The board of directors, however, has a fiduciary responsibility to all unit owners to make sure reserve funds are invested properly. That is, each director has a legal responsibility to make sure reserve funds are not invested in instruments that a prudent person would consider risky or unsafe. Directors must also ensure that the funds are available when needed.

For these reasons, board members must consult with professional advisers, decide on a policy that is in the best long-term interest of the association, and prepare a written investment policy. And after the policy is written, they must adhere to it - unless a major change in association finances dictates the development of a new policy. To ensure a wise investment decision, associations should:

�    Review state laws related to reserves
�     Review association documents related to reserve funds
�     Consult with an attorney, accountant, and manager
�     Develop a written policy for reserve fund investments
�     Review the investment policy each year or in conjuction with the preparation of reserve studies

How to Create the Investment Strategy
The board sets the association budget as well as its policies, standards, procedures, and programs. The board may implement its own decisions or delegate this task to a manager, committee, or an independent contractor.

Board members have a fiduciary responsibility to the association. And they may not delegate their legal obligation to protect the association's assets to anyone else. The board must therefore invest association reserve funds responsibly and in a way that provides first safety, then liquidity, and finally yield.

Safety
Safety can be broken down into two categories: safety of income and safety of principal. Safety of income measures the likelihood that anticipated income from an investment will continue to be paid in the amount expected and at the time expected. Safety of principal refers to whether the principal value of the investment available at the outset will be available at maturity. Both categories of safety can vary in degree with specific investments.

Liquidity
Liquid investments can be converted quickly into cash for emergency use or investment opportunities. Community associations need liquid funds because a major repair or maintenance job could occur at any time.

Yield
Yield is simply the return received on the investment. Generally, the longer the maturity period, the higher the yield; the shorter the maturity period, the lower the yield. Hence, a five-year CD usually yields more than a one-year CD. Also, the safer the investment, the less it will yield.

A well-planned investment policy factors in all three of these priorities. By adopting a formal, written investment policy, the association provides the structure, consistency, and continuity necessary for any investment decision the board must make.

The board can protect its investment choice by addressing the following topics before formulating an overall investment policy:

�     General policy
�     Goals and objectives
�     Investment strategy
�     Investment securities' selection criteria
�     Review and control procedures