Image Up Advertising & Design

In a previous article the need for reserve funds to cover repair and replacement of the community assets was explained. This article covers how the HOA manages the investment of this reserve. When considering the best approach for investing our reserve funds, the Finance Committee and the Board of Directors set the goals and priorities that drive the investment decisions. The first and highest priority is the safety of the principal. The second priority is to ensure adequate liquidity of the investments. In other words, to make sure that we can access the funds in a timely manner as they are required to repair/replace items as they come to the end of their useful life. The third is to maximize the yield or return on the investment while fulfilling the first two goals. At Four Seasons we interpret these requirements to mean that we should limit the investments to those that will allow the reserves to grow but not jeopardize the principal amount. The most common investment vehicles for reserve funds that allow principal safety, some growth, and reasonable liquidity are Certificates of Deposit (CDs) and Treasury Bills. In order to ensure that there will be cash available when needed, the funds are invested using a laddering strategy. Laddering involves buying multiple CDs, or similar instruments, that mature at different intervals. Ladders allow plenty of flexibility e.g., permitting us to decide how much money will go in each maturity date depending on the current economic climate. We can also choose to invest in different institutions to obtain the best return and to ensure diversity of risk. The reserve investment ladder is structured so that some investments will always be maturing within the following 30-90 days. If the maturing capital is not required to support immediate reserve expenditures, it is re-invested to mature at a future date. Laddering fixed-term investments like CDs and Treasury Bills give a guaranteed rate of return. By having the right mix of short- and long-term investments we can achieve a better average return while maintaining adequate availability of funds. As of the end of 2019, the HOA was invested in a total of 56 different CDs and Treasury Bills. At least one of these investments is maturing in 29 of the next 36 months. The interest rates of these holdings vary from 1.5 percent up to 3.3 percent depending mostly on when the investment was initiated. ~ Peter Shuttleworth, peter@ shuttleworthvideo.com 20 FOUR SEASONS BREEZE | MARCH 2020 Finance Committee

• Cover