Author: A.T.

How often are we bombarded with requests for money, especially this time of year? Even the most generous among us has to say no much of the time. Indeed, the more generous you are, the more you are asked, and the more you are asked, the more you have to say no.

Take Andrew Carnegie. He came to America at 13. His first job was as a bobbin-boy for $1.20 a week. I don’t know exactly what a bobbin-boy did (how much yarn could a bobbin-boy bob if a bobbin-boy could bob yarn?), but I know that even in 1848 this would not have been a lot of money. His mother took in washing.

With time, he moved up to “stoker” in the cotton-mill furnace room, then became a messenger, then a telegraph operator, then personal telegraph operator for Thomas Scott, superintendent of the Pennsylvania Railroad.

In 1856, at Scott’s urging, he bought ten shares of Adams Express. By 1863, if I’ve gotten all this straight, his investments provided him an income of over $45,000 a year. No Vanguard Index funds for him. He had “the touch.” He was also an accomplished stock manipulator. This was long before enactment of the securities laws.

One thing led to another and, in the course of his lifetime (1835-1919), he gave away $350 million. A good chunk of this came from selling, in 1901, his 58% interest in U.S. Steel for $250 million, 90% of which he immediately set about giving away.

Can you imagine how many people wanted a piece?

But he took his philanthropy seriously. “Surplus wealth is a sacred trust which its possessor is bound to administer in his lifetime for the good of the community,” he wrote. (And he further believed — not wholly irrelevant to the debate today — “there is no use whatever trying to help people who do not help themselves. You cannot push anyone up a ladder unless he is willing to climb himself.”)

So you can imagine how he reacted to the young couple that had apparently written to him in June, 1905, hoping he might join in their anniversary celebration. From the sound of it, they were complete strangers, and not in dire straits, either. I don’t have their letter, but you can more or less imagine it from Carnegie’s response:

Dear Sir and Madam [he writes, in his own hand, from Scotland]

I am in receipt of your notification that you are about to celebrate your 3rd wedding anniversary and while I am interested to know the facts, do not see how it can possibly make any difference to me.

I have so many calls on my pocket book that it is impossible to respond to 1/650,000,000th of them [written out as a nice fraction, with 1 over 650,000,000]. However I suppose you expect something and therefore forward the enclosed sum which is to be retained by you SOLELY ON CONDITION that you change the name of your boat “Felicia” to “Carnegia.” If you don’t care to do this, please return the money by return of mail or I will put the matter in the hands of my solicitors.

Very truly yours,

Andrew Carnegie [with a flourish]

One has the feeling from this letter — on Andrew Carnegie & Company note paper that features the profile of a Scotsman drinking what appears to be a hot toddy — that Mr. Carnegie lived life with a permanent twinkle.

Tomorrow: Last-Minute Funny Money Gift Ideas

In keeping with the last few days’ topic of charitable giving, and with my addiction to “historic documents,” I wanted to share a couple of letters from my “collection.”

The first is a letter written at this same time of year 63 years ago, in 1933, when things were tough. It comes from Paul Warburg, of the important investment banking family, and is addressed to the Star Towel Supply Corp. of Brooklyn, New York. It is individually typed (mail merge, like prosperity, were only distant dreams back then) and reads, in part . . .

Gentlemen:

May I plead with you to repeat for 1933 the special donation of $15 which you so generously gave to Federation [the Federation of Jewish Philanthropies] last year.

I had hoped to have an opportunity to tell you personally how much you and other Federation loyal friends helped last year . . .

Whatever may be happening in the business world certainly the demand for free service in all of the Federation institutions has not yet shown any letup. In fact, the institutions are really worse off because not only do they have to care for more suffering and needy men, women and children, but everything they has gone up so much in price that in the very nature of things, the deficits must be even larger than before.

Unless we succeed in raising the $4,200,000 which is needed this year, the institutions will have one of two choices — either they must care for fewer men, women and children, or they must cut down on the essentials which these cases require. And when I say essentials, I mean just that, because for several years now every institution in Federation has been operating on the barest minimum budget.

These are the simple facts. The answer rests entirely with you and the Federation’s other loyal and generous friends. I do hope that you will find it possible to be at least as generous as you were a year ago and that I shall have the pleasure of hearing from you within the next day or two.

I don’t know whether Warburg got that $15, but my guess is he did.

(OK, OK. So it’s a little less quaint when you realize that $15 back then was equivalent to about $180 today. But still.)

Tomorrow: How Andrew Carnegie Said No

If you’re planning to leave some money to charity when you die, and if you have an IRA, consider naming that charity as the beneficiary of your IRA. That will save the income tax your heirs would otherwise have to pay on it. Give your heirs “regular” money from outside your IRA instead — money on which income tax has already been paid. To the charity it won’t make any difference (charities don’t pay taxes); but to your heirs it will.

(One small drawback: with a charity as the beneficiary, you might be required by IRS regulations to withdraw money from the IRA faster, once you turn 70½, than if, say, your spouse were the beneficiary, thus exposing more of it to taxation.)

Tomorrow: How Paul Warburg Asks for $15

Most of you know, if you give money to good works (or tax-deductible works, anyway), you can save a lot of money in taxes by giving appreciated securities instead.

Not only do you get the tax deduction for the gift, you avoid the capital gains tax that otherwise would have been due. In the case of a stock you bought for $4,000 that’s now worth $13,500, you could save $2,660 (28% federal tax on the $9,500 gain), and possibly some local income tax savings as well, by giving the stock instead of cash.

But, as I’ve noted elsewhere, be careful:

• Be certain to have your broker transfer the stock to the charity before she sells it and sends the charity the proceeds. If the stock is held in your name when it’s sold, you pay the tax.

• Be certain you’ve held the shares (or the building, or the van Gogh) at least a year and a day, or the IRS will allow you to deduct only your original cost.

Of course, this doesn’t make sense for small gifts. Apart from the hassle, the commission a charity would have to pay to sell $250 or $500 worth of Microsoft could easily eat up 10% or 15% of the gift. But — as I’ve also noted elsewhere before — if you’re someone who likes to give $250 or $500 a year to several different charities, there’s a solution:

Open an account with the Fidelity Investments Charitable Gift Fund (800-682-4438). Transfer your $13,500 worth of stock to that account, for which you get an immediate charitable deduction, just as if you’d given it to the Red Cross. Then, from time to time, mail or fax instructions to Fidelity. They’ll send out checks on your behalf as small as $250, investing the balance in the meantime in your choice of four different kinds of funds — so you may have even more to give away than you planned.

It’s the poor man’s way to set up a charitable foundation — the Ford Foundation, the Rockefeller Foundation, and now Your Foundation. Almost.

Tomorrow: Charity and Your IRA

Believe me, I am major flattered to have NBC News care a whit about my opinion. And I know well that only a few seconds of any interview will make it into a story. But I do think the billionaires got off easy.

If you saw the story Monday night, you know it was a report taking off on Ted Turner’s comments about rich people’s giving. He had said they’re all competitive about their place on the Forbes 400, and that if there were some list of the most charitable, then the really rich would compete to climb that.

So now Slate has compiled the first of what may be many such lists, and the NBC story was playing off that. My two seconds of fame were nondescript at best, and the real issue was how many chins I appeared to have. But I thought I’d mention at least one point a longer story would have covered:

The really interesting thing is that, as I’ve noted before, at all income levels, Americans seem to give about 3% to charity. Which means that the rich are much more generous than the rest of us — 3% of a $5 million annual income is a heck of a lot more than 3% of a $35,000 annual income — at the same time as they are strikingly less so.

My thinking here: 3% is a big chunk of discretionary income when your total pre-tax, pre-rent, pre-food, is $35,000, whereas it bites less deep into a millionaire’s pocket. Naturally. But because the $35,000-a-year family doesn’t itemize deductions, that 3% is really 3%, whereas for a New Yorker or Californian, it is more like 1.6% after-tax. And the $35,000 family probably gives cash, whereas the millionaire gives appreciated securities (stock that’s gone up, held more than a year), which provides yet more of a tax benefit. So you might say that, on a strict after-tax percentage basis, the rich give only about a third as much as the rest of us. And that as a percentage of disposable income, they give almost nothing at all.

Tomorrow: How to Get the Best Tax Break for YOUR Gift Buck

Did you see the recent story on Marriott in Business Week? It talks of the job Marriott does managing its $7 an hour workers. I got to this part and couldn’t help circling it:

“Every day I put on this uniform, just like an NBA player,” proudly proclaims Thong Lee, a bartender who has worked 16 years at the Seattle Marriott. Lee has never forgotten that his boss, Sandy Olson, shut down the hotel laundry where he used to work for a day so the entire staff could attend his mother’s funeral. The gesture earned Lee’s loyalty for life — though the stock options the company offers all employees haven’t hurt, either. Lee, who learned all the English he knows from Marriott, now owns several rental properties funded by his Marriott stock and pay.

Think about THAT the next time you can’t get your tux pressed at the Marriott.

Seriously, it’s a great plug for Marriott, for enlightened capitalism, for the U.S. of A. and, not incidentally, for the power of “uniforms,” which I’d like to see more schools adopt.

I know that when I stick on a jacket and tie, my sense of seriousness and self worth change instantly. I’m not describing it very well, but I think you know the feeling.

And I was fascinated to learn, years ago, in working with a chimpanzee on an industrial film, that chimps just know that when they’re in clothes (my particular chimp was dressed like an investment banker, but it can be any clothes, no matter how dopey) they’re working and better not screw around (or they’ll get knocked, hard, on the noggin). When the workday’s over, the clothes come off and they can play all they want.

Tomorrow: Charity on the Cutting Room Floor

I don’t know if they’re in your neck of the woods, but many of us have heard those ads for Dial-a-Mattress — just dial 800-MATTRES (“and leave the last S off for Saving”). Well, you can put it back on again for “Service.”

I know we’re supposed to be doing all this via Internet, and maybe one day soon it will be “www.mattress.com.”

But the point is, the Dial-a-Mattress folks have done such a good job of drilling that simple concept into our heads, even going so far as to fly their 800-number over the beach in the summer, that they have created a virtual “category-killer store,” like Home Depot or Toys R Us, without the added bother of having an actual store.

Consider:

1:54PM Thanksgiving Eve: I dial 800-MATTRES and leave the second S off, for savings. My call may be monitored to assure customer satisfaction. I describe the kind of mattress I’ve been told to get (what do I know about mattresses?), but explain that it needs to arrive before six.

5:01PM: despite chaotic start-of-holiday New York area traffic, the mattress arrives, and at considerable saving. “What?” I wonder. “Do they have roving tractor trailer warehouses responding like cabs to radio calls for this stuff?” (No, they have a warehouse in the Bronx.)

5:05PM: the old king-sized mattress is out, removed at no extra charge. Lest you think I discard things lightly, I might explain that this mattress had seen 17 years’ service. “Turning it over” — my bright idea earlier that day, when some of the loose spring wires had inflicted a couple of particularly painful puncture wounds — had not done the trick. “Over” was even worse, leading me to think that I must have gone through that same exercise a decade ago and just forgotten.

5:06PM: the new one is in.

5:07PM: I’m worried. You have heard of single and double and queen size and king size mattresses? This is a king of the mountain size mattress. It has so much pillowy padding on the top and the bottom, and so much who-knows-what-inside (for the price, despite the Savings, I’m guessing some kind of fuel-injected shock absorbers), it’s made the bed a foot taller than it was before.

Not that I get a lot of say in these matters (no anagram intended), but I’m thinking: vertigo. I’m thinking: protective fencing. I’m thinking: is this really what we had in mind?

5:08PM: the Dial-a-Mattress guys are gone, with a $20 tip I thought appropriate to the season.

That night: we hate it.

Thanksgiving, post-parade: We have decided that embarrassment alone is insufficient reason to spend the next 17 years in fitful sleep. Even money is insufficient reason. Surely, though out of its plastic and slept on, this mattress can be returned or exchanged for some kind of re-stocking fee. On a lark — it’s Thanksgiving — I call 1-800-MATTRES (leaving the last S off for saving) and am dumb-founded to find a human on the first ring.

I explain the situation, beginning by saying, “it’s entirely our fault” (which it clearly was).

“Oh!” said the nice customer rep apologetically, “didn’t anyone tell you about our 30-day comfort exchange policy?”

So I’m here to tell you, first, that if flipping your mattress after 17 years doesn’t do the trick, you might want to give Dial-a-Mattress a shot. But, second, that it’s not just the quality of the products we buy that’s getting better, it’s the quality — at least in many cases (I’m sure you’ll point out the exceptions, as I will too) — of the services.

Lest I tout these folks too highly, I should point out two details of their otherwise saintly exchange policy: first, they do ask you to “sleep on it” for 14 days before exchanging. Second, they give no refund if you switch to a cheaper mattress, as our replacement, sans fuel-injected shock absorbers, can only be. So I guess we’ll be paying a few hundred bucks for our stupidity after all.

PS – Want some advice from a guy who really knows how to sleep? Just get your basic firm cheap mattress. And don’t sell short or buy on margin.

From a reader by the e-name of AASLCS (whatever that stands for): “Okay, in an up market the evidence is clear about just riding an index fund. But what about those funds Forbes rates as an ‘A’ in down markets? I think American Funds’ New Perspective is one of them. Do you think they can do better than the index when the market falls?”

Yes. The problem is in knowing when the market is going to fall.

Index funds will always do just about the same as — a little worse than, because of expenses — the underlying index they’re meant to mimic. So in an up market, aggressive funds will often outperform them (but not always, by any means, given the much higher expense ratios of the aggressive funds), and in a down market, conservative funds will often fall less far (but not always, because although they are more conservative, they are also more heavily weighed down by expenses and fees).

As for New Perspective (800-421-4120), it has a good Morningstar rating, but to my mind a huge handicap in that it sports a 5.75% load.

One reason it does relatively well in down markets is that it’s a global fund — much of its money is in European stocks, which only sometimes act the same way as US stocks. And as compared with other global funds, its weightings in riskier Latin American and Asian countries tend to be quite light — so you’d expect the ups to be less up and the downs to be less down. Another reason: it’s a large fund that tends to invest in large US and foreign companies — which rise less in up markets and fall less in down markets.

One plus in being large is a relatively low expense ratio. Expenses are spread over a lot of money ($10 billion or so). But that 5.75% load is tough to justify. Yes, $10,000 invested in New Perspectives 15 years ago would have grown to more than $80,000 — but that’s still a shade less than had it been invested in the Standard & Poor’s 500 all that time, or about the same as an index fund with no load.

Why would you pay $575 to invest $10,000 and get the same likely return as you could investing it “for free?”

If you feel pretty certain the market is headed down, New Perspective may well head down less. (It has a beta of +.9, meaning that it’s likely to rise or fall only about nine-tenths as much as the market rises or falls.) But unless you sell at roughly the bottom, you’ll also do less well on the way back up. And if you do sell at roughly the bottom, switching to some other, more aggressive fund, you may not have held New Perspective long enough to trivialize that 5.75% load. (Sell a week after you buy, and it’s a killer; sell 40 years from now, and it will make an only trivial difference.)

How’s that for more than you ever wanted to know about the New Perspective fund?

I called to wish a friend a happy half century and was dismayed to find him at work. At work on his fiftieth birthday?

“I was home most of the day.”

“Oh. Were you sleeping-in when I called?” (I had first called at home that morning.)

“I was at my shrink.”

Perfect.

Monday: New Perspective: Fund for a Down Market?