JeffR11 (California)
Posts: 29
Posts: 29
Posted:
Hello.
Does your HOA invest only in CD's ?
Does your HOA also invest in Treasury Bills / Bonds ?
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Investing Reserve Funds
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Hello.
Does your HOA invest only in CD's ?
Does your HOA also invest in Treasury Bills / Bonds ?
MarkR21 (North Carolina)
Posts: 710
Posts: 710
Posted:
Invest in treasury ibonds they are over 9% now
SteveH35 (Washington)
Posts: 339
Posts: 339
Posted:
Quote:
Posted By JeffR11 on 06/19/2022 6:59 PM
Hello.
Does your HOA invest only in CD's ?
Does your HOA also invest in Treasury Bills / Bonds ?
Hello.
Does your HOA invest only in CD's ?
Does your HOA also invest in Treasury Bills / Bonds ?
Jeff, you might like to take a look at this reserve survey and this article about investing for CICs. Short answer: there are other ways to invest than CDs. I'll also mention that the suggestion of I bonds, as mentioned by MarkR, has been covered recently and it's not straightforward for a CIC given the Treasury Direct single authorized user limitation.
CathyA3 (Ohio)
Posts: 6,299
Posts: 6,299
Posted:
We had a recent threat (that apparently has been deleted) where some posters advocated investing in things that "can keep pace with inflation".
Here is the cold reality:
* Historically the only investment (aside from hard assets) that has kept up with inflation is stocks. The operative word here is "historically" - it was a wild ride in some spots.
* Past performance is no guarantee of future returns.
* There is always a trade off between risk and return. Investments that guarantee principle will have low returns. Chasing yield usually leads to investing mistakes.
* The markets can stay irrational longer than you can stay solvent. Professionals lose money in the markets all the time. Newbie investors make more mistakes than professionals do.
* HOA/COA boards are not investment professionals, they are "newbies".
* Never mistake a bull market for investment savvy. It would have been difficult to lose money in the 2009-2021 time frame, although many folks managed it. By contrast, in the last month money market accounts and CDs have out-performed many stock indexes. Want to guess how many investors looked at their statements, said "yikes!", and dumped their stocks at exactly the worst time? What do you suppose HOA/COA boards would do when they see the value of the reserve funds falling? Just because you personally can stay the course when the markets get bumpy does not mean that future board members will be able to do the same - the overwhelming majority will not.
Yes, there are things you can do to increase yield on safe investments:
* You can tie up the money longer, although it's smart to do that when you think interest rates are going to fall. (Not now, in other words.)
* Credit unions often pay higher interest rates, and federally-insured credit unions will insure deposits with the equivalent of FDIC insurance.
* Laddering CDs or bonds can increase your return overall.
As a community association board member, your first job is to make sure that the money will be available when you need it. If it is not, you'll have to resort to some combination of special assessment, loan, or deferred maintenance. The end result of these - especially the second and third options - will increase the overall cost of maintaining the association's property. In other words, you'll blow through whatever increased yield you were able to eke out by taking on more risk.
Community associations are supported by assessments. It's the way they were designed. Yes, it's frustrating during periods of low interest rates, but it looks like those days may be ending for a while. (During the 1970s, the stock market increased about 5% in value for the entire decade. When adjusted for inflation, the market lost about half its value. Meanwhile, once the Fed started hiking rates to combat inflation, people who invested in CDs did much better. CD yields of 10% or more were not uncommon.)
Here is the cold reality:
* Historically the only investment (aside from hard assets) that has kept up with inflation is stocks. The operative word here is "historically" - it was a wild ride in some spots.
* Past performance is no guarantee of future returns.
* There is always a trade off between risk and return. Investments that guarantee principle will have low returns. Chasing yield usually leads to investing mistakes.
* The markets can stay irrational longer than you can stay solvent. Professionals lose money in the markets all the time. Newbie investors make more mistakes than professionals do.
* HOA/COA boards are not investment professionals, they are "newbies".
* Never mistake a bull market for investment savvy. It would have been difficult to lose money in the 2009-2021 time frame, although many folks managed it. By contrast, in the last month money market accounts and CDs have out-performed many stock indexes. Want to guess how many investors looked at their statements, said "yikes!", and dumped their stocks at exactly the worst time? What do you suppose HOA/COA boards would do when they see the value of the reserve funds falling? Just because you personally can stay the course when the markets get bumpy does not mean that future board members will be able to do the same - the overwhelming majority will not.
Yes, there are things you can do to increase yield on safe investments:
* You can tie up the money longer, although it's smart to do that when you think interest rates are going to fall. (Not now, in other words.)
* Credit unions often pay higher interest rates, and federally-insured credit unions will insure deposits with the equivalent of FDIC insurance.
* Laddering CDs or bonds can increase your return overall.
As a community association board member, your first job is to make sure that the money will be available when you need it. If it is not, you'll have to resort to some combination of special assessment, loan, or deferred maintenance. The end result of these - especially the second and third options - will increase the overall cost of maintaining the association's property. In other words, you'll blow through whatever increased yield you were able to eke out by taking on more risk.
Community associations are supported by assessments. It's the way they were designed. Yes, it's frustrating during periods of low interest rates, but it looks like those days may be ending for a while. (During the 1970s, the stock market increased about 5% in value for the entire decade. When adjusted for inflation, the market lost about half its value. Meanwhile, once the Fed started hiking rates to combat inflation, people who invested in CDs did much better. CD yields of 10% or more were not uncommon.)
JohnT38 (South Carolina)
Posts: 1,631
Posts: 1,631
Posted:
https://www.helsing.com/2021/09/22/how-the-board-lost-millions-of-dollars-and-maybe-all-their-persona-net-worth/
SteveH35 (Washington)
Posts: 339
Posts: 339
Posted:
JohnT, the story you posted is absolutely fraught with irresponsibility and conflicts of interest that led to what seems like an inevitable conclusion. The gist of that message isn't "don't invest," it's "don't have one of your Board members personally mismanage your reserve funds and insurance."
Continuously under-earning inflation has a dramatic impact on your association’s long-term reserve funding. Investing in a single asset class is a complacent strategy with its own inherent risks. The following conclusion statements are taken directly from the article I posted above.
>>> Don’t allow fear of the unknown to stop your CIC from investing the time and money necessary to create an investment strategy for reserve funds that can stand the test of time. NEXT STEPS to consider:
>>> Understand all restrictions on how your common funds can be invested
>>> Discuss your options with an investment professional
>>> Discuss the facts with your members
>>> Write an investment policy (view example in this Reserve Resource Document)
>>> Consider updating your declaration / CC&Rs to codify your investment options (which typically requires 67% approval of your members)
>>> Have a professional manage your funds according to your policy and check in with the Board on a regular basis ( at least every 6 months or once a year)
Continuously under-earning inflation has a dramatic impact on your association’s long-term reserve funding. Investing in a single asset class is a complacent strategy with its own inherent risks. The following conclusion statements are taken directly from the article I posted above.
>>> Don’t allow fear of the unknown to stop your CIC from investing the time and money necessary to create an investment strategy for reserve funds that can stand the test of time. NEXT STEPS to consider:
>>> Understand all restrictions on how your common funds can be invested
>>> Discuss your options with an investment professional
>>> Discuss the facts with your members
>>> Write an investment policy (view example in this Reserve Resource Document)
>>> Consider updating your declaration / CC&Rs to codify your investment options (which typically requires 67% approval of your members)
>>> Have a professional manage your funds according to your policy and check in with the Board on a regular basis ( at least every 6 months or once a year)
MichaelT21 (Arkansas)
Posts: 501
Posts: 501
Posted:
Quote:
Posted By JeffR11 on 06/19/2022 6:59 PM
Hello.
Does your HOA invest only in CD's ?
Does your HOA also invest in Treasury Bills / Bonds ?
Hello.
Does your HOA invest only in CD's ?
Does your HOA also invest in Treasury Bills / Bonds ?
I looked into this recently.
For our association, we can purchase CDs from the bank that we normally do business with no problem. Last time I checked they were paying 0.65% which was far better than 0.01% that we were earning in the checking account. I am sure the rates have gone up a bit. Our property manager can handle everything for us no problem.
We can also purchase CDs from other institutions, and maybe get better rates. The problem is other insitutions won't recognize our property manager's authority to handle our finances, so a Board member has to take care of that aspect.
We inquired about US savings bonds and bills. Our property manager said that CC&Rs sometimes are more limiting in this and we should have an attorney advise us whether we are allowed to do it or not. The bigger problem is that a Board member has to open a TreasuryDirect account and be responsible for handling the money, which we don't want to do.
Reserve funds aren't the place to take risk, so anything risker than US Treasuries is a nonstarter for us.
CathyA3 (Ohio)
Posts: 6,299
Posts: 6,299
Posted:
Continuously under-earning inflation may have a dramatic impact, but it is a reality when the only investment that can keep pace with inflation (stocks) is off the table for an association. No amount of financial wizardry and bafflegab will change that.
Second, HOAs are not investing in order to grow a portfolio of financial assets that will be passed to their heirs. The whole purpose of accumulating reserves is to spend them. It's better to view investing as an adjunct to your reserve studies. It's a spending plan: here's how much you'll need, here's when you'll need it, set your assessments at a level that will allow this to happen.
Employing a professional to manage your funds will cut into your returns, big time. These folks make big bucks, and in recent years you wouldn't have earned enough income on your reserve funds to pay the professional. Given the limitations on what an association can responsibly invest in, you would literally have been better off if you'd plopped your money into a money market account and forgotten about it. If you still believe you need someone to hold your hands, fer the love of Mike use a fee-only advisor who will charge you for advice only.
I am bemused that after a recent, somewhat lengthy thread debating the wisdom of using professionals to handle reserve studies, we're having recommendations to employ financial professionals to manage what is really plain vanilla investing for a large majority of community associations. Two professions that require skills that most association board members don't have - but a mediocre reserve study is easily corrected, poor financial results not so much. Professional management may make sense for huge HOAs with multi-million dollar reserves and significant physical assets that must be maintained. But for smaller HOAs, having a professional money manager is (expensive) overkill.
Second, HOAs are not investing in order to grow a portfolio of financial assets that will be passed to their heirs. The whole purpose of accumulating reserves is to spend them. It's better to view investing as an adjunct to your reserve studies. It's a spending plan: here's how much you'll need, here's when you'll need it, set your assessments at a level that will allow this to happen.
Employing a professional to manage your funds will cut into your returns, big time. These folks make big bucks, and in recent years you wouldn't have earned enough income on your reserve funds to pay the professional. Given the limitations on what an association can responsibly invest in, you would literally have been better off if you'd plopped your money into a money market account and forgotten about it. If you still believe you need someone to hold your hands, fer the love of Mike use a fee-only advisor who will charge you for advice only.
I am bemused that after a recent, somewhat lengthy thread debating the wisdom of using professionals to handle reserve studies, we're having recommendations to employ financial professionals to manage what is really plain vanilla investing for a large majority of community associations. Two professions that require skills that most association board members don't have - but a mediocre reserve study is easily corrected, poor financial results not so much. Professional management may make sense for huge HOAs with multi-million dollar reserves and significant physical assets that must be maintained. But for smaller HOAs, having a professional money manager is (expensive) overkill.
MichaelT21 (Arkansas)
Posts: 501
Posts: 501
Posted:
I agree with everything CathyA3 wrote.
SteveH35 (Washington)
Posts: 339
Posts: 339
Posted:
Quote:
Posted By CathyA3 on 06/20/2022 9:22 AM
Continuously under-earning inflation may have a dramatic impact, but it is a reality when the only investment that can keep pace with inflation (stocks) is off the table for an association. No amount of financial wizardry and bafflegab will change that.
Second, HOAs are not investing in order to grow a portfolio of financial assets that will be passed to their heirs. The whole purpose of accumulating reserves is to spend them. It's better to view investing as an adjunct to your reserve studies. It's a spending plan: here's how much you'll need, here's when you'll need it, set your assessments at a level that will allow this to happen.
Employing a professional to manage your funds will cut into your returns, big time. These folks make big bucks, and in recent years you wouldn't have earned enough income on your reserve funds to pay the professional. Given the limitations on what an association can responsibly invest in, you would literally have been better off if you'd plopped your money into a money market account and forgotten about it. If you still believe you need someone to hold your hands, fer the love of Mike use a fee-only advisor who will charge you for advice only.
I am bemused that after a recent, somewhat lengthy thread debating the wisdom of using professionals to handle reserve studies, we're having recommendations to employ financial professionals to manage what is really plain vanilla investing for a large majority of community associations. Two professions that require skills that most association board members don't have - but a mediocre reserve study is easily corrected, poor financial results not so much. Professional management may make sense for huge HOAs with multi-million dollar reserves and significant physical assets that must be maintained. But for smaller HOAs, having a professional money manager is (expensive) overkill.
Continuously under-earning inflation may have a dramatic impact, but it is a reality when the only investment that can keep pace with inflation (stocks) is off the table for an association. No amount of financial wizardry and bafflegab will change that.
Second, HOAs are not investing in order to grow a portfolio of financial assets that will be passed to their heirs. The whole purpose of accumulating reserves is to spend them. It's better to view investing as an adjunct to your reserve studies. It's a spending plan: here's how much you'll need, here's when you'll need it, set your assessments at a level that will allow this to happen.
Employing a professional to manage your funds will cut into your returns, big time. These folks make big bucks, and in recent years you wouldn't have earned enough income on your reserve funds to pay the professional. Given the limitations on what an association can responsibly invest in, you would literally have been better off if you'd plopped your money into a money market account and forgotten about it. If you still believe you need someone to hold your hands, fer the love of Mike use a fee-only advisor who will charge you for advice only.
I am bemused that after a recent, somewhat lengthy thread debating the wisdom of using professionals to handle reserve studies, we're having recommendations to employ financial professionals to manage what is really plain vanilla investing for a large majority of community associations. Two professions that require skills that most association board members don't have - but a mediocre reserve study is easily corrected, poor financial results not so much. Professional management may make sense for huge HOAs with multi-million dollar reserves and significant physical assets that must be maintained. But for smaller HOAs, having a professional money manager is (expensive) overkill.
Cathy, with all due respect, you talk as if you are stating facts when you're stating opinions and assumptions. Employing a professional to manage your funds will cut into your returns, big time. WHAT? Our CIC has earned less than 1% annually over the past 10 years. How did we accomplish that? By failing to take opportunities for reasonable returns.
I don't know of any state or federal requirements that limit what an association can responsibly invest in. Since there are attorneys who have written opinions that employing professional investment help is reasonable and responsible, it just matters who you ask. But moreover, you don't need a professional to look at your returns and evaluate what's happening.
"Plain vanilla" everything which is part of the problem. Don't go outside the box that the CIC industry has drawn for you: management practices, financial practices, governance practices, etc. Oh, their interests don't align with yours? Exactly.
Developing an investment strategy is the first step. Most CICs fail to invest the time and resources necessary to understand the challenges and plan for the future.
Regards,
Steve
MichaelT21 (Arkansas)
Posts: 501
Posts: 501
Posted:
No, I don't agree that reserve funds should be invested in investments that are more risky than bank certificates of deposit.
Why? Simple. People in general do not have a backbone that stands up to market declines. For example, Board A might decide to invest in the stock market, and then 2 years later the stock market goes down 30%. Then Board B decides to bail on the stock market because the investment isn't panning out, turning paper losses into real losses.
No, HOAs have no business in investing.
Why? Simple. People in general do not have a backbone that stands up to market declines. For example, Board A might decide to invest in the stock market, and then 2 years later the stock market goes down 30%. Then Board B decides to bail on the stock market because the investment isn't panning out, turning paper losses into real losses.
No, HOAs have no business in investing.
JohnC46 (South Carolina)
Posts: 14,265
Posts: 14,265
Posted:
Quote:
Posted By MichaelT21 on 06/20/2022 11:08 AM
No, I don't agree that reserve funds should be invested in investments that are more risky than bank certificates of deposit.
Why? Simple. People in general do not have a backbone that stands up to market declines. For example, Board A might decide to invest in the stock market, and then 2 years later the stock market goes down 30%. Then Board B decides to bail on the stock market because the investment isn't panning out, turning paper losses into real losses.
No, HOAs have no business in investing.
No, I don't agree that reserve funds should be invested in investments that are more risky than bank certificates of deposit.
Why? Simple. People in general do not have a backbone that stands up to market declines. For example, Board A might decide to invest in the stock market, and then 2 years later the stock market goes down 30%. Then Board B decides to bail on the stock market because the investment isn't panning out, turning paper losses into real losses.
No, HOAs have no business in investing.
I agree.
SteveH35 (Washington)
Posts: 339
Posts: 339
Posted:
Quote:
Posted By JohnC46 on 06/20/2022 11:31 AM
Posted By MichaelT21 on 06/20/2022 11:08 AM
No, I don't agree that reserve funds should be invested in investments that are more risky than bank certificates of deposit.
Why? Simple. People in general do not have a backbone that stands up to market declines. For example, Board A might decide to invest in the stock market, and then 2 years later the stock market goes down 30%. Then Board B decides to bail on the stock market because the investment isn't panning out, turning paper losses into real losses.
No, HOAs have no business in investing.
No, I don't agree that reserve funds should be invested in investments that are more risky than bank certificates of deposit.
Why? Simple. People in general do not have a backbone that stands up to market declines. For example, Board A might decide to invest in the stock market, and then 2 years later the stock market goes down 30%. Then Board B decides to bail on the stock market because the investment isn't panning out, turning paper losses into real losses.
No, HOAs have no business in investing.
I agree.
Which is EXACTLY WHY you should an investment policy in place that directs your decision-making. Your reserve funds are already fully in the hands of Board A and Board B. You can do better. Make a plan that does not revolve around individual Board member sentiment from month to month and year to year. That goes for so much more than investing. The lack of continuity in CICs is why the industry gets to tell you what to do: nobody knows what's going on.
MichaelT21 (Arkansas)
Posts: 501
Posts: 501
Posted:
Quote:
Posted By SteveH35 on 06/20/2022 12:37 PM
I agree.
Posted By JohnC46 on 06/20/2022 11:31 AM
Posted By MichaelT21 on 06/20/2022 11:08 AM
No, I don't agree that reserve funds should be invested in investments that are more risky than bank certificates of deposit.
Why? Simple. People in general do not have a backbone that stands up to market declines. For example, Board A might decide to invest in the stock market, and then 2 years later the stock market goes down 30%. Then Board B decides to bail on the stock market because the investment isn't panning out, turning paper losses into real losses.
No, HOAs have no business in investing.
No, I don't agree that reserve funds should be invested in investments that are more risky than bank certificates of deposit.
Why? Simple. People in general do not have a backbone that stands up to market declines. For example, Board A might decide to invest in the stock market, and then 2 years later the stock market goes down 30%. Then Board B decides to bail on the stock market because the investment isn't panning out, turning paper losses into real losses.
No, HOAs have no business in investing.
I agree.
Which is EXACTLY WHY you should an investment policy in place that directs your decision-making. Your reserve funds are already fully in the hands of Board A and Board B. You can do better. Make a plan that does not revolve around individual Board member sentiment from month to month and year to year. That goes for so much more than investing. The lack of continuity in CICs is why the industry gets to tell you what to do: nobody knows what's going on.
What kind of investment policy can Board A write that will legally control what Board B does with the money? None to my knowledge. Nothing guarantees that Board B will follow Board A's direction.
CathyA3 (Ohio)
Posts: 6,299
Posts: 6,299
Posted:
One other item about financial professionals:
Many of them have a code of conduct or ethics that may rise to the level of fiduciary duty to their clients. Among other things, they have to put their client into investments that are appropriate for that client. So an ethical advisor would almost certainly not be recommending investments that risk losing principal to an HOA. Can you find advisors who would? You bet your sweet bippy you can. I suggest that you not let those folks anywhere near the association's money.
Ethical financial professionals also are big on disclosures. They don't just wax poetic about the returns you may, in theory, achieve. They also disclose what happens when things don't go according to theory, and how often this can happen. If a client can't weather the bad times without losing his mind or his shirt, then that's not an appropriate investment *for him*. It doesn't matter at all what others are doing, and what the professionals say the average investor can, in theory, achieve.
But I will repeat what I said earlier: historically, the only investment class that outpaces inflation is stocks. Not opinion: it's statistics. You can fuss and fume and not like it, but there is no magical investment strategy that will change this. If someone ever comes up with one, he'll be wealthy beyond belief and wouldn't have time for HOA finances. If your financial advisor says he has one, he's blowing smoke and get rid of him. (Maybe a time machine...)
(We just went through a period where money market accounts outpaced the stock market. These periods are identifiable only in hindsight. That's not a strategy, that's the market going nutso which it does periodically.)
Also to repeat, risk and return are inversely correlated. Not opinion again: it's a fact. Investors have to be paid (with higher returns) to induce them to take on greater risk with their money, and sometimes the risk won't pay off. If you could make 5% annual return with a CD, would you choose instead to buy shares of stock paying 5% annually in dividends, with the understanding that the dividend could be cut and the value of the stock could fall? Probably not unless you happen to know something that the rest of the market doesn't know (which is insider trading, and it's illegal, Martha Stewart went to jail for it). Extreme example of risk vs. return: crypto.
Stay safe, keep the HOA's funds safe, and don't be fooled by people blowing smoke.
Many of them have a code of conduct or ethics that may rise to the level of fiduciary duty to their clients. Among other things, they have to put their client into investments that are appropriate for that client. So an ethical advisor would almost certainly not be recommending investments that risk losing principal to an HOA. Can you find advisors who would? You bet your sweet bippy you can. I suggest that you not let those folks anywhere near the association's money.
Ethical financial professionals also are big on disclosures. They don't just wax poetic about the returns you may, in theory, achieve. They also disclose what happens when things don't go according to theory, and how often this can happen. If a client can't weather the bad times without losing his mind or his shirt, then that's not an appropriate investment *for him*. It doesn't matter at all what others are doing, and what the professionals say the average investor can, in theory, achieve.
But I will repeat what I said earlier: historically, the only investment class that outpaces inflation is stocks. Not opinion: it's statistics. You can fuss and fume and not like it, but there is no magical investment strategy that will change this. If someone ever comes up with one, he'll be wealthy beyond belief and wouldn't have time for HOA finances. If your financial advisor says he has one, he's blowing smoke and get rid of him. (Maybe a time machine...)
(We just went through a period where money market accounts outpaced the stock market. These periods are identifiable only in hindsight. That's not a strategy, that's the market going nutso which it does periodically.)
Also to repeat, risk and return are inversely correlated. Not opinion again: it's a fact. Investors have to be paid (with higher returns) to induce them to take on greater risk with their money, and sometimes the risk won't pay off. If you could make 5% annual return with a CD, would you choose instead to buy shares of stock paying 5% annually in dividends, with the understanding that the dividend could be cut and the value of the stock could fall? Probably not unless you happen to know something that the rest of the market doesn't know (which is insider trading, and it's illegal, Martha Stewart went to jail for it). Extreme example of risk vs. return: crypto.
Stay safe, keep the HOA's funds safe, and don't be fooled by people blowing smoke.
SteveH35 (Washington)
Posts: 339
Posts: 339
Posted:
Quote:
Posted By CathyA3 on 06/20/2022 12:43 PM
One other item about financial professionals:
Many of them have a code of conduct or ethics that may rise to the level of fiduciary duty to their clients. Among other things, they have to put their client into investments that are appropriate for that client. So an ethical advisor would almost certainly not be recommending investments that risk losing principal to an HOA. Can you find advisors who would? You bet your sweet bippy you can. I suggest that you not let those folks anywhere near the association's money.
Ethical financial professionals also are big on disclosures. They don't just wax poetic about the returns you may, in theory, achieve. They also disclose what happens when things don't go according to theory, and how often this can happen. If a client can't weather the bad times without losing his mind or his shirt, then that's not an appropriate investment *for him*. It doesn't matter at all what others are doing, and what the professionals say the average investor can, in theory, achieve.
But I will repeat what I said earlier: historically, the only investment class that outpaces inflation is stocks. Not opinion: it's statistics. You can fuss and fume and not like it, but there is no magical investment strategy that will change this. If someone ever comes up with one, he'll be wealthy beyond belief and wouldn't have time for HOA finances. If your financial advisor says he has one, he's blowing smoke and get rid of him. (Maybe a time machine...)
(We just went through a period where money market accounts outpaced the stock market. These periods are identifiable only in hindsight. That's not a strategy, that's the market going nutso which it does periodically.)
Also to repeat, risk and return are inversely correlated. Not opinion again: it's a fact. Investors have to be paid (with higher returns) to induce them to take on greater risk with their money, and sometimes the risk won't pay off. If you could make 5% annual return with a CD, would you choose instead to buy shares of stock paying 5% annually in dividends, with the understanding that the dividend could be cut and the value of the stock could fall? Probably not unless you happen to know something that the rest of the market doesn't know (which is insider trading, and it's illegal, Martha Stewart went to jail for it). Extreme example of risk vs. return: crypto.
Stay safe, keep the HOA's funds safe, and don't be fooled by people blowing smoke.
One other item about financial professionals:
Many of them have a code of conduct or ethics that may rise to the level of fiduciary duty to their clients. Among other things, they have to put their client into investments that are appropriate for that client. So an ethical advisor would almost certainly not be recommending investments that risk losing principal to an HOA. Can you find advisors who would? You bet your sweet bippy you can. I suggest that you not let those folks anywhere near the association's money.
Ethical financial professionals also are big on disclosures. They don't just wax poetic about the returns you may, in theory, achieve. They also disclose what happens when things don't go according to theory, and how often this can happen. If a client can't weather the bad times without losing his mind or his shirt, then that's not an appropriate investment *for him*. It doesn't matter at all what others are doing, and what the professionals say the average investor can, in theory, achieve.
But I will repeat what I said earlier: historically, the only investment class that outpaces inflation is stocks. Not opinion: it's statistics. You can fuss and fume and not like it, but there is no magical investment strategy that will change this. If someone ever comes up with one, he'll be wealthy beyond belief and wouldn't have time for HOA finances. If your financial advisor says he has one, he's blowing smoke and get rid of him. (Maybe a time machine...)
(We just went through a period where money market accounts outpaced the stock market. These periods are identifiable only in hindsight. That's not a strategy, that's the market going nutso which it does periodically.)
Also to repeat, risk and return are inversely correlated. Not opinion again: it's a fact. Investors have to be paid (with higher returns) to induce them to take on greater risk with their money, and sometimes the risk won't pay off. If you could make 5% annual return with a CD, would you choose instead to buy shares of stock paying 5% annually in dividends, with the understanding that the dividend could be cut and the value of the stock could fall? Probably not unless you happen to know something that the rest of the market doesn't know (which is insider trading, and it's illegal, Martha Stewart went to jail for it). Extreme example of risk vs. return: crypto.
Stay safe, keep the HOA's funds safe, and don't be fooled by people blowing smoke.
Cathy, I have to ask: why are you so bent on the fallacy that there's an ethical dilemma for a nonprofit corporation to invest funds in a way that could lose principal? I know many CICs that have invested in brokered CDs and in US treasuries. Both of those products can lose principal if not held to maturity. I also know other member-based nonprofit corporations that create investment strategies for their cash that's sitting, waiting to be deployed 5, 10, 20 or 30 years from now.
What period did we just go through were money markets outpaced the stock market? You mean the last six months? Admittedly, if you cherry pick a period, the stock market will inevitably decline and cash will decline less despite inflation (because your money market funds haven't earned an average of more than 0.5% for the past 12 months (and that's being generous).
Warren Buffet has been a huge fan of index investing and "buy and hold" for a long, long time. You're right, it's not magic. It's statistics.
The fact is that you haven't been able to secure a 5% return with a US Treasury Bill, Bond or Note or a CD for what...pre-Great Recession (prior to 2008)? Crypto and securities fraud?!? Let's talk about Champlain Towers while we're at it. Hyperbolic? Definitely! Let's not bury facts get buried in an avalanche of tangential bits and pieces, full of assumptions and feelings.
CathyA3 (Ohio)
Posts: 6,299
Posts: 6,299
Posted:
Quote:
Posted By SteveH35 on 06/20/2022 4:22 PM
... Snip ...
Cathy, I have to ask: why are you so bent on the fallacy that there's an ethical dilemma for a nonprofit corporation to invest funds in a way that could lose principal? .... snip ...
... Snip ...
Cathy, I have to ask: why are you so bent on the fallacy that there's an ethical dilemma for a nonprofit corporation to invest funds in a way that could lose principal? .... snip ...
Because you're losing other people's money and they tend to get shirty about it...?
Because most people are scared of the stock market and don't want to touch it...?
Because the ones who don't think they're scared of it tend to bail at the first sign of trouble and end up losing money...?
Because you can't force future boards to stay the course, no matter how many policies and plans you come up with...?
Quote:
What period did we just go through were money markets outpaced the stock market? You mean the last six months? Admittedly, if you cherry pick a period, the stock market will inevitably decline and cash will decline less despite inflation (because your money market funds haven't earned an average of more than 0.5% for the past 12 months (and that's being generous).
Yet people who argue in favor of higher risk investing inevitably cherry pick time periods in order to prove their point. These ups and downs come about periodically and unpredictably. (See: the entire decade of the 70s.) HOAs/COAs have predictable expenses and need a predictable flow of money to pay those expenses. They are not necessarily able to ride out the ups and downs, especially when the downs are prolonged.
Quote:
Warren Buffet has been a huge fan of index investing and "buy and hold" for a long, long time. You're right, it's not magic. It's statistics.
Another misconception. Index investing does not protect you from stock market loses. You will lose exactly whatever is lost by the index you're mirroring.
What indexing does protect you from is: 1) poor stock picking skills; 2) poor buy and sell discipline; 3) the high fees and trading costs associated with actively managed investing, primarily paying the money managers.
Quote:
Let's talk about Champlain Towers while we're at it. Hyperbolic? Definitely! Let's not bury facts get buried in an avalanche of tangential bits and pieces, full of assumptions and feelings.
Yes, let's talk about Champlain Towers. This is a story of willful blindness, inadequate maintenance, and homeowners kicking the can down the road until there was no more road available. Typical homeowners in community associations, in other words. It's a story of what happens when homeowners are allowed to vote down necessary assessments. Don't like what the board is doing or saying? Replace 'em. The fact that this occurred during a period of historically unprecedented stock market returns sort of undermines your point.
You are never going to get around the realities of HOA/COA governance and investing:
* Entities with a predictable stream of expenses need a predictable stream of cash. Higher-risk investing is unpredictable except over the very long term. The leaky roof is not going to wait until the markets decide to roll in your favor.
* Inexperienced investors generally make poor decisions. They also as a group over-estimate their risk tolerance and will bail at the first sign of trouble, thus locking in their losses.
* Overly confident investors get slaughtered periodically (and the market snickers at them when it happens).
* Homeowners can replace board members whenever they like. If they don't like the current board and its investment policies, they'll replace the board with people who do things the way the homeowners want. You can argue until you're blue in the face that they just need to stay the course, but there is no way to ensure that they will do so. In fact, they almost certainly will not, and at the worst possible time.
* It doesn't matter what's achievable in theory. It only matters what you personally can achieve given the constraints you're operating under. These constraints can't be managed or magicked away because that's the nature of constraints.
With that, I'm done. People who won't learn the easy way are doomed to learn the hard way.
MichaelT21 (Arkansas)
Posts: 501
Posts: 501
Posted:
Quote:
Posted By ThadC2 on 06/20/2022 4:34 PM
reserve funds are often for big purchases that occur every 20-40 years. like replacing a roof, new playground, etc. these assettes can typically be replaced in a flexible time period. Its' not like you have to replace the playground this year can wait a few years. Same thing for most roofs which can be patched for a few years if needed.
index stock funds are ideal for that. it's a no brainer.
reserve funds are often for big purchases that occur every 20-40 years. like replacing a roof, new playground, etc. these assettes can typically be replaced in a flexible time period. Its' not like you have to replace the playground this year can wait a few years. Same thing for most roofs which can be patched for a few years if needed.
index stock funds are ideal for that. it's a no brainer.
It's a no brainer when the stock market is up. It's the opposite when the stock market is down.
Index funds work well if a person has the backbone to not sell when the chips are down. A HOA Board, made up of a revolving door of Board members, will be tempted to sell when the chips are down. Then one can lose bigtime.
MichaelT21 (Arkansas)
Posts: 501
Posts: 501
Posted:
I'm not Cathy, but I'll offer this:
As one who has spent a lot of time studying how reserves work and thoroughly understands the financials and math behind them, I can honestly say that investing reserves in low cost index investment funds makes a ton of sense. It's honestly the right thing to do.
However, the money is not mine. It belongs to (in my association) 274 homeowners, or about 550 adults in the community. Of the 550 adults, approximately 2 understand how reserves work as well as I do and comprehend how low cost index funds would make sense. I can't guess what the other 548 adults view our reserves but definitely don't understand them.
Our own treasurer made a statement at a annual meeting that our reserve fund is an emergency fund. No, it's not. In fact, it's the exact opposite of an emergency fund. It is designed to replace items when they are at end of life for known, predictable replacement times. Emergency spending, such as hurricane damage, should not come from reserves.
I mention this not to criticize him but to point out that many view reserves as emergency funds. And while they are wrong, I can't go around trying to educate everyone on what the actual purpose of reserves are. Some in the community will never listen. And these people will want the money cash on hand, at the ready, just in case.
Bottom line is the reserve fund should be kept in a capital preservation mode rather than investing mode.
As one who has spent a lot of time studying how reserves work and thoroughly understands the financials and math behind them, I can honestly say that investing reserves in low cost index investment funds makes a ton of sense. It's honestly the right thing to do.
However, the money is not mine. It belongs to (in my association) 274 homeowners, or about 550 adults in the community. Of the 550 adults, approximately 2 understand how reserves work as well as I do and comprehend how low cost index funds would make sense. I can't guess what the other 548 adults view our reserves but definitely don't understand them.
Our own treasurer made a statement at a annual meeting that our reserve fund is an emergency fund. No, it's not. In fact, it's the exact opposite of an emergency fund. It is designed to replace items when they are at end of life for known, predictable replacement times. Emergency spending, such as hurricane damage, should not come from reserves.
I mention this not to criticize him but to point out that many view reserves as emergency funds. And while they are wrong, I can't go around trying to educate everyone on what the actual purpose of reserves are. Some in the community will never listen. And these people will want the money cash on hand, at the ready, just in case.
Bottom line is the reserve fund should be kept in a capital preservation mode rather than investing mode.
SteveH35 (Washington)
Posts: 339
Posts: 339
Posted:
Cathy, I haven't cherry picked any time periods to prove any points. This debate isn't worth having.
When you create an investment plan, you don't put all your chips in one basket. I haven't seen any actual facts that preclude a plan that allows for some investing in securities that can offer a better than average (the average having been well less than 2% for many years) long-term yield. Maybe that plan only calls for 10% of a reserve fund to be invested in that way. Maybe it's 20%. Maybe it's 50%. Any of those are still a plan and all of them allow for a predictable cash flow given that you plan correctly. There is an 'all or none' mindset that comes back with every reply on this subject that's mind-boggling to me and it's impossible to debate.
When you create an investment plan, you don't put all your chips in one basket. I haven't seen any actual facts that preclude a plan that allows for some investing in securities that can offer a better than average (the average having been well less than 2% for many years) long-term yield. Maybe that plan only calls for 10% of a reserve fund to be invested in that way. Maybe it's 20%. Maybe it's 50%. Any of those are still a plan and all of them allow for a predictable cash flow given that you plan correctly. There is an 'all or none' mindset that comes back with every reply on this subject that's mind-boggling to me and it's impossible to debate.
MichaelT21 (Arkansas)
Posts: 501
Posts: 501
Posted:
Quote:
Posted By SteveH35 on 06/21/2022 10:48 AM
Cathy, I haven't cherry picked any time periods to prove any points. This debate isn't worth having.
When you create an investment plan, you don't put all your chips in one basket. I haven't seen any actual facts that preclude a plan that allows for some investing in securities that can offer a better than average (the average having been well less than 2% for many years) long-term yield. Maybe that plan only calls for 10% of a reserve fund to be invested in that way. Maybe it's 20%. Maybe it's 50%. Any of those are still a plan and all of them allow for a predictable cash flow given that you plan correctly. There is an 'all or none' mindset that comes back with every reply on this subject that's mind-boggling to me and it's impossible to debate.
Cathy, I haven't cherry picked any time periods to prove any points. This debate isn't worth having.
When you create an investment plan, you don't put all your chips in one basket. I haven't seen any actual facts that preclude a plan that allows for some investing in securities that can offer a better than average (the average having been well less than 2% for many years) long-term yield. Maybe that plan only calls for 10% of a reserve fund to be invested in that way. Maybe it's 20%. Maybe it's 50%. Any of those are still a plan and all of them allow for a predictable cash flow given that you plan correctly. There is an 'all or none' mindset that comes back with every reply on this subject that's mind-boggling to me and it's impossible to debate.
Steve,
You haven't really answered my questions:
1) How do you convince all of your owners that it's okay when the stock market drops 30% and your reserve study shows you are significantly underfunded? There is nothing that you can say that will convince all of your owners that the investments are still good investments even though reserves are down.
As stated in my post above, some homeowners will feel the money should be 100% liquid for emergencies. How do you convince them otherwise?
2) How does your financial auditor feel about having reserve money in the stock market?
3) What happens when the stock market plummets, as it always does, and several new people join the board because they are tired of the "poor financial decisions" that previous boards made, through out the investment plan, and liquidate everything to "stop the bleeding"?
SteveH35 (Washington)
Posts: 339
Posts: 339
Posted:
Quote:
Posted By MichaelT21 on 06/21/2022 12:12 PM
Posted By SteveH35 on 06/21/2022 10:48 AM
Cathy, I haven't cherry picked any time periods to prove any points. This debate isn't worth having.
When you create an investment plan, you don't put all your chips in one basket. I haven't seen any actual facts that preclude a plan that allows for some investing in securities that can offer a better than average (the average having been well less than 2% for many years) long-term yield. Maybe that plan only calls for 10% of a reserve fund to be invested in that way. Maybe it's 20%. Maybe it's 50%. Any of those are still a plan and all of them allow for a predictable cash flow given that you plan correctly. There is an 'all or none' mindset that comes back with every reply on this subject that's mind-boggling to me and it's impossible to debate.
Cathy, I haven't cherry picked any time periods to prove any points. This debate isn't worth having.
When you create an investment plan, you don't put all your chips in one basket. I haven't seen any actual facts that preclude a plan that allows for some investing in securities that can offer a better than average (the average having been well less than 2% for many years) long-term yield. Maybe that plan only calls for 10% of a reserve fund to be invested in that way. Maybe it's 20%. Maybe it's 50%. Any of those are still a plan and all of them allow for a predictable cash flow given that you plan correctly. There is an 'all or none' mindset that comes back with every reply on this subject that's mind-boggling to me and it's impossible to debate.
Steve,
You haven't really answered my questions:
1) How do you convince all of your owners that it's okay when the stock market drops 30% and your reserve study shows you are significantly underfunded? There is nothing that you can say that will convince all of your owners that the investments are still good investments even though reserves are down.
As stated in my post above, some homeowners will feel the money should be 100% liquid for emergencies. How do you convince them otherwise?
2) How does your financial auditor feel about having reserve money in the stock market?
3) What happens when the stock market plummets, as it always does, and several new people join the board because they are tired of the "poor financial decisions" that previous boards made, through out the investment plan, and liquidate everything to "stop the bleeding"?
Michael, I have covered this, but one last time:
1) You never need to convince 100% of your owners of anything except for changing allocated interests and reallocating common elements. That's a fact. Let's focus on facts.
2) If you write your plan into your declaration / CC&Rs, changing it should require a 67% supermajority in WA state. We can't debate an absolutely foolproof plan because there is no such thing.
Anyone can do whatever they want at any time. Our Board members all (in theory) have access to our Association's Fidelity account. Any one of us could, theoretically, invest that money however we want despite what's in writing, but that's why you only give the "keys" to folks you can trust to do what's in writing. Getting the money away from your Board so that they can't push the buttons themselves is not mandatory, but it can help.
3) Our auditor has nothing to do with whether or not we invest. They do one thing: audit the books. We have a separate CPA that files taxes for good reason. Our attorney (based in Seattle) actually wrote a memo that speaks to exactly how their firm suggests that CICs go about investing if they choose to do so. That memo is available as previously disclosed in this thread.
There's really nothing else to say. It's challenging (and typically impossible) to foolproof everything in any business. If we had to argue absolutes in every thread here, there would be no end.
JohnC46 (South Carolina)
Posts: 14,265
Posts: 14,265
Posted:
Can you imagine the screaming, cussing, threats, etc. that would go on when the BOD reports a loss of Reserve Money due to investments the BOD made? I would not want to be on that BOD.
CathyA3 (Ohio)
Posts: 6,299
Posts: 6,299
Posted:
Quote:
"1) You never need to convince 100% of your owners of anything except for changing allocated interests and reallocating common elements. That's a fact. Let's focus on facts."
By law, no. Also by law, homeowners can remove directors at any time. Stock losses --> underfunded reserves --> assessment increases to compensate. Few things can unite the membership like the prospect of assessment increases, and when they're the result of perceived board incompetence, what do you suppose will happen? Gee, that's a tough one, isn't it...
When theory meets stubborn reality, which do you suppose prevails? Another tough one, isn't it...?
"1) You never need to convince 100% of your owners of anything except for changing allocated interests and reallocating common elements. That's a fact. Let's focus on facts."
By law, no. Also by law, homeowners can remove directors at any time. Stock losses --> underfunded reserves --> assessment increases to compensate. Few things can unite the membership like the prospect of assessment increases, and when they're the result of perceived board incompetence, what do you suppose will happen? Gee, that's a tough one, isn't it...
When theory meets stubborn reality, which do you suppose prevails? Another tough one, isn't it...?
SteveH35 (Washington)
Posts: 339
Posts: 339
Posted:
Quote:
Posted By JohnC46 on 06/21/2022 1:02 PM
Can you imagine the screaming, cussing, threats, etc. that would go on when the BOD reports a loss of Reserve Money due to investments the BOD made? I would not want to be on that BOD.
Can you imagine the screaming, cussing, threats, etc. that would go on when the BOD reports a loss of Reserve Money due to investments the BOD made? I would not want to be on that BOD.
Like a roller coaster, ya only get hurt if you jump out of the car. Plan for the ups and downs. Create an investment strategy. Even if your investment strategy is to invest 100% of your funds in principal guaranteed securities, create the strategy. Consult an advisor (which, by the way is a free service of many brokerage firms). Write it down. Stop guessing. Start investing.
MichaelT21 (Arkansas)
Posts: 501
Posts: 501
Posted:
I honestly try to convince 100% of our homeowners that the direction of our Board is the right direction. I probably try too hard, but it's important to me. We send out surveys, make social media postings of what we are doing, and send out monthly e-mail blasts that contain nuggets of information about our community. We have open Board meetings where all homeowners are invited, except for executive session of course.
As a result, our Board truly has a lot of homeowner support. Even when dealing with compliance issues, I personally have received admiration and thanks from those who we are sending compliance letters for enforcing the rules. The goodwill that we have earned is much appreciated.
Yet, I'm well aware that this goodwill is short lived and the community can flip on a dime. Paper stock market losses would unite the community against the HOA and become a rallying point about how the HOA is misguided. The fear of special assessments at a time when the stock market is down (and likely, economy is also down) would anger and upset people.
I highly doubt I could guide and lead out community through a time of major market decline that also caused our reserve funds to go down. They'd rise up and throw me out. I'd never want that to happen and the dollar savings to my family wouldn't be worth it.
-----
There is another problem. When money is invested in the stock market, you never know how much you have until you sell. Thus, if the stock market is high in 2023 and your reserves are 110% funded, do you decrease your 2024 reserve contribution amount? If the stock market is low in 2023 and your reserves are 45% funded, do you increase your reserve funding? That is not a clear decision to make because the market goes up and down, up and down, and it's never clear how much you actually have.
-----
Finally, if one Board sets the trend of investing by investing in low cost index funds, what is to stop another Board from deciding to try individual stocks? What if a particular Board member thinks that Intel (or any other stock) is going to do great, and moves 100% of the investments to that one stock, which then tanks? No guarantee it'll ever come back.
----
No investing for our HOA despite the temptation.
As a result, our Board truly has a lot of homeowner support. Even when dealing with compliance issues, I personally have received admiration and thanks from those who we are sending compliance letters for enforcing the rules. The goodwill that we have earned is much appreciated.
Yet, I'm well aware that this goodwill is short lived and the community can flip on a dime. Paper stock market losses would unite the community against the HOA and become a rallying point about how the HOA is misguided. The fear of special assessments at a time when the stock market is down (and likely, economy is also down) would anger and upset people.
I highly doubt I could guide and lead out community through a time of major market decline that also caused our reserve funds to go down. They'd rise up and throw me out. I'd never want that to happen and the dollar savings to my family wouldn't be worth it.
-----
There is another problem. When money is invested in the stock market, you never know how much you have until you sell. Thus, if the stock market is high in 2023 and your reserves are 110% funded, do you decrease your 2024 reserve contribution amount? If the stock market is low in 2023 and your reserves are 45% funded, do you increase your reserve funding? That is not a clear decision to make because the market goes up and down, up and down, and it's never clear how much you actually have.
-----
Finally, if one Board sets the trend of investing by investing in low cost index funds, what is to stop another Board from deciding to try individual stocks? What if a particular Board member thinks that Intel (or any other stock) is going to do great, and moves 100% of the investments to that one stock, which then tanks? No guarantee it'll ever come back.
----
No investing for our HOA despite the temptation.
MichaelT21 (Arkansas)
Posts: 501
Posts: 501
Posted:
There is also an issue of mechanics. Who does the buying and selling of securities?
My understanding is that financial institutions won't recognize our property manager as the keeper of the money, so a Board member would have to do it. Thus, a Board member would need to open an investment account, money would need to be transferred to the investment account. When that particular Board member departs the Board, a bunch of paperwork would need to be filed and then a new Board member would need to be the keeper of the account.
All of the account maintenance would be done on personal time of the Board member who isn't getting paid.
I looked into safe investments (CDs by other banks) and quickly realized that spending a ton of my freetime so my neighbors can pay less dues doesn't pan out for me as a good use of my time.
No thank you.
My understanding is that financial institutions won't recognize our property manager as the keeper of the money, so a Board member would have to do it. Thus, a Board member would need to open an investment account, money would need to be transferred to the investment account. When that particular Board member departs the Board, a bunch of paperwork would need to be filed and then a new Board member would need to be the keeper of the account.
All of the account maintenance would be done on personal time of the Board member who isn't getting paid.
I looked into safe investments (CDs by other banks) and quickly realized that spending a ton of my freetime so my neighbors can pay less dues doesn't pan out for me as a good use of my time.
No thank you.
CathyA3 (Ohio)
Posts: 6,299
Posts: 6,299
Posted:
Quote:
Posted By JohnC46 on 06/21/2022 1:02 PM
Can you imagine the screaming, cussing, threats, etc. that would go on when the BOD reports a loss of Reserve Money due to investments the BOD made? I would not want to be on that BOD.
Can you imagine the screaming, cussing, threats, etc. that would go on when the BOD reports a loss of Reserve Money due to investments the BOD made? I would not want to be on that BOD.
Wait 'til the homeowners realize that the HOA is also paying a professional money manager for the expertise that resulted in these losses.
It wouldn't just be recall election time, it would be torches and pitchforks time. (On the plus side, you wouldn't have to worry about homeowner apathy for a while.
For any of you who are tempted to go down this primrose path, make sure you have adequate levels of D&O insurance - you'll probably need it. Might also want to double-check your personal liability insurance, just in case...
CathyA3 (Ohio)
Posts: 6,299
Posts: 6,299
Posted:
Quote:
Posted By CathyA3 on 06/21/2022 1:48 PM
Posted By JohnC46 on 06/21/2022 1:02 PM
Can you imagine the screaming, cussing, threats, etc. that would go on when the BOD reports a loss of Reserve Money due to investments the BOD made? I would not want to be on that BOD.
Can you imagine the screaming, cussing, threats, etc. that would go on when the BOD reports a loss of Reserve Money due to investments the BOD made? I would not want to be on that BOD.
Wait 'til the homeowners realize that the HOA is also paying a professional money manager for the expertise that resulted in these losses.
It wouldn't just be recall election time, it would be torches and pitchforks time. (On the plus side, you wouldn't have to worry about homeowner apathy for a while.
For any of you who are tempted to go down this primrose path, make sure you have adequate levels of D&O insurance - you'll probably need it. Might also want to double-check your personal liability insurance, just in case...
And make sure you have enough homeowner insurance to deal with the inevitable bricks through your front windows... :-)
CathyA3 (Ohio)
Posts: 6,299
Posts: 6,299
Posted:
Quote:
Posted By MichaelT21 on 06/21/2022 1:28 PM
There is also an issue of mechanics. Who does the buying and selling of securities?
My understanding is that financial institutions won't recognize our property manager as the keeper of the money, so a Board member would have to do it. Thus, a Board member would need to open an investment account, money would need to be transferred to the investment account. When that particular Board member departs the Board, a bunch of paperwork would need to be filed and then a new Board member would need to be the keeper of the account.
All of the account maintenance would be done on personal time of the Board member who isn't getting paid.
I looked into safe investments (CDs by other banks) and quickly realized that spending a ton of my freetime so my neighbors can pay less dues doesn't pan out for me as a good use of my time.
No thank you.
There is also an issue of mechanics. Who does the buying and selling of securities?
My understanding is that financial institutions won't recognize our property manager as the keeper of the money, so a Board member would have to do it. Thus, a Board member would need to open an investment account, money would need to be transferred to the investment account. When that particular Board member departs the Board, a bunch of paperwork would need to be filed and then a new Board member would need to be the keeper of the account.
All of the account maintenance would be done on personal time of the Board member who isn't getting paid.
I looked into safe investments (CDs by other banks) and quickly realized that spending a ton of my freetime so my neighbors can pay less dues doesn't pan out for me as a good use of my time.
No thank you.
Nononono... the HOA should absolutely use a full-service brokerage firm with dedicated advisor. None of this low-cost, on-line trading, no sireee.
SteveH35 (Washington)
Posts: 339
Posts: 339
Posted:
Quote:
Posted By CathyA3 on 06/21/2022 1:48 PM
Posted By JohnC46 on 06/21/2022 1:02 PM
Can you imagine the screaming, cussing, threats, etc. that would go on when the BOD reports a loss of Reserve Money due to investments the BOD made? I would not want to be on that BOD.
Can you imagine the screaming, cussing, threats, etc. that would go on when the BOD reports a loss of Reserve Money due to investments the BOD made? I would not want to be on that BOD.
Wait 'til the homeowners realize that the HOA is also paying a professional money manager for the expertise that resulted in these losses.
It wouldn't just be recall election time, it would be torches and pitchforks time. (On the plus side, you wouldn't have to worry about homeowner apathy for a while.
For any of you who are tempted to go down this primrose path, make sure you have adequate levels of D&O insurance - you'll probably need it. Might also want to double-check your personal liability insurance, just in case...
Following the advice of your attorney who writes an opinion that providing funds to an fiduciary to manage will not result in personal liability. That's a fact based on judicial decisions in multiple states that have upheld the business judgement rule. But again, if one is only interested in absolutes and making up the facts as one goes along, please do carry on.
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