Investment Resource Center

Investing is a discipline that results from sound policies and practices. Public funds investing has a unique set of needs which GFOA addresses through a number of developed best practices. 

An investment policy describes the parameters for investing government funds and identifies the investment objectives, preferences or tolerance for risk, constraints on the investment portfolio, and how the investment program will be managed and monitored. The document itself serves as a communication tool for the staff, elected officials, the public, rating agencies, bondholders, and any other stakeholders on investment guidelines and priorities. An investment policy enhances the quality of decision making and demonstrates a commitment to the fiduciary care of public funds, making it the most important element in a public funds investment program.

 Best Practices & Advisories

Investing Policy and Governance

  • Collateralizing Public Deposits - GFOA recommends the use of a written agreement with pledging requirements as protection for state or local government's deposits. GFOA encourages governmental entities to establish adequate and efficient administrative systems to monitor such pledged collateral, including state or locally administered collateral pledging or collateral pools.
  • Diversifying the Investment Portfolio - GFOA recommends that state and local governments properly manage the risk in their portfolios to achieve their investment objectives and comply with their investment constraints. GFOA further recommends the use of diversification in a portfolio as an important strategy for managing risk.
  • Government Relationships with Securities Dealers - GFOA makes the following recommendations to government investors in selecting securities dealers for their approved vendor list, managing the relationships with the broker/dealers, and conducting investment transactions.
  • Investment of Bond Proceeds - GFOA recommends that state and local governments develop an understanding of the risks inherent in investing bond proceeds and incorporate steps in their investment strategy for each fund to minimize these risks.
  • Investment Policy - GFOA recommends that all governments establish a comprehensive written investment policy, which should be adopted by the governing body.
  • Investment Program for Public Funds - GFOA recommends that all governments establish a public funds investment program.


Measuring Investment Performance

  • Mark-to-Market Reporting for Public Investment Portfolios -GFOA recommends that state and local government officials responsible for investment portfolio reporting determine the market value of all securities in the portfolio on at least a quarterly basis.
  • Monitoring the Value of Securities in Repurchase Agreements - GFOA recommends that government entities establish a policy and procedure for monitoring the value of the purchased securities in a repo transaction to ensure that it does not drop below the value of the repo investment plus any required margin percentage.
  • Managing Market Risk in Investment Portfolios - State and local governments should comply with state statutes pertaining to investing public funds along with all investment policy parameters. Fixed income investing involves a certain level of market risk. Investors should be aware of their risk tolerance and confirm that the market risk they assume is within this tolerance level.
  • Using Benchmarks to Assess Portfolio Risk and Return -  GFOA recommends that government investors assess their investment portfolio for performance and risk by comparing the total return of the portfolio to carefully selected benchmarks.


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Best Practices