global stock market is higher than its loss in value (due to inflation). This means that people with access to the financial market can satisfy more needs in the future with the same amount of money - by investing in the global stock market - than they can today. For example, someone who likes to travel could book a train trip to Spain for 500€ or invest the same 500€ and go on a world trip in 30 years.
    This also applies, of course, to assets that are used exclusively for charitable purposes: by investing donations, more people can be helped in the future than if the money is donated directly.
  • Historical opportunities.
    There have been times in the past when it would have made more sense to put a lot of money into good causes than at other times. These moments will happen again (e.g. wars, climate crisis, shaping digitalisation). It makes sense to build up as much nonprofit assets as possible in order to be able to effectively solve the problems as they arise.
  • Lobbying for good causes.
    The larger the nonprofit assets worldwide, the better they can influence political and social decision-making processes in the interest of the common good.
  • Predictability.
    The effects of donations to nonprofit organisations today or via WealthForTheWorld tomorrow can only be estimated to a limited extent. So in any case, there is uncertainty about the best use of funds at any given time.

We are convinced of the value in building nonprofit wealth. However, this does not mean that it is wrong or pointless to donate directly. Every € that is used to reduce suffering is valuable! If you would like to donate directly to the organisations we support, you can do so via effective-donate.org (see grey info box).

Further information

Phil Trammell of the Global Priorities Institute (University of Oxford) has done research on patient philanthropy.

A lecture by Trammell on this topic can be found at. here.
A podcast with Trammell is available here.

effective-spenden.org 🇩🇪
Sebastian Schwiecker
Managing Director , effektiv-spenden.org

"Effektiv-spenden.org identifies the most effective aid organisations worldwide on the basis of the latest scientific findings. In other words, the organisation that does the most good with an extra euro, i.e. helps as many people as possible as much as possible. In addition, we organise tax-privileged donations for this organisation in Germany."

Who do you donate to and specifically why there?

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.

What happens to the WeathForTheWorld assets in the long term?

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 WeathForTheWorld 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 WeathForTheWorld assets generates future donation payouts greater than the invested euro. Accordingly, there is no amount above which it would make sense to cap the GeldFürDieWelt assets.

The GeldFürDieWelt assets are dissolved when

  1. there is an organisation that can use the assets more effectively in the sense of our goals than GeldFürDieWelt.
  2. there is a point in the future when it clearly makes more sense to donate parts or all of the assets rather than the return on the assets. This would be the case, for example, if an event that threatens the earth can only be prevented if a lot of capital is spent in the short term.
  3. problems such as extreme poverty, pandemics, climate crises, etc. no longer exist and it is foreseeable that they can no longer occur in the long term.
Side-effect of a large WeathForTheWorld fortune.

The larger the WeathForTheWorld assets and the resulting donations, the more attention (media perception) our commitment to effectively altruistic positions gets.

What are the costs incurred by the association?

The association faces monthly costs of approximately 15€

Overview of expenses
Legal Entity Identifier (LEI) 7€
Hosting of the website and domain 3€
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.

Active versus passive portfolio management?

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).

Why do you invest in the MSCI World?

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 (our backtest also shows this). 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.

But with the MSCI World, you are also invested in Amazon, Google, etc.? Why don't you invest in more sustainable companies?

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.

Who "owns" the assets in the WFTW fund?

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.

What happens to money donated to WealthForTheWorld?

Donations to WealthForTheWorld are being collected until there is at least €5,000 in the fundraising account. Then, the donations are invested in the WealthForTheWorld (WFTW) portfolio. This way we ensure that transaction costs are low.

Every euro donated is used 100% for charitable purposes. Should the WealthForTheWorld project be discontinued, the entire capital will flow to charitable organizations.

I.e. donors have no claim to repayment of the initial donation or its returns.

When do you calculate and donate the return on assets?

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.

[ 2 ] Calculation of the annual donation amount

The return of the WealthForTheWorld assets between 1st of November and 31st of October of the year forms the basis for calculating the annual donation amount.
Multiplied by the capital stock of the fund on 1st of November gives us the absolute return. If this is greater than 500€ donates the fund of it 70%. The remaining return remains in the fund.

We deviate from the obvious period 1st of January to 31st of December in order to be able to pay out donations for the respective year in this period and to be able to prepare our annual report in November.

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