I'm writing this thinking about the so-called "third wave of philanthropy", but it's relevant to anyone who finds themselves richer than they expected.
Some people with big piles of money assume that what you do with a big pile of money is different than what you do with a normal amount of money. This is true for "differentiated goods" - houses, cars, food, and vacations can all get better if you spend more money on them.
There's a big class of goods this is not true for: commodities. This is trivially true for most commodities - no rich person would think they ought to go searching for different iron ore than a normal person would buy. Of course, no one is going around buying iron ore for personal use anyway, so this doesn't really matter.
However, a couple important things that people think are differentiated goods are actually commodities:
- (Good) Investments: People wrongly think that the investment products you should use when you are very rich are different than when you are not. However, essentially everyone should be using broadly diversified index funds of stocks and bonds. Investment products are almost always priced as a flat percentage of invested money, so having more money won't influence which you should choose. People also think that maybe they need to hire someone to trade for them because they might move the price of what they're buying. However, if you're buying a popular ETF you can probably trade tens of millions without moving the price.
- (Good) Charitable Donations: If you're giving in the area of global health and development, you can just give the money to GiveWell's grant funds. If you're giving millions at once, it may seem like you "need" to do more. You really don't - millions of dollars is not going to change how GiveWell works (especially given that they already perform room for funding analysis).
AI Model Usage: Not used
Thanks Ellie! I’m not sure whether I agree with either of these claims.
On investments, many private investment opportunities open themselves to you once you’re able to write a $100k+ check, and many of these have higher risk-adjusted returns than index funds.
Also, having more money should make you less risk-averse, which I’d argue should make you more open to using strategies like leverage to increase returns, even if you’re sticking to index funds.
On charity, I agree that the calculus doesn’t change much if you’ve solely been deferring to large regranters, and I agree that deferring to larger regranters makes sense when you don’t have much cognitive bandwidth to evaluate charities yourself. But if you’ve been making political donations ($7k cap), or your individual contributions make up a large % of an EA org’s treasury, having much more money should change the way you approach these donations. You can’t spend your money in politics as easily, and you’ll have to navigate stewardship for your preferred orgs while minimizing their reliance on your contributions.
Overall I’d argue that a 2M+ windfall should meaningfully change the way you approach both your investments and your charitable giving.
Hi Ariel! These are interesting points.
For investments, private investment opportunities are not better than public ones on a after-fees basis (in fact, they're much worse). Private investments do a lot of shady things to make their returns look better than they actually are - and in the US they can get away with it because they're much less regulated. A great source of information about the problems with private markets is this podcast.
Having more money shouldn't necessarily change your risk profile either. While you might be more able to task risk, you also have less need to take risk (people with smaller amounts of money may need to take risk to have a decent chance of meeting future consumption needs during retirement). Additionally, even if a windfall did change how much risk you wanted to take, it wouldn't change the tools you should use to achieve that level of risk.
I definitely agree that a windfall should change your approach to political giving. However, I'm not sure why switching from being a small donor to an EA org to being a major donor would lead you to change how you give (assuming that the org has room for funding). For any grant makers, even small ones, their room for funding is essentially unlimited because they can always start directing the money to new causes if their existing causes don't have room.