This guide to finances at Swarthmore is meant to help you better understand Swarthmore’s endowment and the financial system it serves. The guide avoids politics and focuses on the machinery of annual budgeting.
The guide includes information from Treasurer and Vice-President for Finance Suzanne Welsh and from two members of the Board of Managers: Investment Committee Chair Chris Niemczewski ’74 and Financial Committee Chair Barbara Mather ’65. They explained, in great detail, many of the finer points of endowment investing.
The guide also builds off of the most recent Financial Report, from which several of the graphics have been taken.
You can browse through the guide using the arrow buttons. Don’t forget to click “full-screen.”
(Terms defined in the glossary are marked with an asterisk.)
Audit: An official inspection of an individual or organization’s accounts, typically by an independent body. Swarthmore uses PWC.
Blue-chip stocks: (also known as gilt-edged stock) A nationally recognized, well-established and financially sound company. Blue chips generally sell high-quality, widely accepted products and services. Blue chip companies are known to weather downturns and operate profitably in the face of adverse economic conditions, which helps to contribute to their long record of stable and reliable growth.
Bonds: Debt. The security of your bond depends on how likely the person borrowing money from you is to pay it back. In this case, US Treasury bonds (“T-bills”) are considered a very secure form of investment because the US government is less likely to default than a normal company. Although they pay out lower rates, they are attractive investments because owners of US Treasury Bonds pay no federal income tax on them.
Divestment: When an investor sells assets. The type of divestment referred to in these guides has been a particular type of divestment called protest divestment, where an investor sells assets for the express purpose of enacting social or political change.
ETF: Exchange-traded fund. It is a type of investment fund traded on stock exchanges like stocks, but can hold stocks, commodities, bonds, or a basket of assets like an index fund, similar to a mutual fund.
Equity: Technically speaking, equity can be anything a person owns, but it is generally used to refer to owned portions of companies. If you own 5% equity in a company, you own 5% of all their assets. The main difference between public equity and private equity is liquidity, because public equity can be turned into cash (sold) immediately to anyone, whereas private equity often has restrictions on when you can sell it and who you can sell it to.
Hedge fund: A private, actively managed investment fund that seeks to provide the highest returns possible using advanced investment strategies.
Interest: The fee you pay for the use of borrowed money, usually expressed as a percentage of the amount borrowed.
Liquidity: How easy it is to turn something into cash. US Treasury bonds and cash equivalents have high liquidity because Swarthmore can turn their value into cash within 30 days.
Option: When an investor buys an option, they are buying the opportunity to buy a stock in the future. For example, I might think the stock will go down in the next month, so I don’t want to buy it now, but after that month I think it will go up again. If you own the stock, I may pay you $20 for the option of buying it a month from now, meaning that if I want to buy it then, you have to sell it to me, but I don’t have to buy if the market is not in my favor.
SEC: U.S. Securities and Exchange Commission. Federal agency that regulates the trading of securities and makes sure companies are following securities laws.
Security: Best described as a “financial instrument.” Securities may include stocks, bonds, and options. According to Investopedia, a security is a “fungible, negotiable financial instrument that represents some type of financial value.”
Stock: A piece of a company’s assets. Can be used interchangeably with “equity.”
Subsidy: A tax break, usually for an industry and often considered to be in the interest of the public. They are generally very politicized. Swarthmore gets a subsidy for being a non-profit institution in the form of an income tax exemption.
TIPS: Treasury Inflation-Adjusted Securities. These are a special type of US Treasury bond that is indexed to protect against inflation, measured by the Consumer Price Index, which is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. They have fixed interest rates and pay out twice a year.
This article has been changed to reflect the following change: Chris M. Niemczewski and Barbara Mathers’ Board positions originally appeared flipped.