Cohousing-L Mailing List: Re: Investing Cohousing Funds

[Kaye B (kayebpdx]

Regarding the question about investment strategies for community 
association funds, my perspective is slightly different than that of the 
three folks who responded. Here goes . . .

First, it's important to check your governing docs, as they may specify 
which investment vehicles are acceptable and which are not.

It's equally important to know what your state has to say. State laws 
vary, but some states limit community associations to direct investment 
in issues of the federal government and/or FDIC insured bank accounts or 
CDs. In these states, associations are not permitted to invest in 
municipalities, mutual funds or indirect investments (like limited 
partnerships and real estate investment trusts), and non-FDIC insured 
money market accounts can't be used either.

Beyond that, I think it's important to remember that your association's 
board members are fiduciaries with respect to the association's funds, 
and they can arguably be held liable if there is a loss of principal due 
to a downturn in an investment. Someone mentioned a $35,000 Parnassus 
fund investment that grew to $67,000. Nice, but what if it had gone the 
other way? For example, suppose that at the beginning of 2008, $35,000 
had been invested in the Parnassus Core Equity Fund (just picking one, 
since I don't know which fund was actually used). At the end of 2008, 
that $35,000 would have fallen 23% to $27,000. And then another 11% drop 
in the first quarter of 2009 would have put the total at $24,000. Would 
members have been okay with that? It's their money, after all. Would 
they have been willing to leave their money in the fund to see if it 
would recover? And what if something unexpected happened and it became 
necessary to immediately tap the portion of reserves that was meant for 
the longer term?

I have no problem investing my own money in funds like those in the 
Parnassus group; those are great funds. However, when you're responsible 
for the long-term maintenance of your association and for other people's 
money, I think it's a bad idea to put any of your reserves at risk, no 
matter what the potential rewards.

Kaye Blesener,
Treasurer, Columbia Ecovillage
Portland, OR