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With respect, I think this is outdated advice. Sitting on tens of thousands of dollars of cash (six months of income!) in a zero interest rate environment is a

With respect, I think this is outdated advice. Sitting on tens of thousands of dollars of cash (six months of income!) in a zero interest rate environment is a mistake that really compounds over the years -- to the point of a few $100k in lost appreciation over your career. Equities are no longer hard to turn into cash in an emergency. You can pull money out of your investment account the same day using a debit card if need be, no need to even sell your equities. Keeping access to credit, but not using it unless it's needed, is the better plan. But after several years of saving you won't need it anyway.

ioseph 6y ago
If you lost your job April 2020 and all your spare cash was in stocks you'd be forced to eat a massive loss. Given a downturn makes unemployment more likely this isn't an improbable scenario.
- stevesimmons 6y ago
  Only if you liquidate all your stocks to cash at what is obviously a very disadvantageous time. In reality, your rent/mortgage and other commitments would continue to fall due at a very predictable monthly schedule. So you sell down only as your liabilities fall due. The majority of your holding stays invested so you can capture the rebound over the following months.
  - lotsofpulp 6y ago
    >the rebound over the following months. This is an assumption that some people might say is unreasonable. There have been many times in the past where the rebound takes years. Although, one might be able to make the case that the political winds have changed to ensure the rebound happened in months. But it’s still a riskier assumption than assuming a rebound in a few years.
Trasmatta 6y ago
It's only potentially outdated advice for people that are already financially sound, have a large amount invested, and understand the risks. "Don't keep an emergency fund, just sell your stocks or use credit" is really bad advice for people trying to get ahead for the first time.
- nostromo 6y ago
  If you're trying to get ahead, sitting on six months of cash that could be put to productive (and compounding) use over the course of your entire career is even worse advice.
  - Trasmatta 6y ago
    No, it's not. Investing that money would be about the long term horizon. Like, 10-30 years at least. If you're trying to get ahead, your current goals should be getting and staying out of debt, and preparing for emergencies. What happens if you throw that emergency fund in the market, there's a crash, and then you lose your job in six months? Get out of debt. Build an emergency fund. Start investing. Then re-think your emergency fund strategy if you really want.
  - dukeyukey 6y ago
    The 'productive' use of six months living expenses in an account is being easily accessible in times of crisis. Like, my whole department got let go not long after Covid hit. Had I kept my savings in stock, I'd have sold them at a major loss, because stock market falls and job losses tend to happen at the same time. By keeping some savings separate, you can decouple these things, to an extent. You don't want your emergency money to rely on a good economy.
    - jjnoakes 6y ago
      On the flip side, if you have six months or more of expenses in a brokerage account, you don't need to sell all of it day one. And if you sold a little at a time over six months during the covid crash, it wouldn't have been as bad of a loss. And you need to compare that loss to what you would have had if you sat on cash for all of the time leading up to the crash too. I'd be willing to bet keeping it cash would have been worse in most cases (depending on specific amounts and time frames and monthly expenses).
deleted 6y ago
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tashoecraft 6y ago
Emergency funds are for emergencies, and you never know when an emergency is going to happen. Stock market tanks and you lose your job, bet having all your money in stocks will feel real smart at that point. It’s about balancing risk management and wealth. That balance is going to be different for everyone, but you always need to be a little cautious.
- ryandrake 6y ago
  I like to think of different tranches of emergency too, and keep different emergency funds in different vehicles for each type of emergency. General cooling off of the market? Hold Series I bonds or some security that's pretty much as good as cash but has a small amount of growth. Sudden unemployment? Cash in a money market account. Natural disaster like an earthquake that may limit your access to financial institutions? Cash stuffed in the mattress. The zombie apocalypse? Ammunition and bottled water. Have a little bit of your emergency fund in each of these.
satellite2 6y ago
I think emergency often means the next financial crisis (at least statistically). During which, you lose your job but also your access to credit. As worsening credit conditions are often the cause of crisis. Other than that you're right. Maintaining an emergency fund is expensive in term of opportunity cost. Like the cost of any insurance. There is no free lunch.

ioseph 6y ago

If you lost your job April 2020 and all your spare cash was in stocks you'd be forced to eat a massive loss. Given a downturn makes unemployment more likely this isn't an improbable scenario.

stevesimmons 6y ago
Only if you liquidate all your stocks to cash at what is obviously a very disadvantageous time. In reality, your rent/mortgage and other commitments would continue to fall due at a very predictable monthly schedule. So you sell down only as your liabilities fall due. The majority of your holding stays invested so you can capture the rebound over the following months.
- lotsofpulp 6y ago
  >the rebound over the following months. This is an assumption that some people might say is unreasonable. There have been many times in the past where the rebound takes years. Although, one might be able to make the case that the political winds have changed to ensure the rebound happened in months. But it’s still a riskier assumption than assuming a rebound in a few years.

Trasmatta 6y ago

It's only potentially outdated advice for people that are already financially sound, have a large amount invested, and understand the risks. "Don't keep an emergency fund, just sell your stocks or use credit" is really bad advice for people trying to get ahead for the first time.

nostromo 6y ago
If you're trying to get ahead, sitting on six months of cash that could be put to productive (and compounding) use over the course of your entire career is even worse advice.
- Trasmatta 6y ago
  No, it's not. Investing that money would be about the long term horizon. Like, 10-30 years at least. If you're trying to get ahead, your current goals should be getting and staying out of debt, and preparing for emergencies. What happens if you throw that emergency fund in the market, there's a crash, and then you lose your job in six months? Get out of debt. Build an emergency fund. Start investing. Then re-think your emergency fund strategy if you really want.
- dukeyukey 6y ago
  The 'productive' use of six months living expenses in an account is being easily accessible in times of crisis. Like, my whole department got let go not long after Covid hit. Had I kept my savings in stock, I'd have sold them at a major loss, because stock market falls and job losses tend to happen at the same time. By keeping some savings separate, you can decouple these things, to an extent. You don't want your emergency money to rely on a good economy.
  - jjnoakes 6y ago
    On the flip side, if you have six months or more of expenses in a brokerage account, you don't need to sell all of it day one. And if you sold a little at a time over six months during the covid crash, it wouldn't have been as bad of a loss. And you need to compare that loss to what you would have had if you sat on cash for all of the time leading up to the crash too. I'd be willing to bet keeping it cash would have been worse in most cases (depending on specific amounts and time frames and monthly expenses).

deleted 6y ago

[deleted]

tashoecraft 6y ago

Emergency funds are for emergencies, and you never know when an emergency is going to happen. Stock market tanks and you lose your job, bet having all your money in stocks will feel real smart at that point. It’s about balancing risk management and wealth. That balance is going to be different for everyone, but you always need to be a little cautious.

ryandrake 6y ago
I like to think of different tranches of emergency too, and keep different emergency funds in different vehicles for each type of emergency. General cooling off of the market? Hold Series I bonds or some security that's pretty much as good as cash but has a small amount of growth. Sudden unemployment? Cash in a money market account. Natural disaster like an earthquake that may limit your access to financial institutions? Cash stuffed in the mattress. The zombie apocalypse? Ammunition and bottled water. Have a little bit of your emergency fund in each of these.

satellite2 6y ago

I think emergency often means the next financial crisis (at least statistically). During which, you lose your job but also your access to credit. As worsening credit conditions are often the cause of crisis. Other than that you're right. Maintaining an emergency fund is expensive in term of opportunity cost. Like the cost of any insurance. There is no free lunch.