Emergency fund

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radstar
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Joined: Tue Mar 14, 2017 9:53 pm

Emergency fund

Postby radstar » Thu Apr 20, 2017 12:44 pm

Can emergency fund be considered as part of asset allocation/portfolio if they are invested in bonds? Or should these be kept separate from assests (just like 529)? Any thoughts?

Thanks.
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Grt2bOutdoors
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Location: New York

Re: Emergency fund

Postby Grt2bOutdoors » Thu Apr 20, 2017 12:46 pm

Separate. The e-fund is for emergencies.
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random_walker_77
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Re: Emergency fund

Postby random_walker_77 » Thu Apr 20, 2017 1:06 pm

For most people, I agree w/ Grt2bOutdoors. Keep it separate, and keep it in cash or cash equivalents like money market or CDs. You need it for quick access, and for the most, you need it to be there when you need it. Bond funds can drop in value too. This is the easy, safe answer.

Now at an academic level, if your assets are of a certain magnitude, I think it stops becoming quite so important that it's in safe cash-like investments. For someone who owns 2M in stocks and 1M in bonds, I'd argue it doesn't matter if they've got another 100K in a CD for emergencies, b/c they can tap some of their bonds.

So there must be a continuum. Maybe this means you can have it in bonds, as long as you have more setaside. i.e. instead of 6 months worth in cash, you have 8 months worth in bonds?

aristotelian
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Re: Emergency fund

Postby aristotelian » Thu Apr 20, 2017 1:18 pm

Some people have multiple "tiers" of liquid funds. I have 2-3 months in savings that I do not count toward my bond allocation. Above that, I have about 6 months in bonds that I do count toward my bond allocation. If I made a big withdrawal (for a new car, for example) I would need to replace it in order to maintain my allocation, but I figure it counts because I have no immediate need to spend it.

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knpstr
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Location: Michigan

Re: Emergency fund

Postby knpstr » Thu Apr 20, 2017 1:22 pm

View an emergency fund as insurance, not as an investment.
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NiceUnparticularMan
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Re: Emergency fund

Postby NiceUnparticularMan » Thu Apr 20, 2017 1:26 pm

radstar wrote:Can emergency fund be considered as part of asset allocation/portfolio if they are invested in bonds? Or should these be kept separate from assests (just like 529)? Any thoughts?


So when setting your bond allocation in your long-term portfolio, what purpose is it serving?

Common purposes include: (1) the possibility bonds, or perhaps a rebalancing portfolio with bonds, will outperform equities in the long run; (2) to provide for planned future withdrawals; (3) to address psychological/emotional/behavioral/relational issues; (4) and to serve as a supplemental emergency fund in case of an unexpected withdrawal scenario.

Your emergency fund overlaps with at least (4), so you might think it belongs in there. But that leaves (1)-(3), and if any of those is a significant factor, you might want to think twice before folding in your emergency fund.

Artisan
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Re: Emergency fund

Postby Artisan » Thu Apr 20, 2017 4:02 pm

I think an emergency fund should be separate.

Although you can make the argument that high asset investors have other assets to liquify if they need money in an emergency, I would argue the other side that they can also afford to have a smaller return in their E-fund since it represents a smaller part of their assets. I'm content with the 1 to 1.25% return of an online savings account.

Our emergency fund contributes a lot to my sleeping well at night :)

rzk96
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Joined: Sat Apr 15, 2017 9:59 pm

Re: Emergency fund

Postby rzk96 » Thu Apr 20, 2017 8:26 pm

radstar wrote:Can emergency fund be considered as part of asset allocation/portfolio if they are invested in bonds? Or should these be kept separate from assests (just like 529)? Any thoughts?

Thanks.


Separate for sure. Mine lets me sleep peacefully at night. But make sure to have it in an interest account! I use Ally for mine.

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Hodor
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Re: Emergency fund

Postby Hodor » Thu Apr 20, 2017 9:38 pm

Either way works perfectly fine. Do whatever makes you more comfortable.

radiowave
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Re: Emergency fund

Postby radiowave » Thu Apr 20, 2017 10:27 pm

I count CDs as part of my bond portion of my portfolio. Cash = checking, high yield savings I count as cash not bonds/equity. It works for me. I don't have a separate "emergency fund" but just work with my cash accounts as needed, e.g. 1-2 months in checking, 3-12 mo in online high yield savings, > 12mo < 2-3 years, CDs, a small portion of intermediate bonds (treasuries) in taxable for up to 5 years, long term taxable > 5 years in total stock/total international. Rest in tax deferred/tax advantaged for retirement purposes.

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whodidntante
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Re: Emergency fund

Postby whodidntante » Fri Apr 21, 2017 12:04 am

Everything I can liquidate is my "emergency fund" if push comes to shove. I don't maintain an enormous pile of cash. I am playing with the house's money at this point, and I don't mind selling into a down market if that's what I have to do to meet expenses.

ETA: credit is a significant part of my liquidity for emergencies, even job loss. I can tap a couple year's expenses at low rates if I act before they get shutoff.

AlohaJoe
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Location: Saigon, Vietnam

Re: Emergency fund

Postby AlohaJoe » Fri Apr 21, 2017 12:12 am

radstar wrote:Can emergency fund be considered as part of asset allocation/portfolio if they are invested in bonds? Or should these be kept separate from assests (just like 529)? Any thoughts?


Together for sure.

HopeToGolf
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Joined: Fri Dec 24, 2010 4:04 pm

Re: Emergency fund

Postby HopeToGolf » Fri Apr 21, 2017 3:48 am

Since my fund is intended for emergency spending, I do not consider it part of my portfolio. Given its size compared to the rest of my portfolio and retirement needs, any decisions about its allocation are irrelevant to my future. I dump it into a HY bank account/CDs and call it a day and hope I never need it.

brusan
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Joined: Sat Jun 04, 2016 3:43 pm

Re: Emergency fund

Postby brusan » Fri Apr 21, 2017 6:36 am

we keep a tiered EF across Ally and iBonds, with Ally being the primary tier with about 5 months expenses. We do not count the Ally as part of our AA. The iBonds do double duty as part our fixed income AA in taxable and also the second tier of EF, should we need it.


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