The grand plan
Updated: Nov 3, 2019
The problem is that charities and governments do not have enough money.
My grand plan is to create a stockpile of funds to address social issues and opportunities with permanent ongoing money. Details of the plan follow below, but first, I want to discuss some underlying concepts.
The theme of my blogs is that I am trying to finance a fix for social problems. I believe more money being available would solve more than half of the challenges people face today.
Every day the news brings stories of social issues needing relief. Homelessness, addiction, natural disasters, need for education, aging infrastructure, and so on. If money was available to provide the best of care, we already know how to perform, all issues could be dramatically less of a problem. Money could allow us to meet the needs of others.
I am not saying every aspect of every problem needs only more money. But the number of people affected would be significantly reduced. And by funding research, we could work to solve even more issues for more people.
Why it matters:
The short answer is we should be able to take care of ourselves, yet lack of money often is the main impediment.
Without adequate funding, we limit the potential achievements for a considerable part of our humanity. Our human capital is going to waste. The great achievers of our society were given many things first: education, resources, and above all, the opportunity to be free thinkers, to be themselves.
Great minds may be of necessity stuck trying to provide the basics for their families barely. How many potential Platos, Galileos, Newtons, Einsteins, Shakespeares, Hawkins, Gandhis, Churchills, Lincolns, Jobs, or Musks might be too busy just putting food on the table?
Donors will provide all funds. Getting the target amount of funding is the trick.
The target fund amount per issue is likely to be quite large, often in the billions. Raising this much at once is unlikely. Instead, invest the small donations that can be gathered now over many years until reaching the required target fund size.
Once reaching the needed funding level, a portion of these funds could be deployed each year continuously. Let's call the needed funding the 'target funds' of which we may spend just part annually.
Three main questions come to mind. First, how big must target funds be? Second, how do we raise target funds, and third, just how long is raising target funds going to take?
Size of target funds
The answer depends on how much budget is required each year to support a particular social objective. Target funds are about twenty-five times larger than the annual budget. So to spend $1 Million a year, you need about $25 Million in target funds.
Raising target funds and time required
The second and third questions are linked. If we can get a significant donor to give all that is necessary, then the target funds are raised almost immediately.
However, if the size of the target funds is so large that even many donors could not collectively raise that amount, then the donor raised funds are the 'seed funds.' To reach the target fund level, these donated seed funds must be invested sometimes for decades or even centuries to become large enough to support annual budgeted amounts.
For example, when a young family sets out economically speaking to get ahead, they face a myriad of costs. The end goal may be to retire comfortably but may only be able to put small amounts away as savings for retirement. These small amounts are their seed funds. First, invest these seed funds until reaching the target fund size, then they can sustain a retirement budget annually. Typically annual spending can be four percent (one twenty-fifth) of the target funds.
The target funds will remain invested in generating enough funds to provide the couple the four percent plus inflation continuously. Investments will, of course, fluctuate yearly, but on average, the growth historically will ensure the target funds do not diminish even with annual withdrawals.
Taking the broader view, if humanity could save money collectively to address annual social budgets, we could abolish the tax-and-spend approach of today. Over time every issue should have such financial supports constructed. Every problem has its target funding amount. Which leads to a fourth question:
How long is all this going to take?
As with most things, it depends. In the general sense, the more you start with, the shorter the time to wait. The larger the goal, the longer the time to wait.
Here is a useful way to estimate investment growth. The stock market grows in real value (after inflation) at a rate that multiplies seed funds by a factor of ten about every forty plus years. So given enough time at that growth rate, you could transform $100 to $1 Billion over about 280 to 350 years.
Uh oh, you say, you and I would be dead by then! So who cares about all this? You are likely feeling precisely the way your ancestors thought about this about 300 years ago. The point is yes, of course, we mainly need money for today and our direct descendants. But I ask you, would it matter if your kids inherit $1,000 vs. $999?
Take that $1, or perhaps more generally 0.1% of your wealth, and invest it in the distant future. That is what the great American founder Benjamin Franklin did via a Codicil (last-minute addition) to his Will. He donated as investments about 0.1% or about $150,000 in today's dollars specifying it to grow for 200 years. In the end, he gave $12 Million in today's dollars split between the cities of Boston and Philadelphia.
I think of all the fantastic things Benjamin Franklin did and discovered, this Codicil experiment, his last experiment, was his greatest achievement. He showed the world how we could use the fertilizer of compound interest to grow seed investments to reach target fund levels. What could be a more powerful tool in a modern economy?
And yet, we have largely ignored his experimental proof perhaps because 200 years is hard for a person living 80+ years on average to fathom.
I agree two or three hundred years is a lot to wrap your head around. However, I think of 150 years as much more personal. In just 150 years using the above rules of estimating growth, three zeros more can be added to a legacy. If I gave $10,000 now, then in around 150 years, it could be worth $10 Million in today's dollars.
Let me explain why 150 years is so personal and does not seem long to me. My maternal grandmother, Nana, was a young mom in the 1930s. I was born her first grandchild in 1951. Nana and I shared 36 years on this planet, so I knew her very well. She did and would do anything to help me along.
Now I have grandchildren, and I feel the same desire to do anything and everything to help them along. By the year 2080, it will be 150 years since my Nana was a young mom. My grandchildren will be in their sixties, as I am today. I know Nana would have helped my grandchildren had she had a way to do it. Many years may separate them, but they connect through one heart – mine. To me, 150 years is just one heartbeat away.
We all may not know our descendants 100, 200, or 300 years from now, but our kids and their kids sure will. And just as we love our grandchildren, they will love theirs. We must find a way to help all of them, ideally in a way that honours the present and plans for the future.
Think of humanity's history. Is it fifty thousand years? Even if it were five thousand years since the Egyptians, we probably have not evolved much since then. Imagine if they had a long term savings plan for our future where we could have been today. What a small thing 300 years seems to fund our future!
Investing today for the future is easier than ever. As with so many things in the last century, the technology to invest has greatly leaped forward. What Benjamin Franklin had as tools to invest for growth were far inferior to today's electronic stock markets and private equity funds. Today we are in a more efficient and now more knowledgeable environment for investing. This trend to better investing will likely continue, as will the opportunity over the long run for investment growth.
Based on what Benjamin Franklin did, today, we can do so much more. OK, that leads me to a fifth question:
Do we need mega-money for the future?
I have talked so far about social problems abundant money might allay. But many development opportunities – in space, science, genetics, and so on that can only be addressed with significant generational investments. Just think how much money would it require to set up a small city on the moon or maybe Mars? Should that money come from funds necessary for basic housing and food here on Earth?
Rather than face grim choices, we must begin to save first for sustainable spending.
The grand plan in broad strokes:
Define a business model and create a first-ever seed fund with a critical mass of about $10 Million, which grows to create a target fund of $20 Million. This initial project will be to begin a foundation for a suitable charity. This project is my current focus, and, with $10 Million to start, will be sustainable even with ongoing administration costs.
Key concerns are how to make a trustworthy governance process that is transparent, sustainable, resilient, and unhackable by uninvited beneficiaries.
After designing and implementing a successful business model, step one continues with repeat projects helping smaller charities create new supporting foundations.
This step expands the business model to embrace the everyday person. Based on the successes in step one, and the proven governance processes, we can now invite anyone to partake no matter how small the seed investment. In this step, any person could create a legacy of thousands or even many millions, starting with just one hundred dollars. Of course, the more seed money, the quicker the fund grows to target fund level. Legacies would be customizable but must either create a charity or benefit existing charities or governments.
Step three is the franchising stage. Not a franchise to make a profit but to spread the concepts. By documenting in detail how the above became viable, this step starts to encourage and support replication. If we can duplicate this worldwide gradually, we eventually can all help save the world by identifying needs and addressing them more thoroughly and quickly.
Where I am today with the plan:
I am working on Step One, which is to create a critical mass sized organization that eventually would be allowed to grow funds for decades and centuries.
This step is to establish the organization and business model. To create a charitable foundation, we are considering much more short term than 150 plus years, more like less than 50 years. However, to shorten the duration requires mass donors or perhaps large lenders.
Since money isn't readily available, let's examine how a lenders scenario might work:
A charity issues a "Community Bond" (CB) to lenders with the express purpose to create a foundation supporting the charity.
Investors buying the CB might demand the going rate of interest, today around 4.5%.
The charity would raise say $10 Million money via the bonds and invest it for (hopefully) the average long term S&P return (dividends re-invested) of 10.4%
In the happiest of scenarios, the bond pays investors the interest annually, the stocks grow, and the charity reaches $20 Million in fifteen years. At that time, the charity pays back the $10 Million community bond and the remaining $10 Million remaining carries over about ten years more to when the fund reaches $20 Million again.
At that happy point, about twenty-five years from now, the charity has a foundation with $10 Million in funding plus another $10 Million growing. Every subsequent ten years, another $10 Million drops into the pot. Now the charity has reached target funds, the tipping point. It is self-sufficient and will continue to raise the level of services provided every decade.
Of course, there is the investment downside. The investors must be willing to wait out the time of stock market recession to recoup their desired results.
And additionally, the charity must find a way around the disbursement quota, (DQ). The Canadian Revenue Agency - the CRA (which is like the IRS in the US) - requires every charity to distribute at least 3.5% of the invested assets each year within the charity it operates. The CRA calls this percentage the DQ. The CRA rules that if a charity does not meet its annual DQ it could lose its tax free status. While the idea makes sense that a charity distributes the money it has, if a charity is trying to save for the future, the DQ is a significant impediment to growth.
The DQ is a current sticking point for Step One, but presents an opportunity to create a new enterprise. If a charity cannot raise funds without shelling out a DQ of 3.5 %, then perhaps a separate arms-length corporation should raise and manage the funds for them.
Okay, that would be great. However, what assurances does this new corporation provide the charity or the investors/donors? How can this corporation be trusted? What are governance procedures (succession, resilience, ownership) in place? What if the market crashes down for a period?
These questions to fulfill Step One are where I seek answers. If you see a way forward, let me know!