While the primary and insidious culprit is inflation, protection against liquidation and poor management is essential. Interest rate variation is primarily accounted for by inflation variation. Unless compensating actions are taken, spending total interest income means gradual liquidation of capital and resultant dissipation of endowment purchasing power. It is vital that past and potential endowment donors feel an assurance that full protection is being provided systematically. To the extent that there is inflation overcompensation, there is the positive attribute of endowment expansion and resulting higher future income levels for future support.
Spending is the byproduct of total investment performance achieved.
Yet total independence could result in insufficient attention to current needs. Pressures for increased immediate spending always exist. A policy objective is to maximize total return assuming a given level of risk. Many elements of investment policies are dynamic as well as complex. Systematic and rapid decisions must be possible.