Confidence: Highly likely.

In some sense, altruists and traditional investors have the same investing goals—they want to own the portfolio with the best balance of return and risk. But self-interested people only care about their own portfolios. If you’re a philanthropist, you also care about other (value-aligned) philanthropists’ portfolios.

When the market goes up, you have more money, and you can donate more to charity. But other altruists also have more money, and they can donate more to charity, so your money isn’t as valuable. Conversely, when markets go down, you have less money to donate at the exact time when charities need funding the most.

That means you should not (necessarily) invest your money in the best overall portfolio. Instead, you should use your investments to move the pool of altruistic money in the direction of optimal.

An illustration:

Alice and Bob both donate to the Against Malaria Foundation (AMF). (For simplicity, let’s say they’re the only two donors.) AMF has diminishing marginal utility of money—once it distributes malaria nets in all the best places, the next round of nets won’t save quite as many lives. So Alice and Bob prefer to invest in a way that will earn good returns but without too much risk. Ideally, they’d both hold something like the total world stock market.

Bob lives in the United States, and he invests all his money in US stocks. Alice could simply buy the global stock portfolio, which is roughly 50% US stocks and 50% international stocks. But that would put their aggregate portfolio at 75% US stocks, 25% international stocks (assuming Alice and Bob have the same amount of money). So AMF is being funded by an investment portfolio that’s overweighted toward US stocks, which adds risk without any reward to compensate.

Alice can fix this by investing her entire portfolio in non-US stocks. Now the aggregate portfolio of AMF donors is 50% US stocks, 50% international stocks, just as it should be. It wouldn’t make sense for someone to hold 0% US stocks in their personal retirement portfolio, but this strategy works for Alice because she’s a philanthropist.

(Of course, Alice could also talk to Bob and persuade him to diversify his investments, which might be an even better idea!)

Now, I’m not trying to say that the global stock market is the best investment, or that Alice did the exact right thing in this scenario. This is just an illustration of a broader point: for an individual altruistic donor, the best investment portfolio on the margin might not be the same thing as the best overall portfolio. And altruists should pick the portfolio that’s best on the margin.

(I wrote this post to provide an easy reference for this concept. The concept is not original to me—I originally heard it from Paul Christiano’s Risk aversion and investment (for altruists).)