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Rolling Average Spending Policy
Definition
The rolling average spending policy calculates the annual distribution by applying the spending rate to an average of the portfolio's market value over a specified number of trailing quarters (most commonly 12 quarters, or 3 years, per NACUBO convention). This smoothing mechanism reduces the year-to-year volatility that a simple market value rule would produce, providing more predictable distributions for budgeting and grantmaking. The trade-off is a recognition lag: during sustained market declines, spending can remain elevated for 2-3 years after the decline begins because the trailing average still reflects higher pre-decline values.
In the Context of Endowment Management
The most prevalent spending rule among NACUBO-reporting endowments, used by over 60% of institutions. The widespread adoption is partly convention-driven — many endowments have not analytically compared their rolling average policy against alternatives using Monte Carlo simulation. Commonfund research documents that rolling average rules reduce spending volatility by 40-60% versus simple market value rules under typical endowment portfolio assumptions.