Amid Inflation, It’s Time to Review Reserve Policies
Inflation and economic uncertainty may impact reserves
Inflation is affecting many aspects of association finance—including, surprisingly, reserves. Overlooking that impact would be a mistake, say experts at Raffa Investment Advisers.
"Inflation is absolutely impacting association reserves and reserve policies," said Dennis Gogarty, RIA's president and co-founder. "If, for example, an association is holding more of their reserves in cash or other short-term investments than they will spend in the near term, then these assets are losing purchasing power to inflation. The current environment should be a wake-up call and drive a review of policies."
After all, reviewing reserve policies helps ensure the association’s assets are best-positioned to withstand both current and future economic conditions. One thing to consider when reviewing policies is asset segmentation. RIA’s Study on Nonprofit Investing research shows that most organizations organize their assets into three buckets: an operating (cash) reserve, short-term investments and long-term investments. Here’s a look at how to keep these buckets in mind as you review policies.
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