# Is there a benefit to creating a donor advised fund to make charitable donations instead of simply donating to organizations each month?

I'm looking to set up recurring charitable donations to various groups, and I'm considering using a donor-advised fund through Fidelity or Vanguard.
General question: Is there a benefit to placing money into an account like this, where part of the earnings (and my monthly contributions) will be reinvested, and the remainder will be donated, or should I simply donate these monthly contributions directly to the organizations since my total donations in the latter case might be higher?

### Specific data behind my question

My question is very general, but these are the specific calculations that motivated me to ask this question. If I make these assumptions:

1. The initial principal is \$5000
2. The account earns on average 5% a year
3. I contribute \$1200 to the account every year
4. 50% of the earnings are reinvested, 50% are donated each year
5. A 36-year horizon

I calculate that the fund will donate \$32,724.37 to charity in total (not adjusting for inflation). However, if I instead donated \$1200 each year, plus the initial \$5000, I would donate a total of 5000 + 36*12000 = \$48,200.

With these assumptions, a growth rate of 6.57% is required for the investment to donate the same amount, not including inflation, as the simple monthly donations, so should I just donate on a monthly basis, or does the investment fund have benefits I'm unaware of?

EDIT: My initial growth rate of 6.46% was a bit off. The correct figure is 6.57%, which I calculated using Mathematica 8 and the assumptions stated above. Here is the code, for those who are curious.

`````` CalcDonation[seed_, growthrate_, reinvestrate_, annualcontrib_, horizon_] :=
Module[{balance = 0, earnings, reinvestamount = 0, donation = 0},
For[year = 1, year <= horizon , year++,
(* No annual contribution in first year *)
balance += If[year == 1, seed, annualcontrib + reinvestamount];
earnings = balance * growthrate;
reinvestamount = earnings * reinvestrate;
donation += earnings *(1 - reinvestrate);
];
donation
];
FindRoot[CalcDonation[5000, g, 0.50, 1200, 36] == 5000 + 36*1200, {g, 0.05}, Evaluated->False]
``````

Note: These calculations don't include the fees associated with the funds, either. Although the expense ratios of the underlying funds are different, both Fidelity and Vanguard assess additional fees of 0.60%. Vanguard also requires a higher minimum balance, but I used \$5000 (the minimum balance for a Fidelity account) as an example.

• great q - and nice on the Mathematica code :) Dec 12, 2012 at 18:56
• You're comparing apples-to-oranges. Your DAF example the ending balance is non-zero (around \$77k) and includes the annual contribution while the second has an ending balance of zero. To make a true apples-to-apples, you would need to contribute the remaining funds in your DAF at the end of the 36 years.
– Spig
Dec 7, 2017 at 15:18
• "are donated" makes it sound like the DAF chooses. Actually, you choose when and where donations are made on any schedule. You can also be an activist donor and try to influence the nonprofit's priorities. Feb 3, 2018 at 2:19