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Diversification Strategy for a Private Foundation Portfolio
The IRS rules require private foundations to distribute an average of 5% of assets annually if they want to maintain their nonprofit status. To achieve long-term growth, a conservative approach is to aim for an average asset growth of 8% or higher. The foundation focuses on passive investments like S&P 500 funds to meet the distribution requirements efficiently. The portfolio is diversified with passive investments forming a substantial portion, while the remaining is allocated to more aggressive and targeted investments like small caps, private equity, and real estate. This strategy aims to either protect the foundation's assets or enhance returns. Additionally, when pursuing aggressive investments, the foundation accepts greater illiquidity with holdings like real estate or private equity.