02/16/2024
Yes, an endowment can be used to run a self-sustaining nonprofit organization. The endowment’s principal is typically invested, and the organization uses the generated income (interest, dividends, capital gains) to fund its operations, programs, and initiatives. The size of the endowment needed for an organization like the Red Cross to be self-sustaining would depend on its annual operating expenses and the expected rate of return on the endowment’s investments.
As of 2023, the American Red Cross had annual operating expenses of approximately $2.8 billion. To determine the size of the endowment needed, we would use a common endowment spending rule, such as the 4% rule (which suggests spending 4% of the endowment’s value each year). Using this rule, we can calculate the required endowment size:
Endowment Size = Annual Expenses / Spending Rate
Endowment Size = $2.8 billion / 0.04
Endowment Size = $70 billion
This means that theoretically, the Red Cross would need an endowment of approximately $70 billion to be self-sustaining without relying on additional donations, assuming a 4% annual spending rate. However, this is a simplified calculation, and in reality, factors such as investment risks, inflation, and changes in operating expenses would need to be considered. Additionally, large nonprofits like the Red Cross often rely on a mix of funding sources, including donations, grants, and endowments, to maintain flexibility and resilience in their operations.
