A year ago, we published an article under the tongue-in-cheek title of “That’s Alright, It Was Only Money.” We wanted to update our understanding of historical performance results for traditional investment portfolios after the disastrous conclusion of the year 2022. We used the S&P 500 Index as the benchmark for stocks and Barclay’s Aggregate Bond Index as the benchmark for fixed income. In 2022, the former ended the year with a return of minus 13.01%, and the latter ended the year with a return of minus 19.44%. That meant our prototypical investment portfolio, invested 50% in stocks and 50% in bonds, saw a blended investment return of minus 16.23%. At the time, we pointed out that the aggregate performance for 2022 was actually worse than the aggregate performance for the Great Recession year 2008, which was “only” minus 15.88%.

And now, after another year in the books, but with quite different results in 2023, we ask the question, “Are we back to normal?” It’s probably a rhetorical question, and it begs a more specific question: “What is normal, anyway?” The S&P 500 return in 2023 was 24.23%, and the Barclays Aggregate Bond Index return was 5.53%, resulting in a blended return of 14.88%. It was a great year for investment portfolios holding traditional asset classes! The improved numbers should make everyone feel a little better off. Does it give us greater confidence to make the argument that over many years, a prudent investor strategy results in positive returns? Let’s take a look at the actual numbers.

You read that correctly. If it is still December 2023 and you are reading this, put it aside immediately. If not, Happy New Year! Glad you remembered to come back to read this in 2024.

If you did keep reading, why on earth would we tell you to stop reading the latest in planned giving updates and information?

Except for a couple of timely updates, for everything there is a season. As we head into the end of 2023, your job is to raise as many gifts as possible.

Does this sound familiar? “I have to write the lead article for our newsletter by Friday. Where are those photos I want to use for the testimonial? What format should we use for our legacy society lunch? Should we hold the event at all? I need to get approval to the edits to our gift acceptance policies. Are we getting everything we are entitled to from that bequest?”

Read your job description. What is your primary responsibility? Does your title include Planned Giving Officer, Development Officer, Advancement Officer, Major Gift Officer, or similar terms? The principal concern and obligation of such a position is to attract voluntary support to advance the mission of a non-profit organization. But often, support functions prevent fundraisers from focusing on the most important part of their job: fundraising.

Americans have extensive holdings of mutual funds representing significant portions of their investment portfolios, and many invest exclusively in mutual funds. This makes sense – mutual funds are easy to purchase, simple to understand, and they allow for continuous reinvestment of dividends and income earned by the mutual fund shares. As donors review their financial assets to determine which ones to use to fund charitable gift annuities, mutual funds present an obvious choice. As an added bonus: mutual funds are easy to value for gift purposes. The share price of a mutual fund is determined daily and published as the “Net Asset Value (NAV).” A donor uses this share price to value a gift of mutual fund shares. In contrast, a gift of publicly traded securities must be computed as the average of the high and low trading prices on the date of the gift.

But gift planners should be aware of some particular aspects of mutual funds that can cause significant complications in the process.

“Drop in Giving Among Steepest Ever,” screamed the Chronicle of Philanthropy headline. Other media piled on. The anodyne Associated Press led with, “Charitable Giving Drops, Only the Fourth Time in 40 Years.” And the redoubtable Barron’s reported, “Charitable Giving Falls for the First Time Since the Financial Crisis.”

Is this all just hyperbole? Or does it leave you wondering if it might be time to hang it up and consider a different career path? Don’t despair. At least not yet. The release last month of the 68th Giving USA Annual Report on Philanthropy (Giving USA Report), which reported a drop of 10.5% in giving last year, triggered the hoopla. The Report is an initiative of the Giving USA Foundation in collaboration with the Indiana University Lilly Family School of Philanthropy.

It’s too bad the Report has been reduced to a headline because, well beyond a simple scoreboard of giving, it also provides a wealth of useful information and interesting insights about the history of and trends in charitable giving in the United States.

Contributions of appreciated assets offer tax savvy opportunities for gift planning. But what if the donor is not eager to part with the entire asset? That’s no problem if the asset is securities; our donor simply transfers as many shares as she chooses and keeps the rest for herself. However, other assets aren’t so easily divided – things like real estate or bank, investment, or retirement accounts. A contribution of a partial interest can allow donors to give a portion of the property and retain the rest for themselves, their family, or others.

Navigating a contribution of a partial interest can be a bit like the challenges Odysseus faced on his journey home. It wasn’t all smooth sailing. He had to navigate rocky shoals, whirlpools, and angry gods, but eventually, he made it home safely.

Recently, researchers at the Harvard Center for Brain Science crafted an experiment to see if donors could be redirected from supporting their favorite charities (“giving from the heart”) to supporting more effective charities (“giving from the head”). The effective charities were selected from GiveWell, a charity navigator for the Effective Altruism (EA) movement, which also funded the study through the Effective Altruism Fund. If your only familiarity with EA is its relationship to disgraced cypto-currency billionaire Sam Bankman-Fried, it’s worth learning a bit about the movement and how it’s working to change the nature of philanthropy.

EA encourages its followers to earn more, so they can give more and to support only the most effective charities with their giving. According to EA, an effective charitable gift benefits the most people for the least financial outlay.

Do you need to worry that EA will capture your donors? They’re certainly going to try.

We’ve been saying for years that, when it comes to investments, charities should focus on the long-term picture. There are good years in the markets and bad years in the markets, but, with “prudent” investments, the long-term outcomes have been consistently positive. Whether it be the endowment assets of well-established organizations, or the investment portfolios of gift annuity programs and individual charitable remainder trusts, the general rule is to look at the bigger picture. But specific and dramatic swings in the investment markets – the stock market in particular – can have a chilling effect on donors with stock portfolios held over an extended period of time.

What do we say to the donors who have seen their investments lose significant value over the past 12 months or longer? And even within the organization, how do we respond to the more cautious voices among us who are spooked by double-digit declines in market values? We thought it would be helpful to take a look at the most recent investment performance measurements of mainstream investments.

This question comes up from time to time: can the non-profit organization that is sponsoring charitable gift annuities modify its templates for the gift annuity agreements? Sometimes a person at the sponsoring charity wants to change portions of the agreements from an aesthetic standpoint – they want the language to be more flowing, or they have unique terminology they would like to be incorporated into the agreements. In other situations, there is concern about the technical aspects of the agreements – perhaps a consultant or some other outside advisor thinks the terms should be stated differently. Whatever interest there is – however well-intended – behind the idea of modifying the gift annuity agreement templates, our general recommendation is NO! – don’t do it – don’t even think about doing it! Let’s discuss some of the reasons why.

In February, the IRS discount rate was 1.6%. In December, it is up to 5.2%, more than triple what it was just ten months ago. This dramatic change coincides with a similar escalation of interest rates in the U.S. generally, as well as increased nervousness over whether the rapid rise in interest rates might soon tip the economy into a recession.

Don’t freak out over the swift shift in economic conditions. View it as an opportunity. This is a great time to renew contact with your donors and educate them about gift plans they might want to consider in this new economic reality.