4 ms·

People who say your emergency fund should be in the markets don't have any realistic life experiences. You're doing the right thing by leaving it in cash.

UncleOxidant 7y ago
I'm guessing most people who say the emergency fund should be in the market are under 40. I say this because it's been over 10 years now since the last recession and a lot of folks under 30 haven't experienced one since they've been out on their own. They haven't experienced a prolonged bear market. Folks over 40 can remember the tech wreck (2001-2003ish) the housing bubble implosion (2008-2012ish). Folks over about 55 can recall how bad the late 70s, early 80s were. And then there's just stuff that's not related to the economy. Life happens. Emergency appendectomies. A family member gets diagnosed with cancer. You burn out on your profession. The longer you live the more of this kind of stuff you've experienced.
- craftyguy 7y ago
  I'm guessing you have no basis for this comment, and are just trolling age discrimination.
- basch 7y ago
  My understanding of investing savings is that it is still diversified, not all in on the S&P500. Something like the golden butterfly with a cash component, would allow you to spend the cash first. Then you could choose if you want to deplete an asset that hasn't plummeted, or withdraw from each category equally. https://portfoliocharts.com/portfolio/golden-butterfly/ https://portfoliocharts.com/portfolio/golden-butterfly/ You could also use something like a Line of Credit against your stock. Both Schwab and M1 offer it. That way you can spend in an emergency, and hopefully your growth rate offsets the interest rate. https://www.schwab.com/public/schwab/banking_lending/pledged_asset_line https://www.schwab.com/public/schwab/banking_lending/pledged... https://www.m1finance.com/articles-1/portfolio-line-of-credit-guide/ https://www.m1finance.com/articles-1/portfolio-line-of-credi... "With M1 Borrow, you can borrow up to 35% of your invested portfolio at a 3.50% interest rate instantly (2.75% if you are using M1 Plus). There's never been such a low cost, convenient, and flexible way to borrow money."
toolz 7y ago
I can move my money out of the market in approximately 3 days. Exactly which life experience is going to teach me I need quicker access than that? As for volatility of the market I accommodate for that by having well over twice as much as I need in investments that I can liquidate. The end result if I project using historical data is that I'm much wealthier. If the market crashes to the point people aren't buying S&P500 index funds I highly doubt people with money in the bank are going to be in any better of a position than myself. If it continues on trend, I'll stand to do better than them though.
- Jtsummers 7y ago
  How much money are you moving out of the market in 3 days? If you invest your e-fund, you've lost value over the past couple of weeks. And removing it now means, especially if you've been investing over the past couple years, selling at a loss. It's better to let that money ride so it can recoup value when the markets recover, and use cash (hopefully not sitting under a mattress) to cover emergencies. The actual ways to use cash are to find high-yield savings accounts (over the past few years some online accounts have hit 2.5-3%, though that's not common), CDs (which again you've had to go with online-only accounts to get decent returns), or some forms of bonds. These offer guaranteed returns (or at least guaranteed not to lose you anything) which is exactly what you want for your e-fund. Absolutely invest the rest and reap the rewards (or losses, but over a couple decades should be rewards). But it's a good idea to leave the e-fund in a more stable form. Don't be like my colleague in 2008/2009 who went from being worth almost a million to being worth 200k and needing the money. He couldn't let it sit and recoup value, he just lost. His retirement was pushed out years as a result. Admittedly, his retirement still would've been pushed 1-3 years anyways due to the financial need at the time. But he used almost half his investment's value at that point ($100k), which in a few years would've been back to $500k or so in value. If he'd even had $50k in cash (less than his annual net income), he would've only lost a quarter of his investments instead of half.
  - toolz 7y ago
    > How much money are you moving out of the market in 3 days? It's an emergency fund - likely not much. Maybe a few grand at most in that amount of time? > and needing the money. Unless the market cuts in half over-night I'll have the money. That's why I have twice as much as I need in that bucket. I've not really heard any compelling reason why I should move to a savings account. Yeah I might make more if the market takes an unprecedented long term decline, but realistically I'll make well over twice as much returns as I would that savings account.
tootie 7y ago
I'm in my 40s. My "emergency fund" was up like 200% then back down 15% of that high. Selling now at the bottom I'm still way, way ahead of where I'd be if I just had it in a savings account. I'd have to go calculate how far back I'd have to go to have beaten interest rates, but it's probably not more than 2 years or so.

UncleOxidant 7y ago

I'm guessing most people who say the emergency fund should be in the market are under 40. I say this because it's been over 10 years now since the last recession and a lot of folks under 30 haven't experienced one since they've been out on their own. They haven't experienced a prolonged bear market. Folks over 40 can remember the tech wreck (2001-2003ish) the housing bubble implosion (2008-2012ish). Folks over about 55 can recall how bad the late 70s, early 80s were. And then there's just stuff that's not related to the economy. Life happens. Emergency appendectomies. A family member gets diagnosed with cancer. You burn out on your profession. The longer you live the more of this kind of stuff you've experienced.

craftyguy 7y ago
I'm guessing you have no basis for this comment, and are just trolling age discrimination.
basch 7y ago
My understanding of investing savings is that it is still diversified, not all in on the S&P500. Something like the golden butterfly with a cash component, would allow you to spend the cash first. Then you could choose if you want to deplete an asset that hasn't plummeted, or withdraw from each category equally. https://portfoliocharts.com/portfolio/golden-butterfly/ https://portfoliocharts.com/portfolio/golden-butterfly/ You could also use something like a Line of Credit against your stock. Both Schwab and M1 offer it. That way you can spend in an emergency, and hopefully your growth rate offsets the interest rate. https://www.schwab.com/public/schwab/banking_lending/pledged_asset_line https://www.schwab.com/public/schwab/banking_lending/pledged... https://www.m1finance.com/articles-1/portfolio-line-of-credit-guide/ https://www.m1finance.com/articles-1/portfolio-line-of-credi... "With M1 Borrow, you can borrow up to 35% of your invested portfolio at a 3.50% interest rate instantly (2.75% if you are using M1 Plus). There's never been such a low cost, convenient, and flexible way to borrow money."

toolz 7y ago

I can move my money out of the market in approximately 3 days. Exactly which life experience is going to teach me I need quicker access than that? As for volatility of the market I accommodate for that by having well over twice as much as I need in investments that I can liquidate. The end result if I project using historical data is that I'm much wealthier. If the market crashes to the point people aren't buying S&P500 index funds I highly doubt people with money in the bank are going to be in any better of a position than myself. If it continues on trend, I'll stand to do better than them though.

Jtsummers 7y ago
How much money are you moving out of the market in 3 days? If you invest your e-fund, you've lost value over the past couple of weeks. And removing it now means, especially if you've been investing over the past couple years, selling at a loss. It's better to let that money ride so it can recoup value when the markets recover, and use cash (hopefully not sitting under a mattress) to cover emergencies. The actual ways to use cash are to find high-yield savings accounts (over the past few years some online accounts have hit 2.5-3%, though that's not common), CDs (which again you've had to go with online-only accounts to get decent returns), or some forms of bonds. These offer guaranteed returns (or at least guaranteed not to lose you anything) which is exactly what you want for your e-fund. Absolutely invest the rest and reap the rewards (or losses, but over a couple decades should be rewards). But it's a good idea to leave the e-fund in a more stable form. Don't be like my colleague in 2008/2009 who went from being worth almost a million to being worth 200k and needing the money. He couldn't let it sit and recoup value, he just lost. His retirement was pushed out years as a result. Admittedly, his retirement still would've been pushed 1-3 years anyways due to the financial need at the time. But he used almost half his investment's value at that point ($100k), which in a few years would've been back to $500k or so in value. If he'd even had $50k in cash (less than his annual net income), he would've only lost a quarter of his investments instead of half.
- toolz 7y ago
  > How much money are you moving out of the market in 3 days? It's an emergency fund - likely not much. Maybe a few grand at most in that amount of time? > and needing the money. Unless the market cuts in half over-night I'll have the money. That's why I have twice as much as I need in that bucket. I've not really heard any compelling reason why I should move to a savings account. Yeah I might make more if the market takes an unprecedented long term decline, but realistically I'll make well over twice as much returns as I would that savings account.

tootie 7y ago

I'm in my 40s. My "emergency fund" was up like 200% then back down 15% of that high. Selling now at the bottom I'm still way, way ahead of where I'd be if I just had it in a savings account. I'd have to go calculate how far back I'd have to go to have beaten interest rates, but it's probably not more than 2 years or so.