Information about Humboldt Area Foundation’s Total Return Spending Policy
The endowment pool is
invested for maximum long-term capital appreciation or growth. The mix
of investments is targeted to earn approximately 8% over the long
term. This return makes it possible for HAF endowment funds to make
grants annually, protect their value against inflation, and contribute
a reasonable fee for service.
||Endowment funds established within Humboldt Area Foundation (HAF) are
pooled for investing. This allows HAF to negotiate low investment fees
and increase the selection of funds available.
Periodically, the HAF Board sets a spending percentage that will be available for grant making. This amount is based on total return, taking into consideration the income earned from dividends and interest as well as the income and growth of the fund due to appreciation. HAF’s current spending percentage for grantmaking is 4% of the fund balance averaged over the preceding 16 quarters (four years).
As donors establish an endowment fund within the Humboldt Area Foundation, HAF recommends this total return spending policy to them because:
- The policy protects the fund principal. Over the past eight years, HAF has been averaging an 8.27% return on investments. By expending 4% on grants and 1.75% on administrative support each year and reinvesting the remainder back into the fund, HAF can help the fund grow so that it keeps pace with inflation. As the fund increases, the amount of the grant and/or the number of grants can be increased proportionally.
- The policy creates a reliable annual gift. Because the percentage is constant and the amount is averaged over 16 quarters, the policy smoothes out the highs and lows of the market so that gift making can be stable. By spending only 4% in years when we receive a 17.35% total return, as we did in 2004, we are able to make grants in the same amount even in years when the fund loses income or earns very little as we did in 2003 with a 3.06% total return.
||HAF recommends this total return spending policy to donors creating
funds at the present time and for those creating funds for the future,
by means of a bequest. The policy has worked well for HAF for many
years. However, we will make exceptions for donors as necessary, so
long as we are able to manage these exceptions successfully.