{"id":8762,"date":"2019-04-29T08:00:06","date_gmt":"2019-04-29T08:00:06","guid":{"rendered":"https:\/\/www.naylor.com\/associationadviser\/?p=8762"},"modified":"2020-01-17T19:47:21","modified_gmt":"2020-01-17T19:47:21","slug":"association-reserve-portfolio","status":"publish","type":"post","link":"https:\/\/www.naylor.com\/associationadviser\/association-reserve-portfolio\/","title":{"rendered":"How Should Your Association Think About Reserves?"},"content":{"rendered":"

How does an association know when to invest or how much to invest? While there is no one right answer for all associations with respect to when, or how much to invest, once a certain amount of excess operating funds has been saved, the organization may start to wonder what should be done with these funds. Excess funds could serve as a lifeline during a budget shortfall, fund a new initiative or program, or ensure the future viability of the association. Before being able to decide how to invest these funds, the organization should determine their purpose. Once the purpose of the funds has been decided, creating some type of investment strategy will make sense. Each organization is unique and should determine what will work best for their needs.<\/p>\n

Establish a Reserve Policy<\/h2>\n

The first step is determining what the appropriate amount is for a reserve portfolio. A variety of factors can drive what that amount should be. If your organization\u2019s revenue streams are diversified, income is relatively reliable, or costs can be cut quickly, then it\u2019s likely you will not need to hold as much in reserve. However, if your organization has few revenue sources, income that fluctuates significantly year-to-year, or it will take time to cut costs, it\u2019s likely more will be needed to be held in reserve. In addition, if there are strategic initiatives that your organization wants to pursue and they are not budgeted for, your organization will need even more in reserve.<\/p>\n

To quantify the dollars needed in reserve we recommend going through a risk and opportunity assessment.\u00a0After identifying all potential risks and opportunities, discount them based on the likelihood or time frame over which they may occur. A dollar value, or range of potential values, can then be assigned to each item to determine the total dollar amount or range to hold in reserve.<\/p>\n

The process and its outcome should be outlined in a reserve policy with a risk\/opportunity assessment included as documentation.\u00a0With the new reserve target or range it\u2019s important to outline which actions to take to either add to the reserve, or whether to consider a spending plan.\u00a0This assessment should be revisited every few years to determine if there have been any changes to your organization\u2019s risks or opportunities.<\/p>\n

Short-Term Investments<\/h2>\n

After determining a reserve policy and segmenting assets, the short-term reserve investments will be focused on capital preservation and mitigating risk.<\/p>\n

Organizations looking to make the best use of short-term assets can mitigate risk in three different ways:<\/p>\n