Americans are known around the world for their generosity. During 2013, U.S. households gave an average of about $3,000 to charity, adding up to a total of more than $335 billion nationwide. For many charities, every contribution -- no matter how small -- is important to achieving their missions.
But if you want to be a true difference-maker in your community, building up your net worth in order to make much larger gifts can have a much greater impact on the important things charities in your area strive to accomplish. According to the National Philanthropic Trust, 95% of high-net-worth households make charitable gifts, and more than 60% of them say that giving back to their communities is their primary motivation for giving. If you want to give back to your community, then you owe it to yourself and to those you're trying to help to put yourself in the best position possible to make a difference.
That might sound like an impossible task. But by tapping into the immense power of a simple investing technique, you can get yourself on your path toward philanthropy a lot more easily than you'd think.
Turning modest savings into serious money
Almost 20 years ago, a woman named Oseola McCarty made headlines with her generosity. Born in 1908, the Mississippi native survived the economic challenges of the Great Depression with her modest lifestyle. She dropped out of school in the sixth grade to help her sick aunt, and she took on odd jobs whenever she could get them. Financially, McCarty lived beneath her means, leading a thrifty lifestyle that she maintained her entire life to go along with her job washing clothes. She never married, lived in a small home, never owned a car, and walked everywhere she needed to go. And she had a key habit that many of her peers lacked: She saved part of her earnings whenever she could.
McCarty didn't invest aggressively; she simply saved her money in the bank. Yet the power of compounding helped that savings grow, albeit at a slow pace, paying interest that she allowed to build up in her account. Later in her life, McCarty started branching out into other investments, such as bank CDs and mutual funds with conservative investment philosophies.
Before her death, McCarty established the Oseola McCarty Endowed Scholarship Fund for students at the University of Southern Mississippi. Because of her frugal lifestyle and her commitment to saving, McCarty was able to dedicate a whopping $150,000 to her charitable cause, offering full four-year scholarships to students in financial need.
How to do even more for charity
McCarty's $150,000 donation has helped almost four dozen students get scholarships and has inspired hundreds of additional contributions from similarly minded donors. But other philanthropically minded women have done even more to help their communities simply by using the power of compounding more effectively.
For instance, Gladys Holm worked as a secretary throughout her life, never making more than $15,000 a year before she retired in 1969. But in her will, she left $18 million to the Children's Memorial Hospital in Chicago, outdoing McDonald's (NYSE:MCD) founder Ray Kroc's $10 million donation to the hospital to become its largest donor ever. She made her fortune by investing in the stock market, starting with shares of her employer, American Hospital Supply -- which Baxter International (NYSE:BAX) bought in 1985, providing Holm with a huge windfall. Having invested little by little in various companies that operated in her field of healthcare, Holm surprised everyone with the size of her bequest.
Florence Ballenger was a retired English teacher from a junior college in Florida. She, too, lived frugally, spending little and never withdrawing any money from her deceased husband's trust. By the time she died in 1999, Ballenger had accumulated $3.6 million in her own right, and her husband's trust had grown to $3 million. The secret to her riches: investing in blue-chip giant General Electric (NYSE:GE) in the 1960s and allowing the investment to grow in value over the decades as the conglomerate evolved into the powerhouse it is today. She left three gifts of about $1.2 million each to different educational institutions in Florida and Illinois, while her husband's trust went to Clemson University in South Carolina.
Mildred Othmer has one of the most impressive stories of all. In the early 1960s, she and her husband Donald invested $25,000 with an old Omaha family friend named Warren Buffett. When the Buffett partnership dissolved, the Othmers received shares of Berkshire Hathaway (NYSE:BRK-A), then valued at $42 per share. By the time Mildred died in 1998, her stock was worth more than $75,000 per share, amounting to a fortune of $578 million. The estates of both Mildred and her husband helped fund nine-figure gifts to the Long Island College Hospital and the Brooklyn Polytechnic University.
Let the stock market finance your charitable gifts
These stories might sound fantastic, but the power of compounding has the ability to turn even modest savings into riches over time. If you take the long-term average annual return of 10% for the broad stock market, you'll find that, even if you can only save $100 per month, investing it prudently will give you a nest egg of $225,000 after 30 years. Wait an additional 10 years, and those savings will soar to almost $630,000.
It's easy to capture the return of the broad stock market cheaply and efficiently. Mutual funds and exchange-traded funds that passively track popular stock market indexes, like the Dow Jones Industrials (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC), are easy to find, and with rock-bottom expenses, more of your hard-earned money stays invested and growing over the long run.
If your ambitions are similar to Oseola McCarty's, and you want to make a modest but meaningful difference in the lives of people in your community, then settling for average stock market returns will be enough to let you achieve your goals of making notable donations to the causes that are most important to you. But if you want to make truly life-changing charitable gifts and join the ranks of true women philanthropists like Gladys Holm, Florence Ballenger, and Mildred Othmer, then you should follow their examples and choose stocks with market-beating potential.
The difference great stocks can make
If you're not familiar with the power of compounding, it may surprise you how much of a difference a small boost in your returns can make over the long run. Just a couple of extra percentage points in your average return can turn thousands into millions more easily than you'd imagine.
For instance, take the same $100 monthly gift that we discussed above, but instead of accepting the stock market's 10% average return, say you find a stock that can produce returns of 12%, year in and year out. In a 30-year period, instead of $225,000, you'd have more than $350,000. And if you keep it invested for 40 years, that modest savings turns into almost $1.2 million!
The better the stocks you can find, the more of an impact they'll have on your philanthropic resources. With a return of 15%, those $100 monthly gifts will produce a $3.1 million treasure chest in 40 years' time. If you double the market's return and earn 20% annually, you'll be able to give more than $17 million -- an almost inconceivable sum from such a small initial investment.
The challenge, though, is finding the stocks that will dramatically outperform their peers. Choose wrong, and your charitable dreams could go up in smoke. Choose right, though, and you could change the lives of thousands of people. With that kind of pressure, you'll want a helping hand to make sure you do right by the people who are counting on you to make the most of your savings.
Finding the stocks to help your community
Motley Fool co-founders Tom and David Gardner have dedicated their lives to helping people invest better, and their flagship Motley Fool Stock Advisor service has established a track record of exactly the market-beating returns that you'll need to reach and exceed your philanthropic goals. For more than a decade, Stock Advisor has produced amazing returns that have surpassed some of their members' wildest expectations.
Moreover, Tom and David have done an exceptional job finding exactly the stocks that can create meaningful wealth -- stocks like travel portal Priceline.com (NASDAQ:BKNG), which has produced returns of more than 5,000% since the Gardners first recommended the stock. Stocks like Marvel Entertainment, which soared as an independent company before being acquired by entertainment giant Walt Disney (NYSE:DIS) in early 2010, producing total returns for investors of more than 4,200%. And stocks like Amazon.com (NASDAQ:AMZN), which has transformed the way Americans buy the products they need and produced returns of more than 2,200% for investors since the newsletter initially chose to recommend the online-retail outlet.
Tom and David know the power of compounding and the effect it can have on women's lives because they've seen it firsthand through their members. With the Gardners' near-fanatical obsession with the stocks they track, and their limitless desire to communicate with Stock Advisor members about the companies they believe will make them rich, you'll always know where you stand. You'll also gain knowledge and experience to help you find the next great stock before anybody else does.
Most women never get the opportunity to make the sort of charitable gifts that people in their communities will talk about for years and even decades to come. But by tapping into the power of compounding -- and taking advantage of the experience offered by Motley Fool Stock Advisor -- you could turn your dreams of changing your community into a reality.
Dan Caplinger owns shares of General Electric and Walt Disney. The Motley Fool recommends Amazon.com, Baxter International, McDonald's, Priceline Group, and Walt Disney. The Motley Fool owns shares of Amazon.com, General Electric Company, Priceline Group, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.