RogerB (Colorado)
Posts: 5,067
Posts: 5,067
Posted:
I just responded to an e-mail on investing reserve funds. Some HOAs place the highest priority on yield which I think is a big mistake. Following is my response. What do you think?
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Jack, I think your association is VERY LUCKY to have you guiding their investment of reserve funds! I recommend HOAs invest in CD's because, as you know, their first concern should be security of principal, not yield. Your return of 4.8% is outstanding, where did you get it?
Colorado Common Interest Communities (HOAs) are now required (as of 1/1/06) by state statute to have a reserve fund policy. Here is an example we wrote for an HOA:
Rules and Regulations on Investment of Reserve Funds
A Reserve fund is maintained to provide adequate funds for future capital investments, such as fencing, landscaping, irrigation, monuments, signs, and contingencies. Reserve funds shall be invested in an account, or accounts, which shall be separate from the annual operating account, in accordance with IRS regulations. Reserve funds shall be invested at the discretion of the Board of Directors who shall consider safety of principle as the highest priority, followed by liquidity of funds, and lastly yield. Within these guidelines all funds shall be managed to maximize yield. A 20 year reserve plan shall be maintained to assist in establishing the amount of reserve funds required. The 20 year reserve plan shall be updated every three years and in any year that a major reserve expense occurs.
The reserve funds and the operating funds needed shall be used each year to determine the Annual budget. Annual disclosure on the reserve funds and the operating funds shall be made to all homeowners.
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Jack, I think your association is VERY LUCKY to have you guiding their investment of reserve funds! I recommend HOAs invest in CD's because, as you know, their first concern should be security of principal, not yield. Your return of 4.8% is outstanding, where did you get it?
Colorado Common Interest Communities (HOAs) are now required (as of 1/1/06) by state statute to have a reserve fund policy. Here is an example we wrote for an HOA:
Rules and Regulations on Investment of Reserve Funds
A Reserve fund is maintained to provide adequate funds for future capital investments, such as fencing, landscaping, irrigation, monuments, signs, and contingencies. Reserve funds shall be invested in an account, or accounts, which shall be separate from the annual operating account, in accordance with IRS regulations. Reserve funds shall be invested at the discretion of the Board of Directors who shall consider safety of principle as the highest priority, followed by liquidity of funds, and lastly yield. Within these guidelines all funds shall be managed to maximize yield. A 20 year reserve plan shall be maintained to assist in establishing the amount of reserve funds required. The 20 year reserve plan shall be updated every three years and in any year that a major reserve expense occurs.
The reserve funds and the operating funds needed shall be used each year to determine the Annual budget. Annual disclosure on the reserve funds and the operating funds shall be made to all homeowners.