With the continued run of the Bull Market boards continue to hear comments from "savy" unit owners at annual meetings, "Why are our reserves in CD's.  If we invested in the market three or four years ago we'd have doubled our money."  While, in hind sight, that may be true, will that "savy" owner be equally as vocal when the market makes its inevitable correction, or when it begins gyrating wildly?

            Recently I attended an annual meeting where a forty-five minute debate erupted when it was discovered that the Association had CD's totaling in excess of $100,000.00 in a given bank.  A significant number of equally "savy" unit owners were appalled by the fact that some of their savings were "uninsured" due to these deposits having exceeded Federal Deposit Insurance limits.  Imagine how these owners would have reacted had they learned that their savings were not only not insured, but that they were in the stock market, not the bank.  An accountant experienced in this field is fond of telling the story of the board president who had to be saved from a veritable lynching when he informed the ownership that their reserve fund had suffered a $50.00 loss in principal at year's end due to a market dip.  Again, imagine that community's reaction to a 500 point drop in the S&P 500 Index.

            What then is a board to do in these days of low interest rates and a high flying market?  Are there appropriate investments other than fully insured Certificates Of Deposit?

            In recent years the legal rules applicable to the administration of funds held in trust have been undergoing significant changes.  No longer is it black and white that funds held in trust must be invested in conservative, absolutely safe vehicles.  In fact, under certain circumstances the keepers of trust funds will be held liable for failing to seek reasonable returns.

            Having said this, let me note that these newly emerging rules are primarily being applied to professional money managers and institutional trustees, not volunteer, condominium boards.  Thus, there is no green light to invest in the latest tip on penny stocks or soy bean futures.  Board's must remember, the funds under their control were deposited involuntarily.  These are assessments imposed to ensure that funds are available to meet future capital expenses.  That purpose, and the nature of the contribution, must control the investment of these funds.

            So what then is appropriate?  Certainly investing in T-Bills and similar Federally backed securities are reasonable if they produce a better return than a CD.  If the U.S. Treasury defaults on its obligations, then a federally insured bank account is not going to fair much better.  Should more  liquidity be sought, so-called Government Money Market Funds - that is, funds which are limited to investing in federal instruments - could be appropriate.  Some consideration might even be given to Municipal Bonds, provided that they are AA or AAA rated and insured.  Should investments such as this provide a few extra percent in returns, they may well be considered.

            Beyond this, to this writers' view, boards begin to enter arrears best left for their own, personal investments.  The old expression goes, "There are never any guarantees except death and taxes."  However, what board member wants to go back to the owners and say, "Oh, sorry, our investments didn't quite work out.  Even though you've already paid once, we'll need to specially assess for that roof repair we knew we needed to make?"  I, for one, don't want to be at that annual meeting.

            Certainly if three month or six month or one year Treasury Notes are paying more that your Bank on its CD's, given the simplicity of purchasing them (You can deal directly with the Federal Reserve Bank) no one would criticize.  Once you step beyond this, care should be exercised and competent professional advise sought and obtained.  Further, the costs, all the costs, should be considered.  Lastly, though not required, a wise board will advise the ownership of its interests and, at least obtain a straw vote to gage owner sentiment.  These funds are the unit owner's.  They should not be imprudently subjected to unnecessary risk.