Diversify — it’s a term that speaks volumes when it comes to finance and investments, but have you ever thought about what it might mean to philanthropy? Believe it or not, there are several reasons why an individual donor might choose to diversify their charitable efforts and several reasons why they might not. Let’s take a look at the arguments for and against diversifying your charitable portfolio.
Strategic Giving – This is a philanthropic concept that looks at how the individual donor measures success and then creates a giving strategy designed to meet those measurements as best as possible. For most, this type of giving involves creating the most opportunity for impact as opposed to the largest impact. Each individual donation works together to accomplish a single desired outcome that aligns with the intended purpose for the charitable funds. These outcomes are typically social or developmental, although you can work towards any goal you’d like when participating in strategic giving.
Tax Benefits – Tax codes are tricky to navigate and charitable giving deductions are no different so I’ll keep this particular section brief. Those eligible for charitable giving deductions may benefit from several smaller donations as opposed to one large donation. Reasons for this include itemization on a tax return, and the cost of a donation in relation to a person’s income bracket.
Actual Impact – One of the main arguments against diversification is the actual impact argument, which states that you are more likely to do more good by donating a total sum to a single, worthy cause than you would do if you split that sum up and donated a smaller amount to multiple causes. If you’re having trouble visualizing this argument think about the potential impact of giving $100 to a single cause versus giving $20 each to five different causes. Which is more likely to make a difference?
Long Term Effects – Many against diversification in philanthropy argue that the long term effects of “scattershot” giving are perhaps, more taxing, then giving a single donation up front. It is the nature of philanthropic organizations to contact previous donors on a regular basis in an effort to update them on their particular cause and make the case for additional donations. When you diversify your charitable portfolio, you are opening the door for contact from various philanthropic organizations to contact you semi-regularly in an attempt to ask for more funds. They argue that this processing cost is relatively high compared to a single donation to a single, worthy recipient.
Of course, there are various other factors that play into whether or not a person should diversify their philanthropic efforts. The amount a person is able to give on an annual basis certainly plays a role, as do their personal reasons for getting involved with philanthropy in the first place. There is no right or wrong answer and, for most, it merely comes down to preference.