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A Laddered GIC Portfolio and Reserve Fund Investment Management is one of the primary responsibilities of the Condominium Board and Property Manager
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GIC Laddering Strategy
How can Lambda’s expertise building a help? We previously wrote about the #1 expenditure for most Condos being unearned reserve interest here. So why do Condo Boards not maximize their Reserve Fund Returns, and how can Lambda help?
In any investment there are two competing goals: 1. Rate of Return 2. Liquidity
Reserve Funds are there to repair and replace Common Elements of the Condominium (think Roofs, Doors & Windows, Driveways, etc.) when needed. So, the thinking goes, by keeping the savings in Cash, and not investing in GICs, the Condo board ensures liquidity of 100% of the reserve fund to spend in one single day… But at the significant cost of the Rate of Return. How likely is it that 100% of the Reserve Funds will be spent in one day? Not very…
As of today, a high interest business savings account has a rate of 3.00%, compared to our laddered term GIC portfolio of 4.75%. A 1.75% rate difference translates to 57.13% more interest in the context of Reserve Fund Investments! Contact us for a proposal for your specific Condominium Board.
Keeping all of the Reserve Funds in cash is easy for the Board and the Property Manager, but Lambda makes it just as easy to build a laddered GIC portfolio that optimizes the Rate of Return AND Liquidity. Our solution typically translates to savings of approximately 5-10% of Condo Fees!
What is a Laddered GIC Portfolio, why it makes sense for Condo Reserves, and how can Lambda help?
What is a Laddered GIC Portfolio
An investment strategy where funds are divided and invested in GICs with staggered maturity dates, typically ranging from short to long term. As each GIC matures, the funds are reinvested into a new GIC with the longest maturity, maintaining a continuous cycle and potentially optimizing returns while offering liquidity.
How can building a laddered GIC help my Condo Reserve Fund?
Reserve Funds are there to repair and replace Condominium Common Elements (Roofs, Doors & Windows, etc.) These expenditures take place over-time (usually in large buckets/rungs) and the exact timing is generally at the discretion of the Board. Condominiums require Insurance for catastrophic events (fire, water damage, etc.): Having the Reserve Funds 100% in Cash is like putting on 100SPF sunscreen indoors.
Condominiums in Ontario require updating the reserve fund analysis every 3/6 years which outlines likely reserve expenditure amounts and timing. Similarly, do GIC Maturity Buckets/Rungs and Reserve Expenditure Buckets/Rungs ring a bell? A Laddered GIC Portfolio has a 1-Year GIC to a 5-Year GIC. This staggers the GIC maturity, resulting in having GICs mature each year.
How Can Lambda Help?
Our professionals specialize in the Condominium Industry. We have 12+ years experience building GIC Portfolios for Condominiums. Our platform has exclusive CDIC/DICO insured GIC rates from 25+ Financial Institution.
Our proposal will outline how we will build a laddered GIC Portfolio for the Condominium. The Investment Plan outlines how and when to invest the Reserve Funds, and when they will mature to meet the Reserve Expenditures. Our proposal will outline the rate of GIC returns, and the savings we can provide for the Condominium. Then, as the portfolio matures or grows, we take an active step in advising the Board on re-investment.
And remember – we provide this service on a no cost and no commitment basis – the Financial Institutions pay us. We are confident that when it comes time to invest or re-invest the Reserve Funds you will continue to choose our GIC rates, solution and service!
We make Financial Institutions Compete! Resulting in higher interest rates, and lower condo fees in the long term.