Investing in Charity and How to Do It Right

Many financiers and investors have praised charity, not only as a form of giving to the needy but also as a form of investment. Charitable giving towards a cause does indeed lead to development in third sectors. Jason Sugarman, a veteran private equity investor, has long believed in charity. He donates liberally to health and education charities. Mr. Sugarman is a major donor of the Fullerton Technology Foundation, which provides much-needed tech equipment and infrastructure to needy schools in L.A.’s Fullerton school district. Mr. Sugarman has donated over $2 million in six years to the charity.

Education is considered one of the most important forms of investment. Wealthy donors have a major role to play in ensuring that children have access to a proper education, Mr. Sugarman strongly believes. However, as an investment, charities also bright forth risks. The risks are mainly in the form of fraudulent charities that engage in corrupt practices. Here are several techniques that will ensure charity investments are legitimate and credible:

Consider Third-Party Evaluations of the Charity

Charities can sometimes make hyperbolic and misleading statements to get people to donate money. A good way to avoid this trap is to check out third-party evaluations of the charity. There are well-regarded entities, like the National Center for Charitable Statistics, which do valuable assessments of claims various charities make.  It’s strongly advised to look up a charity with one of these third-party evaluators before giving them your money. A good charity spends the majority (over 75 percent) of funds on programs and not day-to-day administrative costs. You should definitely not donate to a charity where less than a quarter of all funds go towards the actual programs.

Check the Tax Return

Some charities can lie on websites, but charities cannot make up false claims on their tax returns. Charities are legally compelled to file a tax form called Form 990 annually. This form is also required to be publicly accessible. This tax form includes legally-binding information about how the charity spends money. It’s a good insight into how good a charity actually is. It’s highly recommended to seek out the most recent Form 990 of a charity before donating heavily to the organization. If you are planning to donate millions of dollars, then researching the tax returns is a must.

Do Read the Mission Statement

Just like the tax forms, the mission statement contains a wealth of information regarding the real finances of the charity. The more detailed the mission statement is, the better the charity is. It’s worthwhile to read the boring mission statements to find out what policies the charity is involved in and how detailed the plan of action is. Avoid charities that make vague statements like “saving sick children.” Find out how exactly the charity is planning to help sick children.  Never rely on vague statements.

Do not get involved with charities that pressure you into giving. Also, if the charity’s finances are not transparent, then it’s probably not a charity at all. Above all, choose a cause that’s close to your heart, says Mr. Sugarman. Only then will you be able to make a difference.