When Every Dollar of Earnings Counts, Develop a Structured Investment Program

By Jeff Messer, Senior Associate

As budgets tighten, investing your public funds becomes increasingly critical. Every dollar of additional earnings counts. Developing a structured investment program can help.

1. Identify Objectives
   
   The ultimate goal of an investment program is to improve overall investment performance. In doing so, keeping an eye toward safety, liquidity and return (in that order) should always be guiding principles.
    
2. Develop Investment Policies
   
   Create a written investment policy to provide a framework for operation. The policy should outline investment authority, allowable investments, time horizons, management oversight and reporting.
    
3. Develop Operational Systems and Procedures
   
   Establishing investment procedures is important. Whether bidding CDs or other investments, it is necessary to follow Indiana Public Funds Code and consistently invest in that manner every time. You should also maintain appropriate documentation that procedures were followed.
    
4. Prepare an Investment Cash Budget
   
   A cash budget is a critical part of the investment program. Find "core" balances in your budget that can be invested using a longer time horizon. Accurate forecasts of cash flows and cash balances ensure the greatest flexibility in your investment program, allowing you to invest in both short and intermediate time horizons and take advantage of potentially higher rates.
    
5. Analyze Current Market Rates
   
   After identifying "core" balances, the current yield curve will provide guidance to determine the appropriate time horizon for your investments. Contact your local bank, broker or financial adviser and ask two basic questions. First, what is the shape of the current yield curve? Second, what does the overall market believe will happen to the yield curve in the near future? While crystal balls are sometimes cloudy, gathering information from your local bank or financial advisor on the status of the current yield curve and what changes may lie ahead will enhance your ability to stay as close as possible at the peak of the yield curve.
    
6. Determine Appropriate Investments
   
   Indiana statutes describe allowable investments. You can invest in short-term investments such as checking, savings, sweep accounts, money market funds and the local government investment pool (LGIP); and intermediate investments, such as certificates of deposit, treasuries, government agencies and repurchase agreements.
   
   Once you determine the dollar amount and term of your investment, the highest yielding investment from the choices mentioned above can be determined by using the public funds bidding process. For instance, Indiana public funds certificates of deposit recently have been very competitive compared to other intermediate investments.
    
7. Track and Report Investment Results
   
   After making your investments, track and report your results. One evaluation technique to show the value of the structured investment program is to compare your results to leaving all money in bank sweep accounts. Regularly reporting the results will highlight the value of your investment program and prepare you for the reporting requested by the local board or state board of accounts.
    
8. Monitor and Adjust
   
   Periodic monitoring of the cash budget and market conditions will help determine if any changes are needed to your investment time horizon.

Creating an investment program develops a structured and formalized system for the investment of your public funds. Consistent evaluation and execution of this process will help you improve your investment performance.

These steps provide a framework for creating an investment program. Umbaugh assists many Indiana communities in creating and executing structured investment programs. For additional information, please contact us at footnotes@umbaugh.com.