The Impact of an Endowment Will Keep Increasing
The principal of an endowment is not spent, and the beneficiary receives a specified income. Currently, endowments managed by ACEF, for instance, distribute approximately 4.5% income each year. Any additional income is reinvested so that in years when financial returns are poor, a distribution can still be made. Over time, as the principal of the endowment increases, so does the income.
Let’s say your total endowment is currently $100,000. Here’s how its power gets magnified over a couple of generations. Assuming a nominal return of 7%, based on ACEF’s policy asset allocation the total reaches $258,901 in year 40—with a 4.5% distribution taking place every single year. This example shows what would happen without anyone in the parish creating a new endowment or adding to an existing one for 40 years.