Investment Options For Your Donor-Advised Fund

Investment choices

Almost all parent charities offer you a preapproved choice of investment pools, or groupings of different mutual funds that are combined to achieve a specific investment objective. In some cases you can create your own individual investment mix from the available mutual funds, or you can always choose among recommended asset allocation mixes. With some parent charities, each time you make an additional contribution to the fund, you can advise on how those assets are invested. And most parent charities allow you to reallocate your assets at least once or twice a year. The charities usually offer a standard mix of asset allocation options — you can decide whether you want to invest aggressively, moderately, or conservatively.

Most parent charities offer four to six pools, giving you a choice among an income strategy, a growth strategy, and a strategy emphasizing fund preservation, as well as different combinations of these investing goals. Some, however, limit your choice to assigning a certain percentage to stocks and another to bonds.

What’s right for you

As in all areas of investing, experts recommend that you make investment choices for your fund based on your risk tolerance, and in this context, on your anticipated grant-recommending activity as well.

For example, if you intend to make several grants annually but want to maintain the value of your account, you may choose income investments. And if your goal is to increase the value of your fund over time, you might consider choosing investments for long-term growth.

In some cases, you may not have a say in how your fund is invested. And if you are given a choice by the parent charity, and you don’t recommend an allocation for your fund or make your investment preferences known, your assets are usually placed in a money market fund or a default investment option.

Sample Allocation Models

Tracking your investment return

It’s important to follow how the investments in your fund are doing, though they are being overseen by the parent charity. Based upon the gains or losses in your portfolio, you may decide to reallocate some of those assets to a different investment pool that’s available.

To help you track your investments, the parent charity may include a summary of your account’s gains and losses on your quarterly and annual statements. Some parent charities will also include information on how all of their investments pools have performed, to assist you in making reallocation decisions, or in deciding where to invest any new assets that you add to your donor advised fund.

Fees

Some of the fees that will be assessed and subtracted from the value of your DAF are investment management fees. Paid to fund or account managers, the fees are based on the market value of your DAF account assets. Fees may also be based on the type of investment you have chosen, because of the varying amounts of
time and effort that a manager will need to devote to running the fund or account.

For example, if your DAF assets are invested purely for capital preservation, the management fees will tend to be much lower than if your assets are being actively managed for growth. If you are invested in mutual funds, the expense ratio reports what’s subtracted from the value of your account. It’s the percentage of a mutual fund’s current value that you pay to cover management and administrative costs. The amount you pay is figured by multiplying that percentage by the number of shares you own. Expense ratios vary among different types of funds, and among fund companies.

Investment Options For Your Donor-Advised Fund by Inna Rosputnia

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