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municipalauthorities.org | 47 Determine which funds to invest - Local governments may find it easier to identify investments that offer slightly more favorable rates of return than in the past, especially due to the availability of Act 10 investments. But before public investors proceed with any investment, they must determine which of their funds to invest. If a local government is using liquid funds to make a purchase, it must consider whether that will impact future municipal business. Municipalities should also consider whether the use of liquid funds will result in lost opportunities should rates rise. Conversely, if a local government seeks to pull funds from an investment that is not liquid, it must determine the consequences of early withdrawal penalties and other fees. These penalties or fees may actually end up offsetting the possible gain of the new investment. Consider interest rate risk - Interest rate risk refers to the possibility that a change in rates over time will affect your interest earnings. As we suggested above, locking up too much of your investable assets at one time can expose you to the risk of missing out on potential earnings if rates rise. Interest rate risk involves what an investor believes will happen in the future. If rates rise, it may be wise for the investor to keep enough funds liquid to invest in the event that rates climb. As with other types of risk, diversifying your investments between liquid investment vehicles such as share classes of the PLGIT Portfolio and fixed-rate investments like Certificates of Deposit (CDs) can help mitigate interest rate risk. Know your investment “horizon” - Even when investment options present “calm seas,” local governments must ask basic questions about the reason for their investment. One of the most basic: When do you need your money back? A strong rate of return won’t work in your favor if you’ve tied up funds that have been earmarked for a use before the investment term matures. Understand the hazards of “chasing rates” - Regardless of the direction of interest rates, some investments may appear to be ahead of the curve – they may hold a better rate than an investor would expect. A local government should take extra care in reviewing the details of these vehicles before making an investment. There may be fees associated with a particular investment that negate the advantage of the higher interest rate. There are also implicit costs in adding to or changing investments, including additional staff time for new account setup, moving funds, and reconcilement of new accounts. Consider Diversification Municipalities should pay attention to the value of maintaining a mix of different types of investments that carry varying terms. Among other advantages, diversification of assets can help reduce your exposure to risk and enable you to take advantage of future investment opportunities. For example, the share classes of the PLGIT Portfolio are invested in such a way that every dollar is invested in a broadly diversified portfolio of securities, so even local governments with a small account balance can diversify their investments. Of course, every local government has different needs and challenges. For guidance on how to proceed during periods of stable interest rates, or when rates are rising or falling, contact your PLGIT representative. S PLGIT article continued from page 29. Katia Frock is a Senior Marketing Representative for PLGIT, working primarily with investors in the central part of the Commonwealth. She can be reached at frockk@pfmam.com. Important Disclosure Information This information is for institutional investor use only, not for further distribution to retail investors, and does not represent an offer to sell or a solicitation of an offer to buy or sell any fund or other security. Investors should consider the investment objectives, risks, charges and expenses before investing in any of the Trust’s portfolios. This and other information about the Trust’s portfolios is available in the current Information Statement, which should be read carefully before investing. A copy of the Information Statement may be obtained by calling 1-800-572-1472 or is available on the Trust’s website at www. plgit.com. While the PLGIT and PLGIT/PRIME portfolios seek to maintain a stable net asset value of $1.00 per share and the PLGIT/TERM portfolio seeks to achieve a net asset value of $1.00 per share at its stated maturity, it is possible to lose money investing in the Trust. An investment in the Trust is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Shares of the Trust’s portfolios are distributed by PFM Fund Distributors, Inc., member Financial Industry Regulatory Authority (FINRA) ( www.finra.org) and Securities Investor Protection Corporation (SIPC) ( www.sipc.org) . PFM Fund Distributors, Inc. is an affiliate of PFM Asset Management LLC.