investing

endowment

A permanent investment fund established by an institution — typically a university, foundation, or nonprofit — that provides ongoing income from investment returns.

Example

“Harvard's $51 billion endowment generates over $2 billion annually to fund faculty, scholarships, and research.”

Memory Tip

ENDOWMENT = a permanent invested gift. The principal stays invested; income funds the institution.

Why It Matters

Understanding endowments helps you see how institutions build long-term financial security and fund their missions sustainably. If you donate to universities, foundations, or nonprofits, knowing how endowments work shows you how your contribution can generate returns for decades and benefit future generations.

Common Misconception

Many people believe endowments spend all their investment returns each year, but most endowments only distribute a small percentage annually, typically 4 to 5 percent, to preserve the principal and allow growth that outpaces inflation.

In Practice

Harvard University has an endowment worth approximately 50 billion dollars. In a given year, if it distributes 5 percent, that generates 2.5 billion dollars to fund scholarships, faculty salaries, and operations, while the remaining returns help the endowment grow and weather economic downturns.

Etymology

From Old French 'endouer' (to provide with a dowry) — permanently ENDOWING an institution with invested assets.

Common Misspellings

endowementendowmntendowwment

Related Terms

Foundation

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