Private foundation investment income is taxable, whereas community foundations and endowments are not. Private foundations are required to pay out at least 5% of assets on an annual basis. Endowments do not have minimum spending requirements. Foundations may also be able to decrease grant-making activity if investment returns have declined, in contrast to most endowments that need stable, inflation-protected income, and sufficient liquidity to fund the ongoing operations of a specific entity.
The risk tolerance of endowments is generally lower than foundations due to short-term budgetary needs (income and liquidity) of the sponsored organization, but can vary due to other factors such as the risk tolerance of the trustees/investment committee, the size of the principal, long-term return goals, etc. Foundation risk tolerance is critically linked to time horizon, but is also influenced by the risk tolerance of the board, principal size, etc. However, foundations are often more aggressive than endowments
