Putting Your Heart into a Diversified Portfolio

Hey there, thanks for joining me. In this release, I’ll be focusing on an age-old topic—diversifying your portfolio. Are you thinking, why is Jake telling me about a well-known investment strategy? Because the portfolio I’m referring to is your philanthropy portfolio.

A diversified philanthropy portfolio either diversifies a donor’s giving focus across multiple issues or encompasses a myriad of strategies tackling a single, complex issue.? Of course, these two approaches are not mutually exclusive. In philanthropic investing, the measurement of success is the impact, or return, on your donations, and if often measured not in the moments following the ‘click’ of the donate button, but rather over a time horizon of many years.

Ok, now that we’ve gotten that out of the way… why is it important to diversify your charitable gifts? It’s not like there’s a risk of losing money after having chosen to give it.

The first diversification approach - supporting causes across multiple issue areas - is an acknowledgement that most people are passionate about more than one thing. As the former CEO of Team Rubicon, it’s safe to assume I am passionate about disaster response and veteran re-integration issues.? But many people may not know I also support children’s hospitals because my daughter had a congenital heart defect, or that I have been a monthly donor of a small local nonprofit, Olasteo, that focuses on racial equity.

Clearly, no single organization approaches all four of the above mentioned issue areas, so one element of my diversification approach is to tackle them individually by finding best-in-class nonprofits.? But note that the types of organization’s I’ve selected are widely different.? Team Rubicon is a nationwide organization that delivers services globally.? I support TR annually with a large unrestricted gift.? My wife and I also support Children’s Hospital Los Angeles (CHLA), but restrict our annual gifts to a specific program - their cardiothoracic ICU.? Lastly, Olasteo is a small-budget, but hands-on and high-impact organization that I support with a monthly recurring gift - an acknowledgment that cash flow is so critical in those early stages.?

If we want to pull on the financial analogy, think of it in terms of investing in Blue Chip vs small cap indices, or domestic vs emerging markets. Hell, you might even find the nonprofits equivalent of bitcoin (actually, you don’t have to look very hard - they’re out there!).

Of course, some people are deeply passionate about a single issue.? This could be for any number of reasons - the search for a cure to an illness that has hit close to home; an existential fight to save the planet; or the battle to reverse centuries of injustice.?

In this case, sophisticated philanthropists seek to assemble full-spectrum portfolios that tackle an issue from all angles and at all levels.? What this requires is an understanding that societal issues are inherently complex.? Countless factors contribute to the problem, and solutions must be layered to reduce suffering in the near-, mid-, and long-term.? This requires funding organizations at each level: the tactical, strategic, and systemic.?

Let’s explore by spotlighting an issue that is endemic in my home city of Los Angeles: homelessness. Before I begin, let me acknowledge that I am not an expert in this issue - but I’m fortunate to know several.

First, dozens of factors can contribute to someone becoming homeless: economic instability, a shortage of affordable housing, devastating healthcare bills, mental health, domestic violence, substance abuse, and many others.? These could all be contributing factors - and any person focused on reducing homelessness in Los Angeles would be remiss to dismiss these upstream issues.

Second, solutions must be layered: get someone a house, then keep them housed, then focus on their long-term wellbeing, then ensure that the next Angeleno doesn’t become homeless and restart the cycle.

To execute this second part effectively, it’s important for donors to understand that the best philanthropy isn’t always the donation that has an immediate, tangible impact.? So many donors I’ve spoken to over the years say, “I want to be able to track my dollar directly to the actual, tangible impact it has in the field (in TR’s case).”? It’s an understandable sentiment.? In the example of homelessness, it’s the equivalent of saying, “I want to pay for this bed, and I want someone to sleep in it tonight.”? This type of philanthropy provides the best dopamine hit - the emotional high that drives us to do good things. And it’s important to note that it’s a critical component of a full-spectrum approach to tackling the issue.? But, in a vacuum it’s also short-sighted. Even if we had a bed and funding for every person experiencing homelessness every night of the year, and got them into those beds, we would be foolish to think we’ve solved the problem.

What’s needed is an approach that balances the tactical, near-term need to provide safe, dignified shelter, with the long-term need to solve the problem.? It’s the classic saying of treating the disease, not the symptom.?

Therefore, a balanced approach would combine tactical philanthropy with strategic (supporting jobs retraining programs and other social services) and systemic (lobby efforts to increase affordable housing availability and reduce prosecutions of non-violent drug crimes).

For any of my Marines or other military veterans out there, it’s the charitable equivalent of combined-arms, or layering direct and indirect fires (you didn’t think I’d get through a whole newsletter without a military analogy, did you?).

Full-spectrum giving and diversified philanthropy are borrowed from the rationale behind mutual funds and ETFs holding a collection of stocks or other assets—like the adage “don’t put all your eggs in one basket.” We invest in these types of funds for two underlying reasons: to gain exposure to varied markets, asset classes, and risk-return profiles, and to reduce the risk of loss through variation.?

In my opinion, just because the objectives of philanthropy differ from your investment objectives doesn’t mean the methods must.

At Groundswell, we believe giving should be approached like investing. It should also be accessible like investing, where nowadays anyone with a mobile device can download an app that puts them on the floor of the NYSE. Hyperbole aside, Groundswell offers the same easy to use experience, but for your philanthropy.

We’re disrupting things on the corporate side as well. We believe people should be able to contribute to an account and donate through an employer's giving program with an option to match a percentage of donations just like a 401K. And if a company decentralizes its philanthropy and empowers employees to give in that way, that the collective wisdom - gained from a diversity of perspectives - of those employees will lead to a more equitable and effective distribution of those funds.?

If you’re in a position at your company, either an executive or leading CSR initiatives, I invite you to reach out about engaging with your staff through giving while diversifying the causes your company supports.

As a final thought, full-spectrum philanthropy is useful for more than expanding our individual or corporate philanthropic impact. It gives the underfunded, local organizations equal opportunity as the $50 million 501(c)(3) with the largest share of the cause market but a limited mission. These smaller organizations have the ability to create true impact and supplement efforts behind every last cause. By embracing full-spectrum, diversified philanthropy, we become the rising tide lifting all ships.?

-JW