How does an Endowment work? How do our donations benefit Noble School children?
Great questions! Let us explain.
Endowments receive donations that go into a fund. Those monies are invested for long term stable returns. The best run endowments seek to average 6-8% return on principal per year. Each year around 5% of the value of the fund is drawn to finance the activities for which the endowment was established, in our case, to fund the grants to our classroom teachers to enhance and enrich the education of Noble students.
By only using a part of the earnings, it allows the principal to grow, thus, providing for a rising income stream for future years by taking 5% off a bigger principal amount. Additionally, if donors are diligent in adding new principal each year, an exponentially larger and larger impact will be made.
The following example illustrates how an endowment can grow and make an increasingly significant impact. Naturally, some years returns are higher, some lower. But historically, well run endowments are perpetual and self sustaining.
Beginning + Yearly - Annual 5% + New = Ending Donations Principal
Year 1 - $100,000 (principal) + $7,000 (7% return) - $5,000 (draw) + $50,000(new) = $152,000
Year 2 - $152,000 (principal) + $10,640 (7% return) - $7,600 (draw) + $50,000 (new) = $205,000
Year 3 - $205,000 (principal) + $14,352 (7% return) - $10,250 (draw) + $50,000 (new) = $259,102
Naturally, the annual draw amounts are determined by the Foundation over seeing the endowment and may be adjusted to maximize the annual gift while allowing for variable returns and protection of the principal.
At Noble Public Schools Foundation, our intermediate range goal is to get to the $1,000,000 mark. It is a tall order, but achievable and at that level we could be funding all of our annual grant requests and likely many more and larger projects. All this is possible without touching our principal investment, saving its annual earnings for future generations.
