The Power of Endowment
One of your first decisions when creating a fund at Akron Community Foundation is whether you will make it last forever. It’s up to you.
Your charitable plan made permanent
|Located in Cascade Valley Metro Park, the Signal Tree once served as a guidepost for Native Americans traveling the Cuyahoga River. Today, it embodies the community foundation’s deep roots in greater Akron and the permanent philanthropy of our endowment fundholders.
An endowment is a permanent fund, and with it comes several advantages. An endowment will:
- Provide dependable, perpetual income to your chosen cause or nonprofit – be it the arts, your house of worship, your alma mater or whatever cause you love
- Carry on your family’s name – and legacy – forever
- Allow successive generations to continue family giving traditions
Endowments offer magnificent benefits to your favorite nonprofits: Depending on their size, an endowment could mean the difference between vitality and bankruptcy, or creativity and complacency.
Thoughtful spending, prudent investment
An endowment also means maintaining a steady hand both on spending and investment.
Based on longitudinal reviews of stock market returns over many
decades, esteemed colleges like the University of Pennsylvania’s Wharton School of Business issued institutional spending studies that encouraged colleges and foundations to limit total annual expenditures for salaries, buildings and grants to 4.5 to 6 percent of their endowment’s corpus. They said any additional investment earnings should be invested back into the endowment to make up for years when the market underperforms.
The studies predicted – and practice has shown – that by implementing such a spending rule, endowments could replace those annual expenditures and overcome inflation. Spending limits of 5.5 percent and below can actually increase assets. See how it works.
For our permanent endowments, Akron Community Foundation limits spending to a total of 5 percent of the average value of assets, which is based on a 12-quarter rolling average and is re-calculated quarterly. Usually, the 5 percent value includes all grant-making and administrative fees. Sometimes, depending on the overall mission of the endowment fund, it makes better sense to deduct administrative fees from principal, leaving the entire 5 percent available for grant-making. This will be determined at the time the endowment fund is established.
For complete information about the community foundation’s investment allocation, please review our financials.