A good place to start might be payout, the amount of charitable distributions foundations must make in in a given year, usually around five percent of the value of the foundation’s assets. Grants to charities, administrative expenses associated with grantmaking, and amounts paid to acquire assets used in carrying out the purposes of the fund count toward this payout. Investment management fees, brokerage fees, custodial fees, and salaries or board meeting expenses to oversee investments do not.

With a clear picture of what the payout requirement means for your foundation, you’ll know what the foundation must do with its dollars. Consider next what the foundation and the family want to do, keeping the charitable purpose of the foundation in mind.

• How might your program goals be achieved?
  
• Do you want to spend now or spend later?
  
• Do you want to meet or exceed payout?
  
• Do you wish to grow the endowment or simply maintain its inflation-adjusted value?
  
• Are more assets coming or is the foundation fully funded?

These questions inform your foundation’s return requirements (the amount that your foundation’s investment assets will need to earn, minus expenses and inflation, to meet the law’s requirements and your own program goals). From there, your asset allocation (the kinds of investments your foundation should make to meet or exceed your return requirements in keeping with your tolerance for risk). Manage risk by diversifying across asset classes and investing to meet return objectives, not to maximize returns.

Consider also the possibilities of socially responsible investing through:

• Investment screens (avoiding or pursuing certain types of investments because of environmental, moral, social, or other concerns)
• Community investing
• Proxy voting
• Microfinance
• Program-related investments