Investing the Reserve Fund Minimize Risk and Maximize Yield

If you were walking down the street and spotted a $100 bill on the ground, would you stop and pick it up? Of course you would,

and in the literal sense you could consider this $100 found money. Surprisingly, every day, many members of co-op boards and condo associations are unknowingly choosing to ignore thousands of dollars in found money that could be retained in their buildings' coffers for the benefit of their shareholders. All too often boards do not make optimal use of their reserve funds. And to make matters worse, due to common misconceptions their reserve funds may not be adequately insured.

However, with proper planning, these pitfalls can be avoided, and the reserve fund can be managed to minimize risk and maximize yield. When making investment decisions, the board must keep three key concepts in focus: security, investment yield and liquidity. Here's how to ensure these bases are covered.

What Type of Account?

Let's start with the most basic building block of the investment process: the account itself. Banks and thrifts offer insured accounts, money markets and appropriate investment products; however, they are limited in that they do not usually offer these services bundled within one account and they are further constrained because they offer only up to $l00,000 in Federal Deposit Insurance Corporation (FDIC) insurance. Another factor to keep in mind is that with a bank account you can't assume that idle cash is automatically invested in an interest-bearing account.


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