Investment Strategy
Contributions to a TFAC Trust Fund
Once a TFAC Trust Fund is established for a child, the Elders' donations will be invested. For the past 90 years, the stock market has averaged a 10% annual return. Assuming this pattern continues, a fund started for a newborn child with 10 people donating $11 per month will have accumulated roughly $50,000 over the course of 20 years. This calculation is the value in today’s US Dollars that assumes a 3% rate of inflation, also the average for the last 96 years.
When a child turns 18, and assuming no additional contributions have been made to the trust (which will usually not be the case), he or she will be eligible to annually receive 3% of the value of the TFAC Trust Fund. This will be distributed monthly. By the age of 80, the monthly income will be higher than the average US Social Security monthly distribution.
The capital of the TFAC Trust Fund will be managed with a long-term perspective, usually in funds and ETFs with successful ten-year track records. The goal is to meet or exceed the 10% average annual return of the stock market. Of course, past performance is not a guarantee of future performance.
Investing mindfully
To reflect parents’ values, Trust Funds for All Children will provide a range of options from which they can choose to invest their child's TFAC Trust Fund contributions: traditional, socially responsible, or faith-based. The priority of TFAC is to assist all families in creating a TFAC Trust Fund for each of their children. We also strongly support families investing in the way that sustains their values in the world.
Tax-free growth
TFAC Trust Funds take advantage of the IRS Pooled Income Fund program. This allows donations to the trust to grow without taxation for what we hope is a long and fruitful life for each child. This can substantially increase the yearly distribution to the child his or her entire adult life. This benefit is provided by the IRS in exchange for the remainder of a person’s TFAC Trust Fund, upon their death, going into the TFAC Global Fund to begin new TFAC Trust Funds for poor children around the world. Also, $1 of each $11 of an Elder's monthly contribution to a TAC Trust Fund supports the operations of both TFAC programs. This allows no operation expenses to come out of the contributions into the TFAC Global Fund. This will make it more attractive for people to donate to the TFAC Global Fund where donations will be invested forever and only any annual profits are used to continuously begin TFAC Trust Funds for poor children.
While contributions to a TFAC Trust Fund solely support an Elder’s chosen child his or her entire life, they are simultaneously part of permanently ending poverty on Earth. This also makes it more attractive for the Elders who donate to a TFAC Trust Fund. They are also contributing to the growth of capital that will eventually go into the TFAC Global Fund to end poverty on Earth from the bottom up. We dream of the day when poverty is only found in history books!
Mutual Funds
and ETFs
The money in the TFAC Trust Funds will usually be invested in mutual funds or ETFs that have a good 10-year track record.
Click below to review some of the funds currently under consideration or into which we have already invested.
Past performance is not a predictor of future performance.
Variables
The yearly distributions from a TFAC Trust Fund will mainly be impacted by two variables: the inflation rate and investment performance.
When you click on the button below, you can scroll to see four charts. Each is assuming a yearly distribution at a different rate of inflation: 3%, 2%, 1%, and 0%. All four are presented so you can see the yearly return to the child if the financial return is higher than the historical average of 10%. Any increase in the annual return greater than 10% will offset that portion of the inflation rate. For instance, if the average annual financial return is 12% and the inflation rate is 2%, then the 0% inflation rate return chart will reveal the child’s annual distributions.
It should be noted that the last ten years have been a bull market in stocks. Therefore, it should not be assumed the average annual return will be as high as the above mutual funds and ETFs have accomplished. However, as you can see, if the average annual inflation rate remains the same since 1926, of 2.9%, and the performance only exceeds by a small amount the average annual return since then of 10.2%, it will provide a significant increase in the monthly return to the child.* (In the charts we assumed an inflation rate of 3% and annual return of 10%.) This will particularly be the case when they are heading toward and in retirement. And unlike US Social Security that only goes up annually by the cost of living, on average it will significantly increase each year in retirement. Thus, a TFAC Trust Fund is also a private sector retirement program.
It should also be pointed out that from 2000 to 2019, the stock market fell six of those twenty years, or 29% of the time. Vanguard has found that from 1926 through 2019, the stock market fell 27% of calendar years.** The reason it has averaged a 10% annual return over longer periods of time is performance in public companies keep making profits that will eventually flow into investors’ hands. It should also be pointed out that since 2000 the S&P 500, the index of 500 of the largest and diversified US companies, had an annual increase of 6%. Therefore, we do not primarily invest in index funds. That would be investing both in companies that are financially doing well and poorly. We judge it is better to usually invest in professionally managed mutual funds that have a ten-year track record of better than a 10% annual return.
Here is the second thing that should be noted when studying these charts. These returns assume there are no additional contributions to a child’s TFAC Trust Fund beyond the average of $11 a month by ten people for the first twenty years of the child’s life. Once the TFAC Trust Fund is created, parents, grandparents, and others can easily be encouraged to donate additional capital on gift giving occasions, such as birthdays, holidays, graduations, weddings, and from people’s wills. Or at any time. Small contributions each year at these times can also significantly increase the monthly return to the child his or her entire life.
The goal here is to have this generation be the generation that begins ending the possibility of poverty for our children, and eventually for all children, from the bottom up by harnessing the long-term performance power of the stock market.
* Source: Morningstar **Source: Vanguard