Question: I am a member of my condominium association’s board of directors. Recently, we were discussing how the association’s reserve funds should be invested. Historically, we have kept the association reserve funds in savings accounts and CDs, which are fully insured. However, the returns on these accounts have been minimal. Certain members of the as
sociation are insisting that the association diversify how the reserve funds are invested, including investing in the stock market. Is this appropriate for a condominium association? (J.M. by e-mail)
Answer: The Florida Condominium Act does not specifically address what type of financial institutions an association may use, or how funds may be held or invested. It is not uncommon for an association’s bylaws to require that funds only be deposited in insured accounts. Therefore, before the association could consider if other investment vehicles are appropriate, the association would have to review the condominium documents to confirm that there is no express limitation on the types of financial accounts the association may maintain.
In my opinion there is cause for substantial concern with an association placing its reserve funds in investments that carry risk, like the stock market. I have seen associations lose money in non-guaranteed investments, sometimes major sums. It often gets ugly. Simply stated, I do not recommend it.
The association is investing funds as a fiduciary. Return should be the lowest priority on the totem pole. Safety should always be the board’s main objective, and then liquidity. While we all have different tolerances for risk when investing our own money, different considerations apply when the association is in essence acting as the caretaker for the money of others.