FAQ: the 50-50 method

What is the “Future Fund 50-50 method”?

The Future Fund 50-50 method is perhaps the most important (and the most fun!) part of the Future Fund. In short, it means that after subtracting 10% for our operational costs to run the Future Fund, 50% of the interest on your donation is transferred each year to the charity that you have chosen, and 50% is used to increase the value of your donation.

So, suppose you invest 100 dollars for your favorite charity. Let’s say that in the first year there is a 10% return. Then:

  • 1 dollar is transferred to us at the Future Fund to cover our operational costs
  • 4,50 dollar is transferred to the charity for which you invested the donation
  • 4.50 dollar is added to the original 100 dollar. In this way, next year’s interest is made not on 100 dollars, but on 104.50 dollars!

The reason for using this 50-50 method is that this way, the charities get a little bit more each year, every year. The method generates an “interest-on-interest” effect. This results in your invested donation, and with it the money that is transferred to the charity each year, growing exponentially. So based on your one-time donation, the charity not only gets ever-lasting financial support, but it gets an ever-growing amount!

We can calculate how much support a charity would have received, if someone 100 years ago had invested 10 dollars for that charity using this 50-50 method. Without the 50-50 method (meaning that 100% of the interest is transferred to the charity every year), an invested amount of 10 dollars in 1920 would have resulted in 80 dollars dollars of support for the charity from 1920 to 2020.

With the 50-50 method, the support for the charity would have been even bigger. In the graph below you can see the math that shows this. The donated amount of $10 in 1920 would have resulted in $286 of support for a charity from 1920 to 2020, instead of $80 — more than 3 times more! (This amount is a bit bigger than the $213 you see in the video and graph at the bottom of our homepage, because there we used the average interest from 1871 to 2021, 7%. The average interest from 1920 to 2020 was a bit higher than that, 7.6%).

Source: Data build upon Robert R. Shiller, Stock Market Data Used in “Irrational Exuberance” Princeton University Press, 2000, 2005, 2015, updated data, available from the Department of Economics at Yale university. The Future Fund’s adaptations can be downloaded here.