Imagine a crazy world in which the prices of financial assets was totally disconnected from their performance.  You could have two bonds, for example, with almost the exact same payout schedule and almost the same historical risk records, and one would cost $10 to buy and the other would cost $397.

Financial diversification would look quite different in such a world.  In particular, there should be much less of it.

Why?  Well, the intuition is that a few assets in this world are just straight out better than the rest.  When you have two bonds with similar behavior and similar prices, it makes sense to spread your money between them to create a composite asset with the same return and lower risk.  When you live in crazy world, the optimal amount of the $397 bond to buy is extremely small if not zero.

Why does this matter?  Because I would argue that charities form just such a crazy world.  The amount of good -- for almost any definition of good -- that a charity does with a $100 donation both varies widely from charity to charity and is almost entirely uncorrelated from the variance in the supplied amount of good.

(And why is that?  The primary reason is probably the absence of strong feedback loops:  no one is doing moral arbitrage by shorting donations to Harvard and going long on donations to Oxfam.  And the pluralist in me hates to say it, but the radical diversity of objective functions being pursued doesn't help either.)

And thus even if you are risk adverse in both money and goodness, you should still diversify much less your charitable giving than in your retirement portfolio.

Much much less, in fact.  Any decent savings plan will contain a stock index fund that combines hundreds to thousands of individual stocks, but if you are trying to maximize the number of lives saved per dollar (say), you might find that the best charity in the world does it for an average of 1 life / $800 and the next best does it for an average of 1 life / $1200.  Even if you are very risk adverse and even if the top charity is maximally risky (half the time they burn your money and half the time they save a life for $400), you might still prefer giving your $4800 to just the best one in order to save an expected 6 lives versus splitting your money between them equally and only saving an expected 5 lives.  And needless to say, the 99+% of charities that don't save lives or do so at worse than 1 life / $2000 or so are right out.

Finally, all of this is putting aside some very strong moral arguments that you should be risk neutral in your charitable giving.  In that case, it is a standard result that the optimal number of charities to donate to is exactly one.  (http://web.archive.org/web/20091024042118/http://www.slate.com/id/2034/sidebar/42581/)
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