Inflation and Impact to Donor Advised Funds

Then you ought to have invested my money with the bankers, and at my coming I should have received what was my own with interest. (Matthew 25:27 NIV)

In the Parable of the Talents, we are reminded that all we have is from God, however, this doesn’t relieve us from the need to steward this wealth well while in our possession.  We know that active stewardship can take many forms – Matthew 25:27 suggests investing could be one of them.

Consumer Prices Index (CPI) increased to 5.4% in December 2021, the highest level in nearly 30 years.  The Bank of England responded to the increasing pressures of inflation by raising the base rate from an all-time low of 0.1% to 0.25% in December 2021.

Many of us will have seen the impact of this on our own wallets from rising fuel prices, utility bills to trips to the supermarket. Accompanied by the mediocre interest that can be earned on cash deposits, achieving capital preservation in real terms has become an increasing challenge.

Inflation reduces the purchasing power of money. As well as the impact to households, companies and charities also suffer from rising prices that increase their costs which may not be compensated through increases in income.

For example, if a particular ministry of a church or charity costs £1,000 per month today, at the current rate of inflation, their costs could increase to £1,170 per month in 3 years’ time.

What does this mean for your Donor Advised Fund?

The Donor Advised Fund service provides the flexibility for donors to manage the timing between gifting into the account and requesting grants to the charitable causes they wish to support. For example, a donor might give a lump sum from a bonus or an inheritance into their account and then use this balance to provide regular support to a Christian worker over many years. This timing difference often results in the retention of a balance in the giving account.

Unless the balance grows in line with inflation, while the nominal value (face value) of the balance may not change, the impact a charity can achieve through receiving the grant in the future will be less than if the grant was made now.

For example, an account balance of £10,000 granted out today could potentially help a church fund 1,000 hot meals to the homeless and other vulnerable groups. In 3 years’ time, the same balance may only be able to fund the equivalent of 854 meals, assuming inflation remains at the current level.

As part of Stewardship’s Donor Advised Fund and Philanthropy services, a range of investment options are available for the balance in the giving account to be invested[1].  This ranges from investment portfolios to nominated investment options. The latter includes options to request an external asset manager to manage a portfolio on a discretionary basis, or to make social investments which could have a missional and/or social impact, as well as a financial return.

Many of these investment options aim to generate returns which are linked to inflation over the long term, and may be of interest to donors who wish to retain a balance in their account for an extended period of time before it is fully granted out. 

If you would like to talk through how to make the most of your Donor Advised Fund we would love to speak with you. Please contact the Philanthropy Services Team on 020 8418 8896 or [email protected].

Note:

1. All Investments will involve investment risk, and the value of any account balance invested can go down as well as up.
2. All investment decisions are ultimately made at the discretion of Stewardship’s trustees.
3. Any investment made out of your Donor Advised Fund is made by Stewardship as principal. While funds may be returned to your Donor Advised Fund for the purposes of your giving, funds cannot be returned to you at any time.
4. Stewardship does not provide investment advice. If you have any questions on the suitability of the investment options available, please contact your financial advisor.

[1] Subject to terms and conditions, including applicable fees and charges