Investment Policy

A board-adopted document that establishes guidelines for how association funds — both operating and reserve — may be invested. A well-drafted investment policy addresses several key areas: permissible investment types (typically limited to FDIC-insured deposits, U.S. Treasuries, money market funds, and high-grade municipal bonds), maximum maturity limits (often staggered to match anticipated reserve expenditure dates), diversification requirements (limiting exposure to any single institution, commonly no more than $250,000 per bank to stay within FDIC insurance limits), minimum credit quality standards, and the process for selecting and monitoring financial institutions. The policy should explicitly prioritize safety of principal first, liquidity second, and yield third — reflecting the board's fiduciary obligation to protect homeowner funds. Speculative investments such as equities, high-yield bonds, real estate investment trusts, or cryptocurrency are inappropriate for HOA funds and should be expressly prohibited. The investment policy should designate who has authority to make investment decisions (typically the treasurer and one other board member or the management company, subject to board oversight), require regular reporting on investment performance, and establish procedures for revising the policy. In California, while no statute specifically mandates an investment policy, the board's general fiduciary duty under Corporations Code Section 7231 and the Davis-Stirling Act requires prudent management of association funds, making a formal investment policy a best practice that demonstrates due diligence.