Multi-Year Guaranteed Annuities

As a board member, there is a fiduciary responsibility to the membership and [in my opinion] the board should not invest in anything that can lose principal.

Per my brief research on the internet:

Multi-year Guaranteed Annuities (MYGA): Surrender charges may apply; may lose interest and principal; if you have a Market Value Adjustment (MVA), withdrawals may affect your accumulated value

Is your board capable of assessing the financial stability of the issuing insurance company? Given the turmoil in the insurance industry, does this give you pause?

In addition, state guaranty associations are privately funded organizations that protect policyholders if their insurance company becomes insolvent and is unable to pay claims. See my previous comment about turmoil in the insurance industry. They are in no way comparable to being back stopped by the Federal government which can print money as needed.

In short, is this investment paying you higher returns for the additional risk that you will take?

Finally, some people are capable of holding fast when their investments take a dive. The majority panic and sell at the worst possible moment, going from paper losses to real actual money losses. If the board doesn't panic, how likely is it that the homeowners will say "OK, no biggie" - or will they organize a recall-and-replace campaign to elect a set of directors who will stick to the plain vanilla stuff like CDs? Does the recall-and-replace campaign become more likely if the losses resulted in a special assessment because the association needs the money NOW?

Bottom line: if these annuities were appropriate for HOAs, they would appear in lists of investments that will not lose principle. An annuity in an insurance product. Insurers tend to love them because they're money makers for the issuing companies (think about that for a moment). It is not an investment backed by the full faith and credit of the Federal government.

"Financially smart" means knowing the limits of your knowledge. Too many mistake a bull market for investing savvy. We have ample statistics showing that the typical investment professional under-performs the market as a whole. This is why index funds and ETFs are popular choices for retirement vehicles such as 401(k)s.

Does anyone seriously believe that volunteer board members should know more than investment professionals who do that work for a living and still don't do a great job? Anyone? Bueller?

FYI, investment pros who advise clients often have fiduciary duties to their clients, and among other things are prohibited from putting their clients into inappropriate investments - for example, putting an 80-year-old little old lady's entire $50,000 fortune into derivatives and other high risk items. On my first day at Big Name Brokerage Firm, they sat down the entire group of new employees and read us the riot act about what we may and may not do. Possible penalties for violations included prison time, substantial fines, and permanent loss of our securities licenses *for even the appearance of wrongdoing*. We didn't actually need to do something wrong - appearance was sufficient for Bad Things to Happen and We Would Be Very Sorry When They Did.

Anyone who visits investment pros who do not have this fiduciary duty better hang onto their wallets.

I am appalled that anyone would suggest HOAs put funds into high risk investments including stocks unless the HOA has over $200 million in assets and commercial members who operate high-demand, low risk businesses that would survive a nuclear strike. Not your typical HOAs, in other words.

Board members are not comparable to investment professionals. Not least because very few have that level of knowledge - but mostly because outraged owners can kick boards to the curb at the worst possible moment, thus compounding the HOA's losses. High risk means you have to hang tough through market gyrations - exactly what your typical HOA can't do. Hanging tough means having enough assets that you can afford to do so - exactly what your typical HOA doesn't have. Instead it may have assets that are earmarked for future spending needs. And even that's unrealistic given that many states don't require funding the reserves, or if they do they still allow owners to vote against this funding, or individual boards don't pay attention because they're "saving money by keeping assessments low".

For the love of all that's holy, if you're not a clueless board member, don't listen to the hype. Your job is to preserve principle so that you have the money you need when you need it. HOAs are not humans who are saving for retirement, they're mostly non-profit corporations. It's completely illogical to assume they should invest their assets in the same way and reflects a fundamental lack of understanding of financial markets. Stocks outperform other investments on average *over time*. HOAs, and 80-year-old little old ladies, don't have that time.

I completely agree with the fiduciary concept. I also completely agree with choosing only safe investments for an HOA. I'm just in the information-gathering stage at this point.

Some MYGAs have a market value adjustment (MVA) clause, but not all of them do. From what I have learned so far, if your MYGA does not do MVAs, and you avoid surrender charges by NOT trying to withdraw money early, the chances of losing principal are nearly zero. I would never put all of my reserves into MYGAs, but might consider MYGAs for a portion of reserves that won't be needed for the duration.

I agree that many Boards won't be sophisticated enough to consider them.

Though some will not agree, losing buying power in a inflationary environment can be just as bad as losing principal, though the loss is more subtle.

In my experience, most homeowners would be oblivious, and care even less, to whatever the Board invests in. I've served on my Board for 9 years, do far more Board work than any other current Board member, and in the past few years might be doing more work than all the other Board members combined. If the community wants to get rid of me I won't let the swinging door hit my back as I walk quickly away.

Banks like CDs because they also make money for the issuing companies. Think about that for a moment, too. Nothing wrong with for-profit companies making a profit.

Still have more research to do. Thank to all for your thoughts. : )

MY HOA has tons of time,
Dont' assume all hoa's are the same.
In fact I've trippled the piggy bank savings in 4 years.
If anything I am looking to get the people to vote on decreasing revenue, not more investments.
Recent poll of 80 people showed if we spent $60,000 on improving the park it would only result in 5% more usage. That's how much our HOA cares about amenities. They are so cluless on financials they don't even question why their dues are 90% less next year or why the budget is 200% lower. just ignorant bliss I guess.

Let's try this again.

I think that I was pretty clear that I was discussing these annuities as investments for HOAs. HOAs are not people - among other things they don't need life insurance.

If you believe this is an appropriate investment for your HOA, the only ones who will care about it are the homeowners in your community.

Well, my original question is now moot. I called an MYGA issuer to ask about HOAs and was told that the purchaser has to be an individual.

Good to know and glad I asked.