Monday, 8 June 2015

Big Change from Small Change? Marrying My Charitable and Investment Goals Through Microfinance

I have always been a keen--if modest--charitable giver. This has mostly been in the form of "little but often" payments.

However, for the last 5 years or so I have generally tried to give about £200 in a series of lump sums each year. I am no major philanthropist but I am pleased to say I give as much as I think I can spare over the long term.

I would like, however, to more closely relate my investing activities to my charitable giving. Up to this point the two have only overlapped in very small, unstructured ways. For instance, the little money I make from advertising here on the DD site went to charity last year. I plan to do the same this year.

Also I have had faint thoughts of--eventually--donating some of my very, very small holdings in XL Group and South32 to the charity ShareGift which is built to handle such donations. However, at present they still form an interesting if minor part of my portfolio and so remain.

Finally, part of my master plan for financial independence would be to be able to give more time to voluntary work once the need to work for pay had been set aside. At the age of 27 and at the start of my FI journey this is some way off, of course.

But what else can I do now? How can I link my investing bits and pieces to my charitable donations? How can I weave it into my investment goals?

Here are my thoughts.

Big Changes through Small Change

I have had some thoughts on how I may do this. Chiefly it has been inspired by the optional charity donations PayPal encourages you to make when using their service as well as services some banks offer to help use your small change (rounded up) to help you save regularly.

In essence, what I am thinking is using the small change from my dividend payments as charitable donations. In other words, if a dividend is worth £10.77 then 77p would be given to charity. 

There is a variety of ways this could operate:
  1. Donate the small change outstanding from my monthly dividend totals.
  2. Donate the small change from each individual dividend payment.
Both sound pretty good methods by which to introduce charitable donations into my everyday investing life. However, both have issues.

Some Issues

So, what are these issues?

In the case of option 1--monthly dividend totals--the issue is quite simple. The way that it is set up would mean that it quite significantly constrains how much can be given in a single year.

After all, if it only the small change donated then at most 99p per month would be donated. That is--at most--£11.88 per year.

Option 2 has the opposite problem. It may become so generous (depending on the structure of my portfolio) that it tangibly hold back my portfolio's growth. For instance, if I have 30 companies paying twice-annual dividends then this could fast approach £60 per year. 

The figure in itself is not too terrifying. However, it will also grow at quite a rate. Every new investment would add more to the tally (up to £1.98 more for twice-annual dividends). 

What is more, many of my investments pay quarterly dividends. If all 30 of the companies in the example above did this then donations could easily sail towards the £120 mark. Any new quarterly dividend paying addition to my portfolio would also potentially add £3.96 to my giving total.

Considering I am only targeting to hit £800 in dividend income in total this year the possibility of sending about 15% of this out of the portfolio* does not--at this stage--seem that smart thinking of my long-term future.

It also delivers an issue for those very small holdings. In the case of my XL Group holding, for instance, I am set to receive about 30p in dividends every quarter. A policy like this would wipe out my entire yield.

There is therefore the looming threat that my donations will grow much, much quicker than my dividends themselves. Not a great idea at this stage in my investing life.

An alternative, then would be to say:
  • Donate the small change from each individual dividend payment above £10.
This would be a solid compromise, I think, as it would growing charitable annual donations whilst also ensuring that never more than 1% of my dividend income would be taken away.

How Would This Look in the Real World?

So how would all these proposals look in real life? Well, this is a breakdown of my income this year and how much would have been donated up to this point:

Monthly DividendIndividual DividendIndividual Dividend (>£10)

As you can see, the difference is massive.

If I work by the assumption of donating the spare change from every individual dividend I would have donated over 3% of my income so far. Just by monthly totals it would be a much more modest 0.4%. Even the compromise solution would have seen over 2.2% leave my investing kitty.

Fine Balance

Of course, as noted above, I want to get the balance right between being able to give a little now whilst also giving my portfolio the best chance of growing rapidly and not compromising my short-term financial position so that I can give more later (both in time and money). 

I am still at the stage of building up my portfolio. As a result, I am still finding that brokerage fees are eating into my investing capital and returns (since I have started investing my fees have amounted to about 1.3% of my portfolio capital invested--though this is coming down). 

At this stage, therefore, I don't think it is best at present to permanently extract up to 3% of my dividend income from my portfolio as well. But equally 0.4% seem a little too modest.

So is there a solution? Yes. Yes, there is!

The Motorcycle and the Sidecar: A Solution (or Two)

The solution was largely inspired by Mr Z over at the Finance Zombie. He provided a lovely comment on my previous ShareGift article about the microfinance charity, Deki (he later wrote up a fuller post on his own blog).

Deki is a brilliant idea. You lend money to an individual entrepreneur in Africa. They use it to help build their business. They repay the loan to you (without interest) over the course of the year. 

Of course, eventually you should--assuming they don't default^--have your cash returned in full. You can then decide what to do with the capital once it is back with you. You could take it out if you need it or you could lend it to another entrepreneur.

So what do I propose? Well, I propose a two-part "DD Donation Drive" (or TD4 if you prefer):

1: The Deki Drive (The Motorcycle)
This will involve using Deki as my main investing-related charitable activity. I will use the spare change from every dividend payment as capital to invest in Deki projects.

What I like about this is that it is investing--but social investing. It is, in essence, the perfect charitable accompaniment to my FI investing activity. 

Also it means that I don't have to permanently extract these funds from my investing pool. At the end of the year, I can either decide to keep the capital in Deki or pull it out and invest it conventionally as part of my own FI journey. 

Whether I take the money invested over the year back out of the "system" at the end or not, I will then go through the process all over again next year. Putting the spare change into Deki.

In the process, hopefully several individuals will be able to benefit from the little financial boost these Deki loans provide.

2: The Donation Drive (The Sidecar)
But that isn't all.

I also propose to donate the old-fashioned way. 

Here, though, I will go with the simpler--and smaller--aim of donating the small change from my monthly dividend total. Last year (when I did not get dividends every month of the year) this would have resulted in £4 being donated to charity. 

Fair enough, it is not a lot. And it looks like this year will be about the same amount (though perhaps a little more).


I am really quite pleased with this solution. It satisfies my desire to integrate charitable activity into my investing whilst also to ensure that hold back the ability for my investments to make tangible progress towards my goals.

As highlighted previously, at this stage my main intention is merely to bring about a direct relationship between my investing and giving. This seems to be the perfect vehicle--a motorcycle with a sidecar--to achieve what I am looking to at the moment.

What Do you Think?

What do you make of this solution to bringing together my investing and charitable aims? Do you do it differently? Do you know of any other Deki-esque projects out there?


* I should stress that I am not actually taking this money out of the investments themselves. I merely register how much it amounts to and pay using cash from elsewhere. As most of my investments are held in an ISA this would be particularly silly to do!

^ Of course, even if they do default I will not mind at all. It is not like my peer-to-peer loan investments. If I did not invest in them through Deki then the money would likely have been donated to charity anyway. I will just consider it a direct donation! 

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[Creative Commons image reproduced from Flickr user Yukiko Matsuoka]


  1. Hi DD,

    Nice idea, although a little complicated for myself it sounds like a fun way of working out what to donate :)

    There is also Kiva which is a US based version of Deki. Obviously it is open to pretty much anyone to donate/invest (donavest?!) to so maybe have a look at that as well?

    In terms of the %ages of div income and how it will affect your portfolio, I think you are worrying over really small amounts here. Fairly enough if the dividends are only 30p but it looks like most are over the £10 mark anyway. 3% of dividends is not the same as 3% of your portfolio value and also not comparable to the yeild or the fees of 1.3% you have quoted.

    It is in effect 3% of your yeild which is already only at say 4%. So you are looking at donating 0.12% of your portfolio, that would be the comparison against charges to make, so much lower than the 1.3% of charges. It's still not nothing but much lower when you think about it that way.


    1. Haha, I was thinking much the same thing at one point regarding complexity. Then I realised that as I am keeping track and writing/calculating the various returns I make month from month it is only a few moments extra work to figure it out. I may do the payment once every year or with each and every month (as at present). We will see.

      Yes, I saw Kiva. Not quite as appealing as Deki to me for some reason. But I will think about it in the future.

      You're right about worrying about small amounts. You've put it very clearly indeed and your maths is spot on and very revealing. It gives me plenty of scope to revise the donations up when I think it is appropriate! Also, as the money is not actually leaving my portfolio (just my active earnings) it will not directly affect investment growth.

      What I like about this method is that it links my investing directly to some form of charitable activity and will grow with the success of my investments over the long haul (hopefully).

      Thanks for your fascinating comment. Really clarifies the maths behind it all!

  2. Hi DD

    Thanks for posting this, a very interesting read about your tying up your investing with your philanthropy!

    Like you (thanks to Mr Zombie), I too have joined Deki and made a small donation already.

    I think I will aim to donate more and leave an amount of money in the Deki account to continue to loan out.

    Last year, I was able to donate my time at a local school (reading with year 6 children) but unfortunately, work has been too busy for me to be able to take the time off to do this recently.

    From next year, as well as the Deki project, I intend to set up a standing order for a particular charity. The hardest bit will be to choose which charity (Lady Luck again, lol?) and whether I donate to this charity every year or switch to another one after 12 months?

    As I'm only just past the first year of my journey to FI, I'm trying to plough as much money as I can towards FI, but my lack of goals relating to charity were quite obvious when I saw other bloggers' goals that were set at the beginning of the year. Maintaining the balance as you say, is key, as I want to be able to give a little back to society too.

    1. Yes, this may work as a method. It seems a good way to get things rolling at least. I will--as always--review how it is operating as time goes by!

      The likely result will be that I will leave the cash in Deki and let it accumulate and be reinvested. But at least with this method it gives the choice of how to move with the money after it has already done some good!

      Sadly work got in the way of my volunteering. I used to mentor young teens in maths skills every week but have had to set that aside for the last year or so. I'd love to get back and do some when time permits.

      Lady Luck is always a good bet! I used to have one permanent charity and another rotating one I donated to each year. However, this changed in recent years for various reasons.

      The FireStarter's comment above is very interesting. I had not really thought of the value of it in proportion to portfolio size. Because I "think" in dividends I had forgotten the bigger picture. Any worries about slowing my progress has thus been allayed which is good.

      I have been journeying for a little longer than yourself. But I wanted to get this sorted months ago but always got distracted. Glad to finally get it pieced together in some form!

      This is a modest step but one I am happy to start. Hopefully it will grow with time!

  3. Hey,
    I haven't looked into ShareGift specifically but I find that regarding charity I try to stick to things I know best - helping kids with sports, help building stages/tables for outdoor church events, etc. In my mind the monetary donation of £11.88 per year may be insignificant but donating 2-4 hours a week would go much further in my opinion. Since we all seek to be financially independent and will have free time once we do I'd like to think that saving and investing as much money as possible now will help me be more charitable once I'm finally FI.

    1. I agree with you, Rich. But I have to work with what I have at the moment. Not being time rich at present I have had to cut back the time I can give to volunteering. This sort of thing is not intended to replace volunteering but to supplement it.

      Hopefully, linking my investing so directly to my charitable giving will also help provide a little extra motivation to keep me on track and reach FI faster and thus freeing more time in the long-run. You never know!

      Also, I suspect that the money which goes through Deki (let's say that is about £40 this year) will also be donated in some way or another after it has done its stuff on Deki! As a result, it may well add up noticeably over time!

      As I say, this is not intended to be the sum of my charity at present. It is merely a reflection of how I want a relationship between my investing and charity to be built up. It is my "investment facing" charitable activity which is--and will increasingly become--a tiny proportion of my temporal and financial giving over time.

      I enjoyed my regular maths mentor volunteering sessions immensely so I am keen to get back to them as soon as possible. But you have to play with the hand you have got first!

      Thanks for your comment, Rich. Very interesting. Good luck with all your volunteering activities!

  4. :) good work DD! Once we are rolling in our massive FI fortunes we can step it up even more!

    Mr Z

    1. Thanks, Mr Z. Hopefully so. It is great to be able to start the process this early on though even in such a modest form!

      Here's to our FI and charitable future growth!

      Thanks ever so much for pointing me in the direction of Deki. It was invaluable in creating a workable and logical solution to how I would do it at this stage.