Sinking Fund - How to invest it

R

Rusty Cogs

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With MUD and the sinking fund requirement, a few of us will have to decide just how best to invest the monies. Issues around liquidity V ROI, bank solvency/bank guarantees come up. You could put half into a 10 year solidarity bond and the rest in the 'best rate' current account or just stick the whole lot on black and spin.

Any experience advice on how to invest your SF ?
 
This is of course a concern for properly run Management Companies who have a sinking fund.
You have the issues of ready access to the funds while at the same time maximising your interest return. I suggest that a split arrangement is the best option. It is unlikely that a high cost job will be done in the short term especially with proper maintenance planning so you would be safe locking it in to a reasonably long term account. In any case if you have to get it you will have to bear the penalty charge.
10 years seems a bit extreme to me.
 
to invest it then you can't touch it for a long period without penalty and its there in case theres a major refurb or large scale maintenance required, by tying it up in a long term investment account then you dont have access to it when required
 
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That is the problem allright if you are looking for funds. That why I suggest two accounts, of course depending on how much sinking fund you have.
Hopefully the MUD Act will bring a higher standard of management with planned maintenance taking place over a number of years, thus accessing funds in an orderly manner without incurring penalty clauses.
 
To be honest investing your sinking fund is a dead duck at the moment. The current interest rates being offered on the market at the moment are tiny, compare that with the inflation rate and DIRT you will be lucky to have the same value in your sinking fund in 5 years as you do today.

The main thing you need to focus on is guranteeing the money in these uncertain times. I would guard against sticking your money into a long term investment. Having easy and quick access to at least a part of the fund is essential to ensuring the developement runs smoothly and that your money is protected. The government gurantee expires at the end of this year but is likely to be extended, but just to clarify, if you were to enter into a ten year bond with say BOI tomorrow, your money would be guranteed for the term of the investment. ie your money is guranteed for 10 years by the government.

However on the flip side interest rates are going up and are likely to increase again in the near future, by locking your money in long term means you lose out on potentialy greater returns when the interest rates go up.

My advice, choose a 14 day or 30 day demand account for a substantial portion, and lock in the balance in a 1 to 2 year deposit account in order to earn some return. It wont make you a mint but at least you have accessible cash on hand should the developement need it or the banks become unsteady.
 
The most important issue is that the monies people paid into the sinking fund are guaranteed to be there when needed. People who pay mgmt fees dont expect to be playing with stock markets and investment returns. Therefore risk free investments is the only way to go. It is not your objective to maximise investment returns.
 
agree with Joe and zenga above sinking funds are for the use/benefit of the property owners and should not be invested where there is any risk of the capital being lost or eroded. This is not for investment purposes other than to retain the value of the funds in question
 
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