What do you do in the Canadian reserves?

What is the best way to securely invest a condominium or homeowners (HOA) association reserves by the board?

• I serve on a seven member non profit corporate board of directors of a quiet, shaded, wood shingled 39 unit, three building condomium complex in NE Seattle (between the Ravenna Valley, Wedgwood, and Mapleleaf neighborhoods) that straddles a creek. We currently have about $120,000 in our reserves earning a piddling .025% interest (a quarter of 1%) in Vanguard. I'd like to see the condo board invest this money in something that pays a higher interest rate and is *government guaranteed or insured. We've talked about putting in a series of laddered Certificate of Deposits or CDs for one, two, three, or five years at 2-4% respectively. We had a reserve study done in 1999, an update in 2005, and are in the middle of a new one with a different reserve study provider as the one we used in 1999 missed one critical area (gutter replacement that could cost as much as $20,000). We have most of the capital improvements planned out. The reserve amount and the recent reserve study was one of the reasons I decided to buy my 2 bedroom unit (most of the units are two bedrooms) overlooking the creek and footbridge. I'm wondering if there are any other places to invest the HOA reserves that would pay a high enough return so that we could lower HOA dues or keep them from going up. About a quarter of our dues go to increase and maintain the reserves so if we could generate a 4% return that would be money minus the current inflation rate we wouldn't need from the owners. We have never had any special assessments as a result of this fiscal and prudent policy. *I am presuming that under Washington State law, we would be breaching our fiduciary duty to the other homeowners as board members if we invested in anything that could lose value as our future capital improvements would be funded from this money so suggestions that we invest in the stock market or buy ordinary bonds, gold, or foreign currency would not be appropriate. I have wondered if municipal bonds are insured. For those of you who serve on the board of directors of a condominium or homeowner's association or advise the same, how do the rest of you invest your reserves, how did you arrive at your conclusion, and what rate of return are you getting?

• Answer:

  Our condo association definitely has the same challenges you face. Our reserves are fully funded, but the costs escalate as our community ages. We currently have laddered CDs. I do not believe that there is any other investment which would satisfy the fiduciary component of your board stewardship. Obviously a short-term CD ladder would be the way to go now, as the rates are so abominable. You can get insured muni bonds, but insurers have gone bust in the past, and I wouldn't want to risk that at all. Also, unless you hold the bonds to maturity you risk having them worth less than you paid for them. Hope this helps and good luck!