The primary objectives, in priority of order, of investment activities shall be:
(A) Safety. Safety of principal is the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. The objective will be to mitigate credit risk and interest rate risk.
(1) Credit risk. Credit risk is the risk of loss due to the failure of the security issuer or backer. Credit risk may be mitigated by restricting the types of securities which may be purchased, their credit ratings, and through diversification to reduce exposure to any one security type or issuer.
(2) Interest rate risk. Interest rate risk is the risk that the market value of securities in the portfolio will fall due to changes in general interest rates. Interest rate risk may be mitigated by holding most investments to their maturity date, by limiting the types and maturities of permitted securities and, when feasible, by selecting maturities of investments to coincide with large cash outflows.
(B) Liquidity. The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. 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).
(C) Yield. After the objectives of safety and liquidity are met, the investment portfolio shall be managed with the objective of attaining a market rate of return throughout interest rate cycles.
(1) The core of investments are limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed.
(2) Speculative investments will not be allowed. Speculative investments are those attempting to gain market premium appreciation through short term market volatility resulting in increased risk and loss exposure. The town will not purchase a security which cannot be held to maturity. This does not mean an investment cannot be sold prior to maturity.
(Ord. 24(2016) § 3)