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Introduction

I’ve been wondering lately about the most effective thing I can do with my money. There are good arguments on both sides of whether to invest or donate now, and I'm not sure I'm leaning in the right direction. If you think you want to invest for now (as I do), there’s also the question of what to invest in, which I have been trying to decide lately.

I’ve outlined my considerations, and I ask for you to scrutinize my reasoning so I can make better-informed decisions.

Should you invest?

Why you might want to invest

  1. It might be more effective to donate later instead of now. The view of patient philanthropy argues this is the case[1]. I’ve tried to summarize its arguments here:
    1. You can donate more: The US stock market has averaged 7% annual returns during the last century. If this continues, only $1,000 invested now would become ~$2,000 in 10 years, ~$2,800 in 15 years, and ~$4,000 in 20 years.
    2. The best opportunities may be in the future (especially for near-termist causes): 
      1. From an outside view, philanthropy was probably less effective in the past than it is today, so it would also likely be more effective in the future. With better information and technology, we’ll probably find great opportunities we haven’t already.
      2. From an inside view, development economics and animal welfare research are relatively nascent fields, and they have room for improvement.
  2. You might want to build your “personal runway”: Having at least 6–12 months of living costs saved allows you to take career/education risks and expensive or low-paying decisions (e.g., taking time off to switch fields), and it can help your well-being by assuring your recovery if you become temporarily unable to work (e.g., are injured) or incur unexpected costs (e.g., have property damaged).
  3. You might currently feel too uncertain about where to donate to. For me, I think I’ll donate to more effective organizations once I’ve learned more about causes and opportunities, and I doubt I’m alone.

Why you might not want to invest

  1. The best opportunities may be going away (at least for x-risk reduction): If you place a high probability on short AI timelines or the time of perils hypothesis, you might find your future self with much more to donate but think it’s too late to make a substantial counterfactual impact. For an exaggerated example, don’t invest now if you’ll later frantically throw gobs of money at alignment research because AGI is coming next month, and we didn’t solve the alignment problem, and the regulations are weak, and OMG we’re doomed!
  2. Gradual donations allow you to learn from previous mistakes: We humans make a lot of mistakes, and it’s hard (or impossible) to know whether you’ll make a mistake in a future activity you’ve never or rarely done. Luckily, past mistakes often feel glaring (at least for earnest and rational agents) and can be avoided afterward.

What do you invest in?

While other types of investments are certainly relevant, it’s outside the scope of this post and my current knowledge, so I’m focusing on the stock market for now.

Funds

I’m mostly interested in index funds, mutual funds, and ETFs (which I will call “funds” from now on) because they are usually relatively low-risk, low-maintenance, and high-performance. For instance, funds tracking the S&P 500 (the 500 largest publicly traded US companies) have historically earned around 10% returns annually (6.29% annually when adjusted for inflation).

The Catch

However, most funds contain companies involved in harmful practices. For example, ~17%, ~10%, and ~7% of companies in the S&P 500 are involved in animal testing, fossil fuels, and weapons/military contracting, respectively. Certain ESG funds employ exclusions on these industries (except for animal testing) while still aiming to track indices with strong past performance. However, ESG funds don’t have the strong and lengthy track record of conventional funds.

What I’ve been thinking about lately is whether to avoid harm with ESG funds, accepting their higher risk and lower returns, or to maximize my returns with conventional funds, hoping to offset any harm with the increased amount of money I can donate. I’m currently leaning toward the latter for three reasons:

  1. ~100% of money donated to effective organizations makes a positive impact. In contrast, 34% of money invested in the S&P 500 helps companies involved in animal testing, fossil fuels, and weapons/military contracting, which is a relatively small fraction. 
  2. Most or all of the money going to controversial companies probably isn’t doing substantial counterfactual harm. For instance, it probably will make the higher-ups richer but probably won’t prompt a new weapons development project.
  3. Since most organizations aren’t especially effective at doing good, it seems most controversial companies are probably quite ineffective at doing harm. Hence, money donated to effective organizations probably does more good than the same amount of money given to controversial companies.

Individual stocks

Because you could earn significantly more money investing in individual stocks, it might have a higher expected value than investing in funds. I'm not planning on this because it seems many people who are much better suited to investing than me have tried and failed to beat index funds.

  1. ^

    This is far from settled. For example, see this post from Founder's Pledge.

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Hi Nicholas,

I have donated around 10 % of my total earnings, and plan to make annual donations which keep my target savings equal to 6 times the global real GDP per capita once I reach them. I currently distribute my savings roughly as follows:

The goal is having decent returns, but with simplicity and resilience to risk. For greater returns, I would invest in S&P 500 or an ETF with tech or AI companies. For greater resilience, but also more complexity, there is the permanent portfolio.

6 (= 2*(1 + 0.5)*2) times the global real GDP per capita is enough for 2 years without any income, with 0.5 dependents, and with 2 times the global real GDP per capita per person per year, which means I would still be in the 97.5th income percentile.

I’d encourage you to consider separating your personal runway from your donations. Even if you are thinking of taking career breaks/pay cuts to invest in yourself for a higher overall impact you may even want to separate these from your personal safety-net bucket.

Otherwise I think you listed the main points. I’d only add that if you are happy to trust expert grantmakers you can donate now to normal funds (may not help with cause are prioritization though but I think you may find some expert opions on that also) or patient funds (e.g. Founders Pledge Patient Philanthropy Fund) as well and let them take care of the rest.

When I tried to look for advice on investing a few months earlier I only found a few relevant posts with detailed advice. Of those I found this one the most useful (check appendixes as well): https://forum.effectivealtruism.org/posts/YjN6cGoXxPZeqCh4Z/eas-and-ea-orgs-should-move-cash-from-low-interest-to-high

You may also search for “impact investing” about minimizing bad / maximizing good of your investments. I personally felt that it does not worth the effort of going deep into this.

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Sorted by Click to highlight new comments since: Today at 9:50 AM

I understand that this doesn't really answer the question at hand, and I want to preface this comment by saying that, but I also want to point out that it is useful for your situation.

Rational animations has this really good video on prediction markets, which I linked here: https://youtu.be/xA27x7GRMZQ (this video also has a part 2, which I've linked here: https://youtu.be/DB5TfX7eaVY) TL;DR is that you can "bet" (the main nuance is what "bet" means in this context) on different putcomes of events, such as "will GPT-5 be released to the public before the start of 2025?", and other questions of the like, many of them being EA-related, and with EA-affilated cervices, such as metaculus.

Because of this, if you're predicting things already in your work, you could use prediction markets to capitalize off of that knowledge.

I hope this helps!

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