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 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 the donation. The reasons for adding to the value of the donation, is because this way, the donations get a little bit bigger each year, every year — without end! And to be clear: 0.0% of the interest goes to the Future Fund. The second 50% is used only to increase the value of the invested donation.
We can calculate how much support a charity would have received, if someone had invested 10 dollars 100 years ago for that charity using this 50-50 method. Without the 50-50 method, an invested amount of 10 dollars in 1920 would have resulted in 80 dollars dollars of support for a charity from 1920 to 2020, if the donation was invested in stocks and 100% of the interest on the investment was given to the charity.
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 $418 of support for a charity from 1920 to 2020, instead of $80 — more than 5 times more! The total donated amount for bonds grows more slowly, but with time, it also becomes more than just giving 100% of the interest to charity.
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.