4 ms·

Sound financial advice would be having an emergency fund of several months of expenses. You're doing it wrong.

PragmaticPulp 5y ago
That's good advice when first starting your savings journey, but once you have a large amount of money invested (>12 months of expenses) you don't really need to keep an "emergency fund" in cash to cover months of expenses. It's 2022. It's trivially easy to convert investments into cash.
- shric 5y ago
  Unless I need to, I don't like converting investments into cash due to capital gains tax (it's quite high here in Australia while earning at the highest tax bracket), so I keep about 6 months in cash
  - smabie 5y ago
    You would rather miss out on the returns entirely than pay capital gains taxes on a percentage of the profits? How does this make any sense?
    - shric 5y ago
      6 months of cash isn't enough for it to matter to me.
- idontwantthis 5y ago
  That's not covering unlikely, but devastating events very well. Also makes it harder to stay rational during a financial crash. I'll always keep significant cash accessible at an ATM for safety and sanity.
- Rebelgecko 5y ago
  I would imagine there's a pretty strong correlation between job loss and a crashing stock market. I wonder how the opportunity cost of keeping an e fund in accounts that won't lose principle compares to the downsides of potentially having to sell off stock after a crash. Of course that's assuming you're able to sell your stock and transfer the funds in a timely fashion. Maybe things have changed in 2022, but I know plenty of people (especially using Robinhood as their brokerage) who had liquidity issues when trying to sell shares in 2021.
  - notch656a 5y ago
    They said invested, not stock market. That means bonds, precious metals / commodity ETF, mutual funds / stock market, the whole shebang. If your emergency funds are 100% stock market instead of diversified investments you're doing it wrong. If you don't trust electronic systems to stay on-line in a crash then your hedge is probably not USD but other assets, like canned goods / water filter / ammo / hard assets in your personal custody.

That's good advice when first starting your savings journey, but once you have a large amount of money invested (>12 months of expenses) you don't really need to keep an "emergency fund" in cash to cover months of expenses. It's 2022. It's trivially easy to convert investments into cash.

shric 5y ago
Unless I need to, I don't like converting investments into cash due to capital gains tax (it's quite high here in Australia while earning at the highest tax bracket), so I keep about 6 months in cash
- smabie 5y ago
  You would rather miss out on the returns entirely than pay capital gains taxes on a percentage of the profits? How does this make any sense?
  - shric 5y ago
    6 months of cash isn't enough for it to matter to me.
idontwantthis 5y ago
That's not covering unlikely, but devastating events very well. Also makes it harder to stay rational during a financial crash. I'll always keep significant cash accessible at an ATM for safety and sanity.
Rebelgecko 5y ago
I would imagine there's a pretty strong correlation between job loss and a crashing stock market. I wonder how the opportunity cost of keeping an e fund in accounts that won't lose principle compares to the downsides of potentially having to sell off stock after a crash. Of course that's assuming you're able to sell your stock and transfer the funds in a timely fashion. Maybe things have changed in 2022, but I know plenty of people (especially using Robinhood as their brokerage) who had liquidity issues when trying to sell shares in 2021.
- notch656a 5y ago
  They said invested, not stock market. That means bonds, precious metals / commodity ETF, mutual funds / stock market, the whole shebang. If your emergency funds are 100% stock market instead of diversified investments you're doing it wrong. If you don't trust electronic systems to stay on-line in a crash then your hedge is probably not USD but other assets, like canned goods / water filter / ammo / hard assets in your personal custody.