When discussing financial independence, or saving for goals, oftentimes we’re hyper-focused on saving for ourselves or our kids. But many people pursue financial independence also have goals with a higher purpose in mind. They may wish to leave a legacy in this world, and provide generous contributions to worthy causes.
Warren Buffet, Bill Gates, and other billionaires have taken the giving pledge, where they pledge to give away 99% of their wealth during their lifetime or after their death. In fact, recently Bill Gates announced that he was donating $100 million to Alzheimers research alone. And in the past ten years, Buffett has given nearly $30 billion of his wealth away to charitable causes.
Although I don’t hang around with a lot of billionaires, there are plenty of millionaires in the personal finance community. And many of them are just as generous. Last year, Pete from Mr. Money Mustache donated $100k to various causes. And my friend Physician on FIRE followed suit with his own $100k donation to a donor advised fund. And more recently, POF hit his goal of contributing a quarter million dollars to a Donor Advised Fund – be sure to check out his recent post talking about his experience.
Particularly around the Christmas season, many Americans turn their thoughts to charitable giving. Sometimes they’re tired of materialism, or the greediness they see around them and want instead to make a difference. There are so many worthy causes out there, it can be hard to know how to do this.
I thought it would be interesting to see what others in the personal finance community think, so I created a Twitter poll to see if folks have charitable giving as one of their financial goals.
The poll spurred some interesting conversations:
- Revanche from A Gai Shan Life responded “My biggest dream is a *clean* ranch for rescue dogs where older/aging out foster kids can live and learn to care for dogs along w/learning basic life skills so they can go to uni & build their lives. Some adult supervision required. That may or may not be realistic”
- Mrs. Retire to Roots replied “Continued charitable giving is definitely part of our FIRE plans. But despite my love for Vanguard, we actually went with a Fidelity DAF.” (CMO note – DAF = Donor Advised Fund)
- Tanja from Our Next Life said “Fwiw, we did
@FidelityChrtbl bc min grant is $50, while it’s $500 w Vg. That was more important to us than the initial contribution minimum. And I believe the minimum for additional contributions with Vanguard is $5000, and no minimum with fidelity, so we can dump in small amounts when we have them.”
- CMO Note – I did look this up after the Twitter conversation and Fidelity has a $10 minimum on EFT transactions, but no minimums on other kinds of transactions.
So as you can see, for most folks interested in personal finance and reaching financial freedom, charitable giving is a definite goal. And many choose to fund a Donor Advised Fund for this particular goal. This kind of fund is one where you make an irrevocable gift to a charitable trust, and its invested over time to grow tax-free.
Fidelity? Over Vanguard?
Given the love of the community for Vanguard, it was interesting to see just how many folks went with Fidelity for their giving goals, The reason is simple – Fidelity offers lower minimums, lower contribution amounts, and lower gift limits. It’s simply more attainable for most folks than Vanguard with its much higher minimum contribution to open the fund, higher minimum contribution amounts, and higher gift limits.
With a donor advised fund, you don’t need to just have the cash sitting around to open the account. With Fidelity, for example, you can donate appreciated stock, privately held business interests like IPO shares, real estate, and more. Vanguard also allows publicly traded securities, mutual funds, and complex assets on a case-by-case basis (there are higher minimums for the complex assets). If you donate an appreciated asset, you not only avoid paying taxes on the appreciation, but you can also get a tax deduction for the amount of your contribution when you make it. Your contribution then grows tax-free until you choose to disburse it in the form of a charitable gift. At Fidelity, you can even have third parties make contributions to the account too – so if you’re tired of, say, Christmas materialism and want instead to make a difference, you can ask others to contribute to your donor advised fund.
I thoroughly read each of their websites and 30-plus page PDF’s to create a handy comparison between the two, and determine their pros and cons. Remember this information is accurate as of this writing (end of 2017) but may change over time. If you’re reading this far in the future I would highly recommend checking out their sites and documents to see if anything has changed.
- For more in-depth information on Fidelity, I’d recommend reading their 33 page PDF on their Giving Account Policy Guidelines. Their website is here.
- For more in-depth information on Vanguard, I’d recommend reading their 36 page PDF of Policies and Guidelines. Their website is here.
Remember that with a Donor Advised Fund, there’s a lot that matters more than the minimum investment amount and grants. It matters what you’re planning to use the funds for, when, how much you want to donate to each individual organization, and the type of investments you want to contribute (cash, stock, etc.). Personal finance is personal, and the right decision for you may be wrong for someone else. I’m here to present the facts so you can decide which makes sense for you.
So now lets take a look at them side-by-side.
Looking at these details, the Fidelity fund appears to be less expensive until you have around a million dollars in the donor advised fund, as long as you pick the market index fund. Vanguard has a much wider selection of less expensive funds, while Fidelity’s other offerings come with a higher expense ratio. Fidelity also seems more likely to accept assets like real estate or bitcoin.
More About Donor Advised Funds
Contributions are irrevocable and non-refundable, so you can’t decide later to pull them out and use them for a child’s college education or to pay for a vacation. So if you decide you want to pursue a donor advised fund, make sure you’re never going to need the money. After you donate it, it’s not yours anymore, it belongs to the charitable organization.
This kind of fund is best to use if you want to make a large donation and let it grow for a long time. The investments you’ll put it in tend to be stock based, so you’ll want it to be able to compound over 5, 10 or more years. Over time you can make recommendations of grants to various organizations that are important to you. The fact that it can grow and compound is what makes this a potentially powerful tool for future giving. Otherwise, if you just want to contribute to a charity, you’d be better off doing it directly now rather than using a donor advised fund.
Are you thinking of opening a donor advised fund, or incorporating any charitable giving goals into your long-term planning? Let me know in the comments!
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8 thoughts on “Giving on FIRE – Vanguard vs. Fidelity Donor Advised Funds”
Thanks for putting this together, CMO! It is a good follow up to the RSF thread on DAF’s!
We use a DAF. In 2016, we did two years of our donation budget. We’ve agreed going forward that we will do an estimate for that year’s donation budget in January/February. We aren’t at a point of donating large chunks to it, but we still like donating appreciated stock shares and that the charities don’t have to pay the credit card fees when we use it. It’s also easier to re-donate to the same charities or to random ones than with current money, now that we have it set up. Since the money is irrevocably there, we can’t repurpose the donation budget for anything else. We typically have the DAF sell our contributions and move them into a money market fund since our goal is to empty it every year with donations. Ours is at Schwab, which has the same $50 minimum grant as Fidelity.
I came to the same conclusion as you, but only after first opening a DAF at T. Rowe Price, then one at Vanguard, and finally one at Fidelity.
If I were to open my first DAF today, I would go with Fidelity or Schwab — but probably Fidelity since I’m familiar and love the 0.015% ER on the Total Stock Market option.
The minimum grant from Vanguard is $500, not $5,000 though, so we do give a number of grants from Vanguard every year. The smaller grants come from Fidelity.
Cheers, Happy Holidays, and Thank You for your generosity!
I see you update the table. Congrats again on setting your family up with the Donor Advised Fund!
Yes I fixed it the other day-thanks for the heads up on the typo!
“This kind of fund is best to use if you want to make a large donation and let it grow for a long time.”
I would suggest that your own taxable account is better for this. By keeping it growing in your own account, you’ll save more in fees and get a larger tax credit for the donation. Charity isn’t always about saving credits and fees, but if the charity gets the same amount either way, why not?
Merry Christmas ~
There is one tax to consider with that strategy. If you keep the money in a taxable account, you’ll be paying taxes on dividends and short/long term capital gains along the years. Yes you’ll be able to avoid the tax on gains when you sell, but you’ll incur taxes as you go. Unless you’re using ETFs or a different investment option that doesn’t issue dividends or take gains. Merry Christmas!
Kudos. We were debating opening one up this year too. We have an influx of insurance money and have paid down other debts (Except for mortgage while waiting to see about the rebuild options) and now are debating opening up a DAF. Thanks for sharing your thoughts and Merry Xmas.