How Reserve Studies Inform the Ladder


The real value lies in matching the maturity dates of these investments with the expenditure schedule in the reserve study. For instance, if a $75,000 exterior paint project is scheduled for month 18, an advisor can purchase a Treasury bill or CD that matures just beforehand. This ensures funds are available exactly when needed–no earlier (which risks lost earnings) and no later (which risks liquidity issues).


Additionally, reserve studies often reveal spending patterns that allow for longer-term investments. If there are no signifi cant projects for the next 24 months, a portion of the funds can be safely placed into 2-year or even 3-year Treasuries with higher yields.


Why Use CDs and Treasuries? CDs and U.S. Treasuries are favored for several reasons:


• Low risk: They are either FDIC-insured (CDs) or backed by the full faith and credit of the U.S. government (T-Bills and Treasury Notes)


• Predictable returns: Interest rates are known and locked in at the time of purchase


• Liquidity: Laddering provides a built-in liquidity mechanism as investments mature in rotation


• Tax effi ciency: U.S. Treasuries are exempt from state and local income taxes, providing a valuable tax advantage, especially for Associations in states with corporate income tax.


These investments also A Simple Case Study


Let’s say a community has $1 million in reserves. The reserve study shows:


• $100,000 needed in 6 months • $200,000 needed in 12 months • The rest isn’t needed for 3+ years


An advisor might recommend:


• A $300,000 ladder maturing at 6 and 12 months (using T-Bills or CDs)


• $100,000 in a Treasury money market fund for fl exibility • The remaining $600,000 in a mix of 1–3 year investment-grade Treasury ladders for higher yield


This approach helps ensure funds are working smarter (i.e., earning more interest than if


left in a standard bank


account or pooled money market)—while remaining accessible for planned projects.


support transparency and audit


compliance, two important considerations for self-managed and professionally managed associations alike.


Adjusting and Rebalancing Over Time


Reserve studies are typically updated every 1-3 years, or more frequently for larger or more active associations. As updates come in, or if unexpected changes occur, (such as a roofi ng project getting delayed), advisors can rebalance the investment ladder to adapt.


For example, if a $150,000 expense originally planned for next year gets pushed out to year three, that cash can be reinvested in a longer-term Treasury for a better return. Similarly, if assessment collections are higher than anticipated or a special assessment is levied, that infl ux of capital can be incorporated into the laddering plan.


Additional Best Practices


• Follow a Written Investment Policy: Establish and periodically review a formal


investment policy statement (IPS) that


outlines risk tolerance, permissible investments (e.g., CDs and Treasuries), and liquidity requirements. Partnering with a licensed investment advisor helps to ensure the policy is tailored to your fi nancial goals and regulatory requirements.


• Update Reserve Studies Regularly: Ideally, commission a with- sight, reserve study every 3 years, with annual no-sight updates in the years in between. This ensures the investment strategy


project costs.


• Use Technology for Centralization: Collaborate with your management company or leverage platforms that consolidate all investment accounts, documents, and reporting into one secure, user-friendly hub. Centralized access improves transparency, streamlines communication, and supports more informed fi nancial decisions.


Conclusion


A well-designed investment ladder based on the association’s reserve study helps to ensure that funds are both safe and productive. By strategically aligning maturities with projected expenses, boards can maximize interest income, reduce the risk of special assessments, and demonstrate prudent fi nancial stewardship to their homeowners.


In today’s interest rate environment, smart laddering can make the difference between reserves that sit idle and reserves that actively support a community’s fi nancial well-being.


—Capital CS Group, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Capital CS Group and its representatives are properly licensed or exempt from licensure. The information in this article is for educational purposes only and should not be deemed investment advice. No advice may be rendered by Capital CS Group, LLC unless a client service agreement is in place.


refl ects current timelines and infl ation-adjusted


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