So far in this series, I’ve been sharing information about what other organizations are doing that you can connect with to make a positive impact, while requiring minimal effort on your end. Today I want to talk a bit more theoretical and introduce my own personal concept into the mix.
Over the past few months, I wrote a series of posts to a concept I’ve been referring to as “Perpetual Value Theory,” which is the idea that if consistent investment contributions are paired with consistent withdrawals, each contribution achieves a continued life cycle that gets used for consumption indefinitely. This idea can be used for donations as well in that the fund isn’t for personal consumption, but to grow the amount we’ve put aside to donate that will be generate a perpetual life cycle. I called this version of Perpetual Value, “Microfoundations” since it scales up to being like a foundation, but you can start with a minimal starting investment. I wrote about the theory here: https://grantxstorer.com/2018/microfoundations/
This concept of Microfoundations has relevance in this series because this could be the very means that helps you implement all of the concepts I’ve covered here. If you created a Microfoundation, it could through the means of Impact Investing that the portfolio is created, and then the annual withdrawals could be the funding source for you to donate to organizations like GiveDirectly, & One Acre Fund.
The money you invest could be used towards positive social impact, then the financial returns could then be used to then donate; creating a multidimensional impact a given dollar you put into the fund has.
How to Set Up a Microfoundation:
To implement this concept, the first step is really just utilizing the previous two posts about investing. All you need is to open investing accounts that demonstrate SRI methodology or actively participate in Impact Investing. Since one of the concepts of a Microfoundation is sustainability, I personally recommend that you open up both a Swell Investing account and a Betterment SRI account. The reason for having both is the Swell account allows you to more actively invest in the social objectives you are sensitive towards, and Betterment has more broader diversification that will help balance the portfolio during volatile markets.
While you are opening two accounts, you should treat them as they are part of a single account. Between the two accounts, you will have to decide how much to put into each. The short and ambiguous answer is that it’s really up to you on the weight that you are willing to put into each account. Swell is more mission-driven, while Betterment provides more stability. So if you’re more ambitious, you may want to do 75% of your money goes into Swell, while 25% goes into Betterment, or you can simply do a 50/50 split between the two accounts. It’s really up to you.
In my personal opinion, I would lean more heavily into Swell than I would in my normal investing, just because I value the purpose of Impact Investing, and see the investing aspect as important as the donating aspect. But do whatever is most comfortable to you.
When you open a Swell account, you’ll have to decide on the investment mix you would like. Again, this is up to your personal discretion. You can choose between each individual sector, The Swell Impact 400 portfolio that has all sectors built into it, or even a combination of the individual sectors with the comprehensive fund.
For Betterment, I would choose the SRI portfolio. From there, I would aim for a more conservative investment mix than I would in my personal investing since this is aimed to be more of an anchor to stabilize the Swell account. For that reason, I would probably do 70% stocks to 30% bonds. (For the average millennial, it is generally recommended to do a 90/10 ratio for long-term investing). By doing this, you not only tap into other sectors with the emerging markets ETFs that Betterment has, but also getting bonds into the account that are more stable investments overall.
Once you have the two accounts opened up, I would just set up an automatic investment feature for both of them and forget about it. For instance if you were going to do $100/month that you wanted to start using for your microfoundation, and if you were doing a 75/25 ratio between Swell & Betterment, then just set up an auto investment monthly of $75 to Swell, and $25 to Betterment.
The most important part of this whole thing is being able to give to noteworthy causes. The Microfoundation does postpone some of what you can donate today, but it in theory allows you to take the small amount of resources you have and stretches it out indefinitely throughout your lifetime. It not only stretches the duration of your donations, but also the value of your investments. Over time, the momentum of your initial investments will continue to increase in pace, and every year onward you will be given more and more resources to be able to donate with, even if your contributions remain constant.
Once you’ve set up the investing accounts, all you have to do is wait until next year to observe the total value of the two accounts. For this first year, you can pick what will be the annual check in day. You can wait a literal year and make the first day you started this program as your personal microfoundation anniversary that is meaningful to you, that turns another ordinary day into a personal holiday. Or if New Year’s is an important day for you, then just make the beginning of the year your annual check in date. Or another idea is your birthday; you can turn your birthday into not only a day of personal celebration, but an opportunity to turn outward and a special day where you get to donate to causes that are important to you.
In any case, try to pick a date, and stick to that for future annual check-ins.
Once you’re at your check-in date, add up the total value of the two accounts. Once you have the combined total, divide it by 20 to get the 5% value of the total. This is the amount that you get to cash out and to donate for this year. I would then cash out based on the ratio of the two funds, so that if you’re investing 75% into Swell, then 75% of what you’re cashing out (5% x 0.75). That way your funds will keep the same proportional value.
I’m sorry if this has been quite technical, so in order to make this lazy-friendly, let’s see a simplified version of how this is all played out.
Let’s say you have $100 per month that you want to use towards this Microfoundation concept. You then open up a Swell account and a Betterment account. You then use the 75/25 ratio between the two accounts, so you set up a monthly investment feature so that $75 goes into Swell and $25 goes into Betterment every month.
After a year has gone by, you check into your accounts and both grew by exactly 10% over the year. You invested a total of $900 into Swell over the year ($75 x 12), and $300 into Betterment ($25 x 12). They both grew by 10%, which means the Swell account is now worth $990 ($900 x 1.10), & Betterment is now worth $330 ($300 x 1.10). The combined total means that it is now worth $1,320.
With a combined total of $1,320 means that you can cash out $66 for this year. Yes, I know that may seem like a ripoff since you put in over $1,000 and you’re now only going to actually donate $66, but don’t worry, it’s going to take off exponentially from here indipill.com. Every year is going to get bigger and bigger, and within a couple of years, you’ll be donating thousands of dollars per year even if you still were just doing the $100 per month model. If you want to see more on how that works, again refer back to my original Microfoundations post.
Once you’ve cashed out funds, you now can use this money however you would like. You could get extra points if you then used it for a micro loan, which then allows you to recoup the money and you can either pull the money out and donate it elsewhere, or you can just recycle the loan so another person can use it.
The point is that you now can use this money and donate it to any of the organizations that you want to support now that it has been used first for an investment. It is delayed a bit, but over time you will be even more capable of making a positive impact with minimal effort.
This whole series has been about how to do significantly more with less. We want to make positive impact in the world around us, but we seem ill equipped for the task at hand. Not only do we not have enough resources, but we just don’t have the expertise nor the energy to move forward. While there was still a lot of material covered, I hope this series provided nuggets of information that broke down some of those intimidating walls to make it easier to make a healthy step forward.
You can do simple things online for free that can further draw in more funding towards nonprofit organizations, you can use fitness apps to generate sponsor funding, or you can use your money more strategically towards giving.
You can do these independently, whenever you have spare cash lying around, or you can be proactive to start a program that systematically sets you up to be able to invest into the world. While still requiring minimal effort, you can dedicate a small portion of your financial resources to be put into a microfoundation. You miss out on making a big splash today, but by channeling your resources through this system, the money is now coming from a source that is regenerating itself. Every dollar that you give has already been used to invest in sustainable business practices that steer our economy towards sustainability on a macro-level, but also the dollar has already been used to push the fund’s momentum forward; leading to even more dollars to be generated for your giving in the future.
We are all trapped in the narrow lens of today; we lack the vision to see the ripples of our steps through time. We don’t see how a smile given at the right moment can impact a person years down the road. We don’t see what a dollar today has the capacity to change a life tomorrow. You have the capacity to change the world. So let’s push forward together, even though we cannot see it, and make tomorrow provide more opportunities to others than today.