The Community Foundation has two goals for its endowment investing – to preserve the purchasing power of the original gift(s) and to provide a steady stream of grantmaking income. Our Spending Policy, based on the Total Return Concept, accomplishes both goals.
The Community Foundation believes that the Total Return Concept (TRC) is the most effective way to invest permanent funds; that there is more to successful investing than merely maximizing current interest and dividend income; and that capital appreciation over time can be significant. Under the TRC, the interest and dividend income plus the appreciation (total market value) of the Community Foundation’s assets are taken into consideration in determining available grant dollars for distribution.
The TRC allows the Community Foundation to set a spending policy that is independent of the interest and dividend income earned by the funds and which may be more or less than the actual income earned by interest and dividends in any one year. The spending policy does not produce inordinately high levels of distributions because of the high market valuations and it does not produce detrimentally low levels because of market declines, thus smoothing out market volatility.
The level of spendable income is set at five percent (5%) of the rolling 23-quarter average market value of the endowment funds. Spendable income includes interest, dividends, and appreciation. The spending policy adjusts for unusual market fluctuations, thereby giving predictability to future distributions. In periods of poor market performance, newer funds may not have enough appreciation to make the full spending policy. In these circumstances, interest and dividends are available for spending.