Last July on our Foolanthropy discussion board, Fool Community member ShakespearesFool raised an interesting topic. He said he and his wife debate "whether to concentrate our donations or spread them among more charities."
Fellow board denizen JeanDavid replied, "I try to keep it to 12 charities that get about the same amount each. My dad would give $25 to hundreds, and to me this made no sense." JeanDavid rightly noted that by giving small amounts to many, you'll get gobs of fundraising mail from each one, thereby reducing the value of your $25. Then he made a very insightful connection to investing:
By giving $250 or more, there will be some left over for the actual work of the charity. If I do not care enough about the charity to give it $250, [I] do not bother at all. Sort of like stock picking. If I do not like the company to put 5% to 10% of my money in it, I should not put any in it.
Concentrate, concentrate ...
This makes sense in both investing and philanthropy. If you want to do a lot of good via an organization, give it a hefty sum.
Think, for example, of Share Our Strength, one of the outfits we're raising money for in our Foolanthropy campaign. One of its aims is to "make sure that no child in America grows up hungry." A representative explains: "A donation of just $100 allows us to send a low-income family through an entire Operation Frontline course, giving them the skills they need for sustainable financial security." So $300 gives long-term aid to three families and helps 10 or more people.
Deploying our dollars into relatively few stocks boosts our investing performance, too. A 2003 University of Michigan Business School study found that among more than 2,000 mutual funds examined between 1984 and 1999, the highly concentrated funds performed significantly better than the diversified funds. The researchers attributed this in part to strong managers having better information about certain industries. It's the same with us. If we own 100 stocks, how can we really keep up with them all?
Some mutual funds specifically concentrate their portfolios. For instance, the Legg Mason Opportunity (LMOPX) fund recently had a portfolio of just 58 stocks but has earned an annual average return of around 17% over the past five years, thanks to top holdings such as Amazon.com (NASDAQ:AMZN), Yahoo! (NASDAQ:YHOO), Red Hat (NYSE:RHT), and ArcelorMittal (NYSE:MT). A typical mutual fund might own 200, 300, or even more stocks.
Should you snap up shares of that fund? Maybe. But maybe not. Its annual expense ratio of nearly 2% is rather steep. You might do better after a little digging. We'd love to help you with that by introducing you to lots of top-notch, low-fee funds with talented managers -- via our Motley Fool Champion Funds newsletter service. You can try it with no obligation, free for 30 days, during which time you'll have access to all past issues. Give it a whirl -- its picks have been soundly beating their benchmark indexes, 29% versus 16%.
Two sides to the story
With some charities, giving a little now and then can be effective. If you're intrigued by an organization's work (perhaps one or more of the five that we're supporting via our Foolanthropy campaign now under way), why not send in $25 or $50? That way you'll help them out and you'll probably hear more from them, giving you a chance to learn more about their work.
Warren Buffett reportedly buys 100 shares of all kinds of companies that interest him, just to get their annual reports and to keep up with them.
Buying 100 shares of hundreds or thousands of companies makes no sense for most of us, though. So know that you can buy only one share of a company and still receive its annual report -- or, better still, hold off on buying it and look up the annual report online.
And finally, don't worry about mailing costs for charities that send out multiple appeals. For every dollar they spend on fundraising, effective organizations typically bring in several dollars. So the money isn't exactly lost -- it's leveraged into more money.
Click here to learn about some impressive organizations, and consider joining us in supporting them.
