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  • Cam Anderson

To build a 'Fund Generator'

Updated: May 31

Everything in our economy must have this ingredient to operate: Money.

To improve our economy, adding in money would be a help. No, I am not suggesting that we print more money, rather that we earn it. One way to make more money is from the earnings of investments, which can provide dividends, interest, and capital

gains.

This article describes how we could improve our economic situation by building a ‘fund generator’ to finance existing and new ‘money generators.’

Charitable foundations are a great example of money generators. Every year charitable foundations supply money to charities in a sustainable amount. Foundations solicit additional contributions to enable increased annual outflows.

To build more or larger money generators, such as charitable foundations, we need contributions. Contributions must be significant to increase donation levels quickly. Amassing sizable donations requires substantial time.

Consider the building of a hydroelectric generator. Builders construct a dam. Water from streams collects behind the dam to create a reservoir. When the reservoir is full, operators let water flow out to turn the electric generator, which produces electricity. Operators set water flows in and out to be equal to generate electricity sustainably. Electricity serves everyone who connects to the distribution system.

Now imagine building a money generator. First, an investment account opened to act as the money reservoir. The money input into the investment account comes from contributions and investment earnings on them. Money collects in the account until reaching a target amount level, just as the height of water levels indicates a full reservoir. Administrators ensure sustainability: the money flowing out to stimulate the economy equals the money coming in from earnings. Everyone benefits.

The two generators, electrical and financial, are existing essential parts of our social infrastructure. Building infrastructure takes political will, effort, time, and money. We already know how to make and operate both these generators sustainably. Fundraising, however, is the problematic part and often the root cause for lack of effort and political will.

What if we had a fund dedicated to creating money generators? A fund generator for money generators! Such a fund could be our infrastructure to develop future money generators meeting all types of needs. Fund generators do not exist today.

We can build a fund generator in much the same way as building a money generator. Its purpose, however, would be to create significant funds sustainably to make or augment money generators.

Let’s consider an example. In Vancouver, Canada, we are very fortunate to have the Vancouver Foundation serving our community. The foundation has a significant reservoir of funds, with holdings of $ 1.2 Billion per its 2018 tax filing. These investments support the annual donation level to charities. The Vancouver Foundation is the money generator giving out its yearly $60 million in donations to charitable organizations.

If a fund generator were to allow the Vancouver Foundation to grow by 10% in a year, the Vancouver Foundation would add approximately $120 million a year to its investments. The fund generator would have to be $3 billion in size. While raising $3 billion sounds improbable, it is possible given enough time.

Assume realistic donations to start such a fund generator reach $3 million. To grow $3 million into $3 billion would require a very long time. Since a likely growth rate after costs and inflation is about 5% per year, the time to reach $3 billion is about 138 years.

Upon reaching the $3 billion level, the fund generator should not immediately start donating $120 million. Instead, the donation should wait a further 14 years to let the generator funds double to $6 billion. In this way, the fund generator can give $3 billion away every 14 years. With so much time required for the fund generator to reach the target level (138 years) versus the relatively small amount of time to double (14 years) waiting for doubling is the desirable choice.

The approach, in this case $3 Billion, is to keep a base minimum held in the fund generator after providing for each donation. Such an approach would allow various applications of the surplus while maintaining the capacity for substantial contributions quickly.

I imagine you may think that 152 years is so far into the future that waiting is not worthwhile. Giving the original $3 million immediately to the Vancouver Foundation would be helpful. However, after the 152 years, it is one-thousand times more helpful.

Society should balance both approaches. Currently, $3 million would represent six percent of their revenue of $50 million in 2018. Raising the $3 million over six years would take just one percent of their annual income.

One hundred and fifty years does seem far fetched. That amount of time spans the time between my grandmother’s era and my granddaughter’s era. Both would have loved each other dearly if given a chance. Creating a fund generator now is how we can be the grandparent giving to our grandchild’s grandchildren.

That’s not so far off. Let’s get started!

I welcome your comments via email at cam@futurelegacies.ca.

Every month I will keep you updated on progress and blogs for this project, addressing how we can change the world together by sowing seeds now to finance a better future.

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