What ETF or MF for Emergency Fund?

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What ETF or MF for Emergency Fund?

Postby Jay69 » Wed Dec 12, 2012 11:07 am

Have decided to park our Emergency fund in a Roth IRA, Its space that we are not using so going to fill it up.

Will add $5,000 for 2012, $5,500 at the first of the year. Plan to get about 9 months of our 12 month emergency fund to the Roth, about $20k by 2015.

So to the question at hand, what ETF or Mutual Fund would you use? Planning on the Roth to be held at WellsTrade so just about any ETF/MF could be used.

Thoughts?

I thank you all.

Jay
"Out of clutter, find simplicity” Albert Einstein
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Re: What ETF or MF for Emergency Fund?

Postby STC » Wed Dec 12, 2012 11:34 am

I use iBonds for my EF. However, if the question is what is suitable for preservation of principle, I would say short duration bonds like BSV. Thing is, iBonds have better yield right now than BSV and are safer. They cannot be redeemed inside of 1 year.
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Re: What ETF or MF for Emergency Fund?

Postby Toons » Wed Dec 12, 2012 11:37 am

I use:
Vanguard Short-Term Investment-Grade Fund Admiral Shares (VFSUX) :happy

https://personal.vanguard.com/us/funds/ ... IntExt=INT
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Re: What ETF or MF for Emergency Fund?

Postby Jay69 » Wed Dec 12, 2012 12:02 pm

Toons wrote:I use:
Vanguard Short-Term Investment-Grade Fund Admiral Shares (VFSUX) :happy

https://personal.vanguard.com/us/funds/ ... IntExt=INT


Can I ask what made you go with this? When I look at the Vangurad screener is shows VFSUX as Med Credit Quality. At first blush I was thinking just High Credit Quality for an Emergency fund. I do like the mix of VFSUX however, the name is priceless :wink:
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Re: What ETF or MF for Emergency Fund?

Postby Jay69 » Wed Dec 12, 2012 12:05 pm

STC wrote:I use iBonds for my EF. However, if the question is what is suitable for preservation of principle, I would say short duration bonds like BSV. Thing is, iBonds have better yield right now than BSV and are safer. They cannot be redeemed inside of 1 year.


You know I went around and around with this one, Roth vs Ibonds. I do have a TD account with some Ibonds so it is ready to go. I need to get of the pot and pick a method!
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Re: What ETF or MF for Emergency Fund?

Postby livesoft » Wed Dec 12, 2012 12:30 pm

VFSUX won't work since the initial minimum is too high. Try VFSTX which is the investor share version. I used this until I wanted more risk and started to use VCSH instead.

If you are one of those folks who when they lose their job in February want to withdraw all their future March to December expenses the next day and put them in their checking account, then a short-term bond fund may not be for you. If you want to withdraw gradually as you need to pay expenses, then a short-term bond fund could work.

Here is an important difference between ETF's and mutual funds: The settlement date. For ETFs, if you sell, you cannot move the proceeds to checking until 3 days later because settlement is T+3. With a mutual fund, settlement is T+1, so you can move the money to checking the next day.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: What ETF or MF for Emergency Fund?

Postby Jay69 » Wed Dec 12, 2012 12:47 pm

livesoft wrote:If you are one of those folks who when they lose their job in February want to withdraw all their future March to December expenses the next day and put them in their checking account, then a short-term bond fund may not be for you. If you want to withdraw gradually as you need to pay expenses, then a short-term bond fund could work.


I would take them out slowly, matter of fact if I wound up with a fair amount in the house/car fund at the time I would tap that first to. When I look back 10 years I really have not used 9 out of my 12 month EM dollars at any one time.
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Re: What ETF or MF for Emergency Fund?

Postby Jay69 » Wed Dec 12, 2012 12:54 pm

The only downfall I see using the Roth for an EM fund is that a person would need to add 2-3% to it a year to keep up with inflation as you can only take out the cash you put in, well unless you want to pay. That bings me to the point what does one do with what they make over your contributions, I think I would just toss it into a S&P fund or somthing like it.
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Re: What ETF or MF for Emergency Fund?

Postby namaste » Wed Dec 12, 2012 12:57 pm

I wouldn't waste Roth IRA space with an emergency fund. If you don't need it and don't anticipate needing it, I'd go with I bonds. Mine is in CD's in 2 month amounts in case I need it.
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Re: What ETF or MF for Emergency Fund?

Postby Jay69 » Wed Dec 12, 2012 1:18 pm

namaste wrote:I wouldn't waste Roth IRA space with an emergency fund. If you don't need it and don't anticipate needing it, I'd go with I bonds. Mine is in CD's in 2 month amounts in case I need it.



It wont be a waist of space as I can't fill it anyway, well I could if I did not use some of our other space. In our case for now anyway (2013) I have my work plan $17.5K, wifes 403b $17.5k, wifes 457 $17.5k, IRA's $11k, thats $63.5k of space. That would put us at about a 50% savings rate, wish I could fill it but with kids in school + sports, church etc its not going to happen. Toss uptop of the tax avantage space the wife pays into the state pension plan.

I will admit that CD's and Ibonds appear to be less hassle though.
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Re: What ETF or MF for Emergency Fund?

Postby livesoft » Wed Dec 12, 2012 7:06 pm

I would not use I-bonds until I had made the max contribution to a Roth IRA that I could.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: What ETF or MF for Emergency Fund?

Postby Jay69 » Wed Dec 12, 2012 8:14 pm

livesoft wrote:I would not use I-bonds until I had made the max contribution to a Roth IRA that I could.


Thats what was my thought as well.
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Re: What ETF or MF for Emergency Fund?

Postby MrMatt2532 » Wed Dec 12, 2012 10:38 pm

Another vote for VCSH
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Re: What ETF or MF for Emergency Fund?

Postby mdpsychcrnp » Wed Dec 12, 2012 11:35 pm

Max out your I-Bonds first (your spouse and yourself), then put it in VCSH. Current SEC yield of VCSH is 1.24% and YTD is 5.63%.

Here's my strategy -- I max out I-Bonds for my wife and I for EF (inflation rate is currently 1.76%). Some day, when I-Bonds fixed rate exceeds 1.5% (plus inflation rate) then those particular I-Bonds will become part (for my calculations) of my I-Bond portfolio. Until then I treat them as cash. Though their yield is lower NOW than VCSH (which would be my suggestion for you, having the extra tax advantaged space is nice and the savings from state and local taxes is nothing to laugh at. There's much to be said for a no risk investment. Then I do about 50/50 VCSH and TIAA Direct High Yield Savings (1.24%). Eventually the goal is to put everything we have in VCSH and the High Yield Savings in I-Bonds, but the 20k total limit makes this complicated. If I kept a larger emergency fund (I have approx. 12 months of living expense, calculated to living sparsely) I would likely have quite a bit more in VCSH, but with a large taxable account it makes little sense for us. It's a fair argument that with a large taxable account I don't need an emergency fund beyond 2 months living expenses, but it allows me to "tolerate" a higher equity allocation than I normally might.

VCSH is a bit more "volatile" than you may be accustomed if you are used to FDIC insured instruments but it is illusory in the long-term. There is no reason to use BSV or VGSH.
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