Adventures in Other Peoples’ Money and Some Thoughts on Investing

Here is some investment advice, even though we are not
investment advisors.  We offer it because
we know you are tasked with running a complex Wisconsin condominium
association, and we want you to sleep well at night.

A well-managed Wisconsin condominium community will collect
and save money, typically in a reserve fund.
Buildings and other amenities depreciate over time, and the alternative
to saving for a fix/replacement is a special assessment, borrowing, or degradation
of the physical plant. Save we must. The question is: what do we do with the
saved money?  That pot is a temptation to
commission-based advisors and to members aggrieved that a low interest rate
environment means little growth in principal.

Our untrained (but we think, sound,) investment advice is to
follow the Hippocratic Oath required of all physicians:  First, do no harm.  Another translation:   First, protect what you have and do not lose
it.  This is probably not a legal
requirement, but we are sure it is good advice. If you want to take risks, use
your own, not other peoples’ money!

The math is compelling.
When an investment declines in price, the slow climb back is much harder
than was the quick slide down.  A drop,
say, of 25 to 20 is a loss of  twenty percent. But to get back to where
you started, 25, you will need a return of twenty-five
percent.  It seems unfair, but math is math.

The loss, moreover, does not take into account investment and brokerage
fees, which are  typically  much higher than is immediately apparent and a drain on any gain, salt in the
wound of any loss.  That advisor may
favor you with jargon which you do not understand, all the better to mask the truth
that he does not know what tomorrow will bring any better than you do.

Our conclusion:  The success of your saving program is
determined by your rate of savings through member contributions, not by
investment gain on what has already been saved.  You do not have an obligation to chase yield
or return with fancy investments.  If
your return is approximately equal to the most conservative
return over a comparable time period, and your principal is guaranteed by the Federal government,   you have done your job.  And you should be able to sleep pretty well.

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We have a couple of special announcements, and the date of a new Condo College , coming soon. Thanks for reading!

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