Introduction
Many charitable people have the practice of tithing,1 i.e., donating a tenth of their profits to charity. This article will briefly explore the historical origins of this practice, its biblical sources, and related customs, as well as practical considerations for investing from a Jewish legal perspective. Please consult your Rabbinic authority for their perspective, as opinions can vary.
History
The first person in recorded history to have given a tithe is Abraham, in the context of his gift to Malkitzedek from the spoils of the war between the four kings and five kings.2 While Abraham was the first to tithe, his son Isaac is cited by Maimonides3 as the one who originally fulfilled the biblical commandment of tithing. Isaac tithed his profits from his crop harvest, 4 as the biblical command, “You shall surely set aside every year a tenth part of all the yield of your sowing that is brought from the field,” requires.5 Isaac’s son, Jacob, went beyond this requirement and pledged to tithe from all his profits and not just his produce. 6
Source of Blessing
“And Isaac sowed in the land, and he found in that year one hundred‐fold.”7 The Bible mentions Isaac’s blessing, and, in the Talmud, Rabbi Yochanan informs us that the repeated word “Aseir T’Aseir” (tithe, tithe) informs us that one who fulfills this commandment will “TisAsher” will be blessed by G‐d with wealth and success (The words Aseir – tithe, and Osher – wealth are homographs in Hebrew).8 Moreover, Rabbi Yochanan tells us that, while one is forbidden to test G‐d, when it comes to tithing, one is allowed to do so. This is derived from the prophet Malachi, who said, “’Bring the full tithe into the storehouse, and let there be food in My house (for the Levites), and thus put Me to test,’ said the Lord, ‘and I will surely open the floodgates of heaven and pour down blessings for you.’”9 The Tosafos (a medieval commentary on the Talmud) cite the story of a person who had a field that produced one thousand Kur.10 He was accustomed to tithe his produce and gave one hundred Kur to charity every year. Before his passing, he instructed his son to continue with this custom, and promised him that if he does so, he, too, will see the same blessing. The first year after his death the son did so and gave the full tithe. When he saw how much he was giving away, he had second thoughts, and on the second year he did not tithe at all. The following year the total production of this fertile field was only the amount his father had been accustomed to tithe – one hundred Kur! He was sent a clear message that he had lost his role as grantor, and had become the recipient (see below, Heavenly Partnership). 11 Charity and tithing are not only a source of blessing, according to the Talmud,12 charity can fundamentally improve one’s heavenly judgement, as is said in the High Holy Day prayers: “Repentance, prayer, and charity remove the severity of the decree.”13
1 In Hebrew, this is known as giving “Maaser” or “Maaser Kesafim” 2 Genesis 14:20 3 Malachim 9:1 4 Genesis 26:12 5 Deuteronomy 14:22 6 Genesis 28:22 7 Genesis 16:12 8 Talmud Taanis 9a 9 Malachi 3:10 10 The Kur is a biblical measure equivalent to about 6 bushels. A Kur of wheat can feed a person comfortably for ~year. 11 Taanis 9a 12 Talmud Rosh Hashana 16b 13 Machzor Rosh Hashana & Yom Kippur
Command and Custom?
As mentioned above, the biblical command is specifically to give a tenth of the crop of one’s field to the Levites, as they do not own real estate and rely upon others for their sustenance. Tithing other sources of income is not mentioned explicitly in the verse. While there are opinions that tithing any type of income or profit is a biblical command,14 and there are others that say it is a rabbinic command,15 most rabbinic authorities are of the opinion that income or profit‐tithing is merely a custom, as it has no explicit reference in the Talmud. However, from a Jewish legal perspective, this makes tithing stricter, in that, an accepted or practiced custom could represent a personal vow, which is more stringent than a rabbinic command.16 While vows have their own set of laws that are beyond the scope of this discussion, a very important point to consider is that the annulment of one’s vow to reset their custom can allow for greater flexibility in the practice of tithing.
Tithing & Charity
The biblical obligation to give charity annually is minimally a third of a biblical Shekel (approximately ~$4‐10 USD). In his glosses to the Shulchan Aruch (the Code of Jewish Law), Rabbi Moses Isserles (1530‐1572) also known by the acronym Rema, who was an eminent Polish Ashkenazic rabbi, Talmudist, and Posek (expert in Jewish law), asks why tithing was excluded from the laws of charity.17 In this, he informs us that charity and tithing are essentially connected. This is further explored by the legal commentaries. Indeed, Maimonides18 links the laws of tithing and charity when he says that one who is charitable should give a tenth to charity and it would be even more meritorious to give a fifth. However, there is a rabbinic decree that one is discouraged from giving away more than a fifth of his/her net worth, so as not to potentially subject oneself to a difficult financial situation.19 There are exceptions to this rule, such as one has a steady source of income, one who can easily afford to do so, or does so before death, or to save a life, or to support Torah.20
Partnership & Preparation
Rabbi Yair Chaim Bacharach (Worms, 1639‐1702), in his responsa,21 uniquely describes tithing as a partnership with G‐d. In this context, he explains that, just as partners reconcile profits and expenses, one can subtract expenses from profits, even from different businesses, before calculating a tithe. Additionally, just as partners keep a tally on a quarterly or semiannually basis, one should do the same with their tithing. Rabbi Meir Kagan (Chofetz Chaim), in his book Ahavas Chesed, takes this a step further and explains that the one should implement the custom of tithing by designating a separate account to which one will separate their tithe in preparation to give charity. As such, money will be available for when someone in need makes a request and/or one becomes aware of a need. In this way, it is psychologically easier to part with one’s wealth and be more philanthropic, as the money is already set aside for this purpose. This act of separation of the tenth will be the greatest enabler of the fulfillment of one’s tithing. The Rema states that tithing beyond the charity minimum is only applicable to one who can afford their own basic living expenses.22 If one cannot afford to tithe, especially according to the many authorities that tithing is a custom, it is permissible for one to use their tithe for their own necessities.23 The actual separation into a tithing account itself can be considered a Mitzvah and a source of blessing regardless of one’s personal financial situation.
14 Sifri quoted by Tosafos Taanis 9a, Taz Yoreh Deah 331:2
15 Nodeh B’Yehuda Responsa 141 Yoreh Deah Siman 73, Birkei Yosef Responsa Yoreh Deah Siman 249:3
16 A vow (neder) or an oath (shevuah) in Jewish law creates an obligation or prohibition on a biblical level. 17 Shulchan Aruch 331:146
18 Matnos Aniyim 7:5
19 Kesubos 50a, see Talmud Yerushalmi Maaser Sheini 1:1
20 Ahavas Chesed p.252
21 Chavos Yair 224
22 Rema Yoreh Deah 251:3
23 See Ahavas Chesed about setting up a loan fund and borrowing from your own fund
Use & Exclusions
What is an acceptable and appropriate use of your tithe? As mentioned above, tithing and charity are linked, therefore, the laws of priority in charity are relevant to this discussion. Charity, in Jewish law, prioritizes the needy of one’s family first; parents, then children, then siblings, then the broader family members, then the needy of one’s immediate city, then the needy of Israel, needy people who dedicate their lives to Torah study. That said, helping those in need is a primary purpose of one’s tithe. Therefore, it can be appropriate to use one’s tithe to help newly married children that are starting out or gathering money for a down payment on their first home. There are opinions that one can also use the tithe for other Mitzvos (good deeds),24 while some say that the first 10% is primarily for the needy and the second one (from 10% to 20%) can be used for other Mitzvos.25 Examples of such can include: donating to a religious institution or nonprofit organization, enabling a mission to help the public, donating books to a library, or money to set up a free‐loan fund, and similar endeavors. On exclusions, when attending a charity dinner, it is recommended for one to deduct the real value of a personal benefit derived from the donation such as the cost of a meal. Obligatory commandments such as support or tuition for young children until they become self‐sufficient (age 6) should be excluded from one’s tithe.26 There is a debate as to whether the profits of investments which are sold and immediately rolled into others, such as in a real estate 1031 exchange, should be separately tithed. As mentioned, tithing can be calculated on realized gains reconciled against losses from different business ventures within the same accounting period.27 In the same business venture, losses may be reconciled against gains even if they occurred in a different accounting period.28 Chavos Yair (224) recommends tithing and reconciling profits quarterly, or semiannually, or at least one time a year with a recommendation of before Rosh Hashana, based on the verse from Deuteronomy 14:22.
Investing Your Tithe
Can you invest your tithe? Can you distribute your tithe over time? With what we’ve established, that profit‐ tithing (excluding crop‐yield of a sown field) is a heavenly partnership to enable philanthropy, conservative investments and especially those with a focus on capital preservation might be considered appropriate. Additionally, as helping family and children might be a necessity over a longer time horizon, investing your tithe and distributing it over a longer period might be needed. Ask your Rabbi, as Jewish legal opinions can vary greatly.
Conservative Investments
There are risk‐reward trade‐offs to consider when investing and different assets classes come with different risks and rewards. Assessing the risk and reward of each asset class is critical. The prudent investor always seeks the best risk‐adjusted return for their situation, needs, and investment time horizon. In that we are talking about charity, let’s explore options for conservative investing and capital preservation. Preservation of capital is an investment strategy with its primary goal to prevent loss of principal in a portfolio. Often, this means investing in safer instruments such as:
1. Treasury securities—including Treasury bills, notes, and bonds—are debt obligations issued by the U.S. Department of the Treasury. Treasury securities are considered one of the safest investments because they are backed by the full faith and credit of the U.S. government. The income from Treasury securities may be exempt from state and local taxes, but not from federal taxes. US Government‐issued securities ‐ have varying maturity dates, so options are available for investors with different financial goals. While Treasury Bills are considered short‐term, Treasury Notes (maturities of 2 – 10 years) might not be and Bonds (maturities of 20 – 30 years) certainly are not short‐term. Nonetheless, T‐Notes and T‐Bonds, while not short‐term, are reasonable investments for those looking to protect principal. Also, only T‐Bills are sold at a discount to face value, while T‐Bills and T‐Bonds pay interest until maturity. What makes them all safe is not the way the return is earned, but that they are backed up by the full faith and credit of the U.S. government.
24 Shach Yoreh Deah 249:3
25 Shitta Mekubetzes Kesubos 50a
26 Be’er Hagolah 249:5, Igros Moshe, YD 1:143, 2:113
27 Pischei Teshuva YD 249:1
28 see Rav Shimon Taub, The Laws of Tzedakah and Maaser p. 143‐144 and Kol Hatorah 39:89
Municipal bonds: These securities are issued by government entities such as states, cities, and counties to help them fund day‐to‐day operations or special projects. Municipal bonds, called “munis,” are debt securities issued by states, cities, counties, and other government entities. Types of “munis” include general obligation bonds, revenue bonds, and conduit bonds. Governments sometimes issue municipal bonds on behalf of private entities such as non‐profit colleges or hospitals. “Munis” typically accrue interest semiannually and promise a return on the original investment, making them an ideal addition to a capital preservation strategy. One of the main benefits of “munis” is that the interest the bonds pay is generally not subject to federal income tax and, if the investor resides in the state in which the bond was issued, the income is not generally subject to the state or local income taxes either.
Savings bonds: Series EE savings bonds are a low‐risk way to save money. They earn interest regularly for 30 years or until they are cashed in. Series I savings bonds protect one from inflation. With an I bond; one earns both a fixed rate of interest and a rate that changes with inflation. Twice a year, the inflation rate is set for the next 6 months. The current rate for a Series I Bond is 6.89%.29
Savings accounts: Banks offer savings accounts and perhaps you might find one with a higher interest rate than their standard counterparts, and without monthly fees or a requirement to maintain a minimum balance. Although savings accounts won’t grow your portfolio substantially, it could be a stable means of preserving capital since banks offer FDIC insurance, which is a form of guaranteeing safety of principal even if the bank fails.
Certificates of deposit (CDs): CDs often earn a higher interest rate than other types of bank accounts. When money is invested in a CD, it must remain in the account untouched for a predetermined period. Although CDs often offer lower interest rates than bonds of comparable maturity, they aren’t subject to market volatility, making them a good choice for a capital preservation strategy.
Government money market funds: Money market funds are a type of mutual fund developed in the 1970s as an option for investors to purchase a pool of securities that generally provided higher returns than interest‐bearing bank accounts. Government money market funds are defined as money market funds that invest 99.5% or more of their total assets in very liquid investments, namely, cash, government securities, and/or repurchase agreements that are collateralized fully with government securities. In response to the 2007‐2008 financial crisis, the Commission adopted a series of amendments to its rules on money market funds in 2010 that were designed to make money market funds more resilient by reducing the interest rate, credit, and liquidity risks of their portfolios.30
Investment‐grade / high‐grade bonds: Corporate bonds are debt securities issued by private and public corporations. Investment‐grade bonds have a higher credit rating, implying less credit risk, than high‐ yield corporate bonds. These bonds that are believed to have a lower risk of default and receive higher ratings by the credit rating agencies, namely bonds rated Baa (by Moody's) or BBB (by S&P and Fitch) or above. These bonds tend to be issued at lower yields than less creditworthy bonds.31 While a high‐ quality investment grade bond portfolio might yield a greater return over the investments mentioned above, it might come with credit risk and/or interest rate risk.
Conservative stock/bond portfolio: Depending upon your time horizon, conservative investing might also include a portfolio that blends different high quality assets classes such as stocks and bonds with a tilt towards capital preservation. A portfolio with 20% or 30% stocks and 80% or 70% bonds is generally considered to be a conservative longer‐term investment strategy. In general, stocks are often riskier than bonds. However, within each of these asset classes, there are investments that have greater risk than others, so it is critical for one to think about not only the asset class but, more importantly, the role of the specific investment and whether its primary purpose is to mitigate risk, provide stability, seek a return, and/or to provide diversification. For the sake of our discussion, we will assume that stocks are primarily return‐seeking assets and bonds are primarily risk‐mitigating assets. Should one consider a blended portfolio of stocks and bonds, one might consider a conservative allocation of up to 30% return‐ seeking stocks for their tithe. In this allocation the analysis below shows that, over time, one can achieve a greater return without necessarily taking on greater risk. Below you will note that the probability of a peak‐to‐trough loss of 20%, over a 10‐year period, is less than 2%. Based on the data, this is true for both a conservative portfolio of 30% stocks and 70% bonds as well as a portfolio of 100% bonds.
29 https://www.treasurydirect.gov/savings‐bonds 30 www.investor.gov 31 www.investor.gov
Donor Advised Funds vs. Private Foundations
Charitable investments can be managed and maintained in a donor advised fund (DAF) or private charitable foundation.
A donor‐advised fund (DAF) is a private fund administered by a third party and created for the purpose of managing charitable donations on behalf of an organization, a family, or an individual. These have become quite popular over the past 5‐10 years. A DAF may be used as a stepping‐stone between checkbook giving and a family foundation, or as a complement to either. It enables one to support multiple charities, virtually at any time, with a single contribution. The biggest advantage of a DAF is the immediate tax benefit. The contribution may be cash, publicly traded securities, and even privately held business interests (e.g., private C Corporation and S Corporation shares, LLC
and LP interests). A DAF is cost effective, easy to set up and administer, offers favorable tax benefits, and can allow the donor to be anonymous, if desired. The tax‐deductible donations can be invested with the potential to grow tax‐free over time to maximize your charitable contributions.
A private foundation is a nonprofit charitable entity that is usually established by a single benefactor, whether an individual or a business, through an endowment of funds. The endowment, an investment made typically to generate income, is then dispersed in the form of grants to individuals and/or other charities in accordance with the foundation’s charitable mission. Some of the key benefits of a private foundation include the degree of control of those responsible for running the foundation and that the board of directors can consist entirely of the members of a single family. However, private foundations can be costly to set‐up and run. They also require more mandatory paperwork as well as minimum asset‐distributions of 5% each year.
Summary
The practice of tithing has existed since the ancient time of Abraham. While crop‐yield tithing in the land of Israel is a biblical command, many Jewish legal authorities hold that profit‐tithing is a custom and not a command. As customs are considered vows according to Jewish law, annulling your vow and resetting your custom of tithing will provide you with greater flexibility in the fulfillment and practice of the custom. Tithing is a great source of blessing and G‐d allows us to test Him in this. Tithing and charity are linked and the laws of priority of charity apply to tithing. Profit‐tithing represents a heavenly partnership with G‐d to enable greater philanthropic giving. The act of separation of the tithe into a separate charity account itself can be a source of blessing regardless of one’s personal financial situation. Appropriate use of a tithe is a healthy debate and while gifting or lending to the neediest is of course appropriate, the custom of tithing can afford a wide array of uses. In this context, conservative investments and especially those with a focus on capital preservation might be considered appropriate. Ask your Rabbi, as Jewish legal opinions can vary greatly and seek out the advice of a fiduciary financial advisor that can help you identify how best to achieve your personal, financial, and philanthropic goals.
CARL S. SCHWARTZ
Vice President | Bernstein Global Private Wealth Management carl.schwartz@bernstein.com
Carl Schwartz is a Vice President and Financial Advisor with Bernstein Private Wealth Management. Carl provides guidance and counsel to high‐net‐worth individuals and families, trusts, estates, foundations, and retirement plans. He works closely with his clients and their other professional advisors to craft comprehensive investment strategies that will help them address critical planning issues and make investment decisions optimized to meet their goals. Prior to joining the firm, Carl was the director of Fellows at AIPAC (American Israel Public Affairs Committee), where he was responsible for the creation and management of that program to facilitate the achievement of the organization’s fund‐raising goals. Before that, Carl spent over 18 years in sales, business development consulting, providing guidance, and thought leadership to Fortune 100 organizations such as DuPont, General Electric, and Microsoft. He assisted them in the areas of sales process, account management, compensation, automation, and training. Carl received a master’s in business, with a concentration in finance, from Johns Hopkins University in 1996, as well as a master’s in education, with a concentration in counseling, from Johns Hopkins University in 1992. In addition, Carl received his Rabbinic Ordination from Ner Israel Rabbinical College in Baltimore in 1996 and is the rabbi of congregation Shomrei Mishmeres HaKodesh in Baltimore, where he lives with his wife, Debra, and their six children.