Investment Policy

All of our funds are invested in FDIC insured institutions as required by our CC&Rs. CA has no such requirement. Wonder if NC, might, David.

Sounds like you're in another large HOA, yes?

Such accounts pay what kind of interest? Zero?

There is nothing wrong with a mix of investments, including bonds (municipal and corporate) and mutual funds.

Bruce posted this in an earlier thread on the same topic:

Here are some additional points to ponder:

According to the law firm of Epsten Grinnell & Howell, in a newsletter article, "Losses from investments in riskier or speculative securities could be personally charged to the individual Board members who authorized those investments." And "Thus, safety of deposit and preservation of principle is the first and highest priority." "It is this firm’s opinion that all investments should be in federally-insured Certificates of Deposit or Treasury Bills backed by the United States Government." (and, the NAV of mutual funds is not backed by the U.S. Government.) Finally, the firm goes on to prioritize the investment objectives of an association’s reserve account: 1) Preservation of principal, 2) Liquidity, and 3) Return.

From HOA Leader "Practical Guide to Homeowner Association Management": "Some HOA boards place their funds in riskier investments, but that carries its own dangers. Without explicit disclosure and formal consent from association members, you could face anger and lawsuits if your reserves drop. Even if you get members' consent, you'll still likely face claims that the risks weren't adequately explained. All in all, risky investments are the surest way to invite trouble."

From Reality Times: "Because of fiduciary concerns, the Board should usually only invest in guaranteed and insured investments unless the membership votes to be more aggressive. In either case, there should be a clear and written investment policy for the Board to follow."

Along with Tim's citations, which include Epsten, Grinnell & Howell, a well-respected HOA law firm in CA (maybe elsewhere too?), here's advice from another good HOA law firm in CA:

Investment Strategy. Prudent investments of reserve monies should focus on the following parameters in their order of importance:

Safety. A board's primary goal should be the preservation of the association's reserves against loss. Accordingly, investing in mutual funds, money market funds, and municipal bonds is considered by many to be too risky. Certificates of Deposit, Treasury Bills and Ginnie Mae securities are generally considered safe because they are direct obligations of the U.S. government. Simple bank savings accounts, while secure, may be too conservative because of their low rates of return. Sometimes an association's governing documents require that funds be kept in FDIC insured accounts.

Liquidity. Liquidity refers to the ability to quickly convert investments into cash. If reserves are tied up on long-term investments, they will not be available in the event the association needs to (i) use funds for emergency repairs, (ii) borrow for short-term operating expenses or (iii) repair or replace large common area components that reach the end of their useful life earlier than expected. Accordingly, investing all of an association's reserves into a jumbo 3-year CD would not be prudent. A more prudent strategy is to invest in smaller CDs and stagger them to mature every six months.

Yield. Yield is the return received on an investment. Boards should seek a reasonable return on the association's reserve accounts but should never adopt a strategy that emphasizes return over preservation of capital (as occurred with Orange County in the 1990s and resulted in bankruptcy when the investments collapsed).

Read more: Investing Reserve Funds http://www.davis-stirling.com/tabid/1503/Default.aspx#ixzz3UBkNzF4Q
from Davis-Stirling.com by Adams Kessler PLC.