Contributed by Nico March
Over the past week, the stock market has suffered major losses that make even the most confident Wall Street trader stressed. Many community association board members also have been wondering: What should we be doing with our reserve funds right now?
Sharp market declines can trigger stress, but volatility is not new. Understanding how to plan around it, not just react to it, is the key to long-term financial health.
A stock market meltdown typically refers to a rapid and significant drop in financial markets caused by fear, uncertainty, or unexpected events. These events are unpredictable, but their impact can be planned for.
Community associations have specific financial responsibilities. Their investment horizon is usually longer and their tolerance for loss is understandably low. That is why short-term market drops can feel disproportionately stressful.
Every few years, markets experience a correction. The key is not to panic. Instead ask: How exposed are we to this kind of movement?
Here are some helpful questions for boards to ask during periods of volatility:
- Do we know when we will need to access our reserve funds? And, how much will we need?
- Are our current investments aligned with those timelines?
- Are we invested based on past decisions or a current plan?
- Do we understand our tolerance for short-term losses in service of long-term growth?
Financial health is not just about what you earn. It is about how well your funds are aligned with obligations. That is the core idea behind asset and liabilities management, a framework that looks at what you have and what you owe. By looking at the timing and purpose of future expenses, you can structure reserve investments to provide the right combination of liquidity, safety, and yield.
Rather than seeing a downturn as a time to retreat, consider it a time to reset. Here are some things to consider:
Revisit your investment policy statement. Does it reflect your current goals, timelines, and risk tolerance?
Evaluate cash flow assumptions. Have any major projects changed in cost or timing?
Review liquidity needs. Are the funds you need in the next one to three years insulated from market swings?
Do you have exposure to volatile equity markets? Are you protected with relatively safe and secure investment vehicles?
Managing reserves is not just about picking investments. It is about creating a plan that meets your community’s unique needs. The best time to build a financial plan is before the market drops. The second-best time is right now. By grounding your community’s reserve strategy in timing, needs, and structure, you can reduce anxiety and increase confidence even in the face of market uncertainty.
Nico March is the managing director of The March Group in San Diego. nico@themarchgroup.com
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and there is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
>>Read more about investment policies for community associations in Reserve Studies and Funds. Nico March is a coauthor of the book, available now in print and digital from CAI Press. www.caionline.org/shop
