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How to handle church endowment (looking for best guaranteed return)
Old 08-22-2005, 10:58 AM   #1
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How to handle church endowment (looking for best guaranteed return)

I posted this question over on fatwallet this morning, but haven't gotten any responses. I thought you guys might have some ideas.

I was talking with a friend this weekend who works for a small church (which is a tax exempt organization). They received a multi-million dollar gift several years ago, and have been drawing a substantial amount of principal each year to meet their budget. (At this rate the money will be gone in <5 years.)
My friend believes they are only getting a 3% return on this money, which I think is pretty low for this type of deposit. They need access to the money, but shouldn't need more than $200k to be readily accessible. Any ideas on how this could be handled? A 4-5% return would be significantly better.

Anyone have experience with million-dollar endowments? Is it common to use CD ladders, Treasuries, or a mixture of both? Are there options that I may not be familiar with?
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Re: How to handle church endowment (looking for best guaranteed return)
Old 08-22-2005, 11:10 AM   #2
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Re: How to handle church endowment (looking for best guaranteed return)

If the church is consuming the principal at that kind of rate, it doesn't make whole lot of difference whether they get 3 or 4% on it. Endowments are usually invested in a diversified portfolio and tapped at the rate of 5% or so a year. The more sophisticated stuff doesn't apply if the money is being rapidly spent.
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Re: How to handle church endowment (looking for best guaranteed return)
Old 08-22-2005, 12:35 PM   #3
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Re: How to handle church endowment (looking for best guaranteed return)

Quote:
Originally Posted by brewer12345
If the church is consuming the principal at that kind of rate, it doesn't make whole lot of difference whether they get 3 or 4% on it. Endowments are usually invested in a diversified portfolio and tapped at the rate of 5% or so a year. The more sophisticated stuff doesn't apply if the money is being rapidly spent.
Right....that's why I've asked to take a look at their budget. If they do it right, it is a nice revenue generator. If they continue on the path they are on, it's going to be bad news. I was just surprised they were earning such a low rate.
Since I knew FDIC guarantees topped out at 100k, I wasn't sure what the norm was with a $1m fund.
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Re: How to handle church endowment (looking for best guaranteed return)
Old 08-22-2005, 12:41 PM   #4
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Re: How to handle church endowment (looking for best guaranteed return)

T-bills are probably the most prudent thing to do.
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