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The purpose of the investment policy of the village is to establish cash management and investment guidelines for village officials responsible for the stewardship of public funds. The primary objectives, in priority order, of investment activities shall be safety, liquidity, and yield:
A. Safety: Safety of principal is the foremost objective of the investment program of the village. Except for the pension funds, for which short term market fluctuation is tolerable, each investment transaction shall seek to first ensure that capital losses are avoided, whether they be from securities default or erosion of market value. Market speculation is not appropriate in the investment of funds. Normally a "buy and hold" approach to investment will be used. Investments are intended to be purchased so they will mature when funds are needed. The objective will be to mitigate credit risk and interest rate risk.
1. Credit Risk: The village will minimize credit risk, the risk of loss due to the failure of the security issuer or backer, by:
a. Limiting investments to the safest types of securities.
b. Prequalifying the financial institutions, broker/dealers, intermediaries, and advisors with which the village will do business.
c. Diversifying the investment portfolio so that potential losses on individual securities will be minimized.
2. Interest Rate Risk: The village will minimize the risk that the market value of securities in the portfolio will fall due to changes in general interest rates by:
a. Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity.
b. Investing operating funds primarily in shorter term securities, money market mutual funds, or similar investment pools.
B. Liquidity: The village investment portfolio shall remain sufficiently liquid to enable the village to meet all operating requirements that may be reasonably anticipated in any village fund. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands (static liquidity). Furthermore, since all possible cash demands cannot be anticipated, the portfolio should consist largely of securities with active secondary or resale markets (dynamic liquidity). A portion of the portfolio also may be placed in local government investment pools which offer same day liquidity for short term funds.
C. Yield: The investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Return of investments is of secondary importance compared to the safety and liquidity objectives described in this section. The core of investments are limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. Securities shall not be sold prior to maturity, with the following exceptions:
1. A security with declining credit may be sold early to minimize loss of principal.
2. A security swap would improve the quality, yield, or target duration in the portfolio.
3. Liquidity needs of the portfolio require that the security be sold. (Ord. 1166, 3-15-1999)