Let's take an example.
The fund below depicts a $100,000 endowment fund started with the SDCF in 1994. This example fund experienced all real gains and losses, a 1 percent administration fee, and distributed 100 percent of its available income each year.
In 20 years, this $100,000 donation funded $114,537 in grants throughout the state of South Dakota—more than its original endowment. Not only that, but the fund also grew to $142,204 —an increase of $42,204.
- Beginning balance: $100,000
- Average annual rate of return: 7.1%
- Annual administration fee: 1%
- Annual funds available for distribution: 4.5%
- Total grants distributed by fund: $114,537
- Current fund value today: $142,204
- Total administrative fee realized: $26,744
- Growth after distributions and fees: $42,204
Please note that this does not depict any specific fund held with the SDCF. It is only intended to illustrate how a fund's value, and the value of the distribution, can change over time. We used historical data for this example and it does not guarantee, nor predict, future market and fund performance.
The numbers in this example fund depend on the distribution criteria—that is, how much is available to be given out in grants each year. This amount is calculated by taking 4.5 percent of a running four-year (16 fiscal quarters) average of the fund's Fair Market Value.
Funds must be invested for one year to be eligible for valuation—and, therefore, distribution. All funds are valued as of December 31 of each year after reaching maturation, and funds are available for distribution the following year. This is why the first distribution in our example occurs in 1995.
Our current 20-year average rate of return is 7.1 percent. Our rate of return fluctuates with the performance of our investments every year, and historical performance does not guarantee future performance.
Learn more about how we calculate the rate of return on our funds.
What does this mean for my fund?
Markets fluctuate. This will happen to all our funds over their lifetime. However, you and your client can manage the growth and loss in a fund by managing the distribution of the fund's income. No fund is required to distribute any portion of its income every year. In periods of low growth, you and your client can choose to protect the endowment by applying the income to the principal.
However, even in our example above where the full distribution amount was spent every year, the 20-year average still realized growth. This is because we tailor our distribution rate to stay below our expected rate of return—so your client’s fund can serve as a legacy in perpetuity.
Download our example fund sheet (PDF) to see how different investment levels can grow.