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Maximizing my DAF returns by timing and asset allocation - a model for retirement

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  • Maximizing my DAF returns by timing and asset allocation - a model for retirement

    I have been thinking more about my DAF (donor advised fund) recently and it struck me that my DAF is a model for retirement. Let me way of background I am under 40 and don't plan on retiring for 25 more years. Thanks to the @WCInvestor and many others I should have achieved FI long before I want to retire. One of my goals in life is to 'give back' to my church and other charities so a couple of years ago in 2017 I started a DAF win Vanguard. My strategy so far is to donate equities from my taxable account. I have chosen to donate every other year. In the year I donate I do a Roth conversion. In the year I leave it alone I take the standard deduction. So when I donate I lump several years in a row - more than my planned giving for the year. We now donate almost all our donations for the year from the DAF [I really like the giving anonymous option].

    Before March 2020 my assets allocation for DAF was 100% US stocks [I realize the tax benefit was already achieved when donation was made - but the secondary goal is donating more money to charity]. I noticed my balance at the end of each year was almost aways higher than the start even though I made monthly donations. Then in April I made a mistake [maybe just an opportunity to learn a lesson]. In my DAF I backed off to an asset allocation of 60% stock/40% money market or cash. I thought I could market time [spoiler: I was wrong]. In the next 5 months I gradually increased my stock holdings and sit now at 80/20 - which I think I can be happy with [as a side note in my retirement accounts I am 100% stocks due to long time horizon].

    Anyway, I don't recall hearing much about asset allocation within a DAF. The time horizon could be shorter with a DAF, but if there is a large account balance it could be years or decades. Similarly, with respect to withdrawal (contributions): when they are automated [monthly] I don't need to think about it and looking back it really doesn't make much difference whether the market is up or down.

    I think there can be parallels drawn from DAF accounts to retirements accounts [in retirement].

    Can others share their DAF asset allocation or their DAF contribution [monthly vs lump sum vs eye to the market] with the goal of maximizing donation.

  • #2
    I think it lines up with any other questions around investing. What's the time horizon for when you need the money?

    I'd have enough in cash/bonds to cover 1 year of your donations, knowing that you're gifting larger amounts every other year. Outside of that, you can let it be more aggressive to grow the account. If there are ever years where stocks are down, you use your cash/bond cushion in the DAF, and then in the years where it is up, depending on if it's your "lump" year, you can decide what's best between using the DAF or just gifting appreciated stock outright to the charities/church along the way given it's the same from a tax perspective whether you use the DAF or gift appreciated stocks outright.

    Love to hear you're giving back this early too! I need to be better about that
    Andrew Musbach, CFP® | Co-Founder & Financial Advisor at MD Wealth Management, LLC | Podcast Host - The Physician's Guide to Financial Wellness


    • #3
      You’ve got a good plan - contributing appreciated assets and pairing with Roth conversions, a multiple tax win. In the overall scheme, I like accounts with cash outflow to have the more conservative allocation compared to the overall but since you’re refilling the DAF every couple of years it’s probably not going to matter much. Retirement accounts require more caution especially once you start distributions since in general you can’t refill them.