The Jewish Ethicist: Investing with Charity Dollars
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The Jewish Ethicist: Investing with Charity Dollars

The Jewish Ethicist: Investing with Charity Dollars

Can I invest charity money in a sure-fire investment?

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Q. I'm the head of a non-profit organization. The organization has some spare cash that I am convinced I can invest at a profit. Should I go ahead and benefit my organization in this way?

A. The Talmud has an interesting discussion regarding the propriety of investing charity funds.

Rabbah asked Rav Yosef: What do we do with orphans' funds? He said, we deposit them in court, and distribute them little by little. He said, then you exhaust the capital! He said, what then should we do? He said, we investigate a person who has known assets [to collect from in case he should lose the deposit], and deposit their money with him near to profit and far from loss [the active partner splits profits but bears all losses]. . . That's very well if we find someone who has certain assets, but if we can't find someone who has certain assets shall we let the orphans' funds dissipate? Rather, Rav Ashi stated: We find a person of stable property, reliable, who is obedient to the Torah and is not under a ban, and we deposit it by him in court.(1)

The sages of the Talmud are trying to find the right balance between risk and return for charity funds – in this case, money belonging to minor orphans and being administered by a court-supervised guardian. Rav Yosef is unwilling to take any risk, and advocates simply disbursing the money. Rabbah is willing to invest only if the investor is willing to personally bear any losses and can actually provide security for potential losses in advance – certainly a very unusual situation. Rav Ashi is the most lenient; he is willing to settle for the case where the investor agrees to bear the losses and appears willing and able to do so.

Based on Rav Ashi's opinion, you can go right ahead and invest the money if you can personally cover any losses. Of course you would need the approval of the board of your charity before making such a far-reaching step.

However, it is extremely unusual nowadays for a private individual to be willing or even able to personally make good losses of the charity. (If the backer was sure of the quality of the investment it would make much more sense to borrow the money and invest it himself, giving any profits to charity.) So it seems that making even prudent investments could be quite difficult.

Later authorities, in response to changing situations, acknowledged that sometimes the requirement for co-signing could be waived, if it made it prohibitively difficult to invest charity funds productively.(2) However, there is still a requirement for careful oversight, expressed in the passage by the need for someone stable, reliable and obedient, and for proper documentation ("deposit it by him in court").

Experience has shown that the only way to do this effectively is by having an investment committee made up of a number of experienced experts who have the best interest of the charity foremost. There is no way for a single individual to exercise the appropriate degree of judgment and knowledge. This is especially true for someone like you, whose judgment would be colored by his involvement in the day-to-day management of the organization.

If you believe that the future interests of the organization would be best served by investing its funds in something more risky than a bank account or CD, you should recommend to the board that they establish a properly constituted investment committee for this purpose.

Another route: if you are so certain that this investment is a sure thing, you might want to invest your own money and promise to give a certain fraction of the returns to the charity. But experience shows that there is no way to know in advance if any investment is a sure thing.

SOURCES: (1) Babylonian Talmud Bava Metzia 70a. (2) Cf. R. Avraham ben Mordechai HaLevi, response Ginat Veradim Choshen Mishpat IV:1.

 

Published: September 13, 2009


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Visitor Comments: 3

(3) Dr. Harry Hamburger, September 15, 2009 2:44 PM

Beward of investment idol worshipers

When investing remember that it may be your close friend, golf buddy, Temple board member, Rabbi's banker, or a religious appearing person who may be the one to mislead and steal from your charity. Do your homework, and be careful! The worhip of money and profits is another form of idol worship, and must be avoided.

(2) observer, September 13, 2009 8:03 PM

You need both a commitee and guidelines - good ones!

As the Madoff scandal hopefully taught us, it's not enough to have a "committee" There need to be a sensible and strong set of guidelines, and there should never be a situation where one member effectively makes major decisions. In most of the cases where there is public knowledge of what actually happened, it seems pretty clear that the members of the investment committee went a long with one person who was essentially the decision-maker. Some organizations were not too badly hurt, but others literally had to close their doors. Many, many charity recipients (and employees) were very badly hurt by investments that should not have been made - and would probably NOT have been made had things been done the way they should be.

(1) Robert Rabinoff, September 13, 2009 4:28 PM

If it's sure-fire, is it ethical too?

If the investment is so sure-fire, are you sure that its methods are kosher as well. That is, even if it's not cheating investors like Madoff, is it cheating customers or suppliers, and making money illegally? Of course you want to know that for your personal investments, but even more so if you're investing charity money.

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