In many ways, technology has been the solution to doing business in the 21st  Century.  In general, these solutions were designed to add security, convenience, and simplicity for managers and their client association board members; all the while, preparing them for a more fiscally sound organization. Efficiency is on the rise with improvements such as CDARS, check 21 (check image scanning), software integration, automating receivables, and rising rate market conditions to name a few.

We will focus on the "how" and "what" we can do to present some financial options and opportunities to maximize your association's investment interest.

The first step is to make a sound approach of structuring an investment policy. While we all know that the board is fiscally responsible and has the fiduciary duty of establishing this task, reality dictates otherwise. Somehow, you as the manager are all of a sudden appointed as expert.  

First, you want to make certain the budget and supporting policies are current each year. Second, the board must know that in order to invest the association's reserve funds they must adhere to the following: Safety of Principal, Liquidity, and Yield.

Safety of Principal can be split into two segments: safety of income and principal. Safety of income measures the income from the investment vehicle that continues to be paid within the term until maturity. Safety of principal refers to whether the principal value of the initial investment will be available at maturity.

Liquidity identifies the ability to redeem the investment in the case of emergency or the earmark of expenditure. The misconception of CD's not being liquid is simply that - a misconception. It's how you structure your CD's that determines your liquidity and in some cases your yield. Most financial institutions, in the event of an emergency, will honor the release of the CD without penalty to the signatories on the account. Liquidity can also be laddered. Yield is simply the return on the investment agreed upon at the time it was invested.

Once you have a policy you believe will work, you will need to incorporate it into the Association minutes.

Laddering with CD's is a popular technique that compliments today's market very well. There are many types of ladders that can be considered for your association. One option is monthly ladders. These ladders can become quite cumbersome to track and account for and make a balance sheet seem like an encyclopedia.  Another option in the past was to ladder five-year CD's. This was not bad when rates were in the high seven's to low eight's. In today's market, with interest rates increasing slowly, going out past 6 months is not recommended.

One of the most effective ladders is the quarterly ladder for a reserve plan or program. Your association can open a 3-,6-,9- and l2-month CD. Think about a board making an executive decision

to spend $50,000 within 90 days. You just don't see that happen. This is an example where your safety of principal and liquidity portion of your investment policy supports the decisions of short-term maturities while maximizing their interest.  

The next item on the agenda is FDIC. Federal Deposit Insurance Corporation (FDIC) covers the first $100,000 of deposits per Tax ID number. If you have deposits that exceed that amount or are over the limit, they are not insured. At this point, you have some options. First, there are banks that cover up to $300,000 and then up to $30MM in deposit insurance. Second, you can go out and buy additional deposit insurance. Third, if you in fact exceed these limits, I would suggest moving into the Certificate of Deposit Account Registry Service (better known as the CDARS program). This allows you to open CD's and offers six different maturity terms with one agreement, one signature card, and one 1099 form.

There are a multitude of possibilities and resources within our reach. We just need to focus on the concept of "what's in the best interest of the association”.   

Provided by Jorel Association Management: August 2008