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Simple Market Value Spending Policy
Definition
Under a simple market value spending policy, the annual distribution equals the spending rate multiplied by the portfolio's current market value at a specified measurement date. This is the most direct link between investment performance and spending: distributions rise in bull markets and fall in bear markets. The rule is computationally straightforward and ensures that spending never exceeds a fixed percentage of current assets, which is favorable for long-term preservation. However, the year-to-year spending volatility can be problematic for organizations with committed multi-year grant obligations or fixed operating budgets.
In the Context of Endowment Management
Rarely used in isolation by endowments because the spending volatility creates significant budgeting challenges. More common as a component within hybrid spending policies or as a benchmark against which smoothed policies are compared. NACUBO data indicates fewer than 5% of endowments use a pure simple market value rule.