Article: "Our emergency fund is exactly $0.00"
Article: "Our emergency fund is exactly $0.00"
Just ran into this article:
https://earlyretirementnow.com/2016/05/ ... ency-fund/
Does this makes sense to you?
https://earlyretirementnow.com/2016/05/ ... ency-fund/
Does this makes sense to you?
Re: Article: "Our emergency fund is exactly $0.00"
I've been retired for a while. Ditched my emergency fund a long time ago -- even before retiring.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: Article: "Our emergency fund is exactly $0.00"
I didn't see the word "Job loss" in the whole article! The writer seems ignored it at purpose (unless I missed it). The main reason I have EF is the risk of job loss.
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather
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Re: Article: "Our emergency fund is exactly $0.00"
Not for me, but personal finance is personal. He has obviously given this some serious thought and this apparently is what he feels like will work for him. I think that the size of an EF should be determined by the stability of current income, amount and depth of current risks (e.g. you need a larger EF if you are forgoing health insurance, if you're driving an old clunker, have a roof that is about to cave in, etc.), as well as access to a next best funding alternative (e.g. taxable accounts, credit cards, family, etc.).
- SmileyFace
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Re: Article: "Our emergency fund is exactly $0.00"
+1 Note the author of the article actually states he is using his HELOC as his Emergency Fund which is what some financial planners recommend. The problem with that is if you lose your job because the economy tanks AND your bank closes your HELOC because the economy tanks you are screwed. If you are FI you don't need an EF - but otherwise - its sound to have one.BogleMelon wrote:I didn't see the word "Job loss" in the whole article! The writer seems ignored it at purpose (unless I missed it). The main reason I have EF is the risk of job loss.
Re: Article: "Our emergency fund is exactly $0.00"
This would be a "contrarian" post going against the grain of a recommended Emergency Fund. Probably some percentage of Boglheads do something similar.
In the blogosphere you have to differentiate yourself and taking opposite views on topics is a good way to do that.
In the blogosphere you have to differentiate yourself and taking opposite views on topics is a good way to do that.
Re: Article: "Our emergency fund is exactly $0.00"
Yes. I more or less do the same thing. It is a completely rational thing.Pax wrote:Does this makes sense to you?
Cash is a horrible investment so one should kept cash and cash drag to a minimum.
Some people have mentioned job loss. So what? They have 100k in HELOC plus big investment accounts. They have funding in case of a emergency. I would discount the investment accounts by 50% on testing to see if it meet my needs but it is a legitimate practice.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
- ruralavalon
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Re: Article: "Our emergency fund is exactly $0.00"
I am retired. Every investment could be turned into cash in our checking account within 2 days, so everything is available for emergencies.
Before retirement we had no "emergency fund" or any large hoard of cash, but for emergencies we did have:
1) a few dollars in checking;
2) a paycheck;
3) some very high limit credit cards; and
4) a large joint taxable account.
When much younger we did have a savings account, which I guess would have been our "emergency fund".
Before retirement we had no "emergency fund" or any large hoard of cash, but for emergencies we did have:
1) a few dollars in checking;
2) a paycheck;
3) some very high limit credit cards; and
4) a large joint taxable account.
When much younger we did have a savings account, which I guess would have been our "emergency fund".
Last edited by ruralavalon on Tue May 16, 2017 3:52 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
Re: Article: "Our emergency fund is exactly $0.00"
From the article "Our net worth is solidly in the seven figures and north of 30-35 times our projected retirement spending budget." So yeah, they 1000% don't have a need for any cash laying around if they don't want to.
We never had an emergency fund until we got around to seriously considering starting a family and moving to a single income household. In that scenario the liquidity benefit beats out the opportunity cost for our family and that's why we just recently started setting aside cash instead of throwing every spare dollar into our portfolio or accelerating debt pay down, which was our previous plan of attack.
We never had an emergency fund until we got around to seriously considering starting a family and moving to a single income household. In that scenario the liquidity benefit beats out the opportunity cost for our family and that's why we just recently started setting aside cash instead of throwing every spare dollar into our portfolio or accelerating debt pay down, which was our previous plan of attack.
Re: Article: "Our emergency fund is exactly $0.00"
As a retired person he doesn't need to cover the possibility of losing a job. He is using multiple lines credit to provide him with liquidity in a crisis. He has plenty of assets to cover anything major, most likely this includes bond funds in taxable. He is fine not have an emergency fund.
For me, I am not in his situation and so I will hold cash reserves.
I do agree with him, there is an opportunity cost to not being invested with that cash. You are "paying" that opportunity cost to sleep well at night.
For me, I am not in his situation and so I will hold cash reserves.
I do agree with him, there is an opportunity cost to not being invested with that cash. You are "paying" that opportunity cost to sleep well at night.
Re: Article: "Our emergency fund is exactly $0.00"
I dropped my emergency fund when I reached 59 1/2 (access to Roth) and FI.
I also have a HELOC for things like vehicle turnover (just switched cars last month, used the HELOC for the value of the old car, paid it off when the old vehicle sold).
I also have a HELOC for things like vehicle turnover (just switched cars last month, used the HELOC for the value of the old car, paid it off when the old vehicle sold).
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
Re: Article: "Our emergency fund is exactly $0.00"
This is discussed often enough on the forum. Nobody has shown me that they need to get a hold of 6 months worth of cash instantly on a Tuesday afternoon whether they lost their job or not. A reasonable size portfolio can get one cash rather quickly in the event of job loss. Plus one would not want to spend it all in one place at one instant, so one needs to get cash consistently over time. That can happen by selling investments. One may then say, "Oh, but I don't want to sell when stocks are down!" OK.
Maybe this is why the media reports that many people cannot come up with $500 (or whatever the number is) if they needed to. The reality is that a lot of people do not appear to have an emergency fund.
Maybe this is why the media reports that many people cannot come up with $500 (or whatever the number is) if they needed to. The reality is that a lot of people do not appear to have an emergency fund.
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Re: Article: "Our emergency fund is exactly $0.00"
I don't think there is anything wrong with this author's strategy.
Personally I am able to keep $30k at rewards checking accounts earning 4.59 to 5% APY while being as liquid as a regular checking account, so that serves as my emergency fund. But I can absolutely see myself using a HELOC as well.
However as for his strategy of using 0% interest credit cards, I can tell you that it doesn't work that way. 0% interest is usually only offered as a limited signup reward. So unless you would like to apply for a new credit card every time you make a large purchase, it doesn't float this boat. I agree with everything else he said.
Personally I am able to keep $30k at rewards checking accounts earning 4.59 to 5% APY while being as liquid as a regular checking account, so that serves as my emergency fund. But I can absolutely see myself using a HELOC as well.
However as for his strategy of using 0% interest credit cards, I can tell you that it doesn't work that way. 0% interest is usually only offered as a limited signup reward. So unless you would like to apply for a new credit card every time you make a large purchase, it doesn't float this boat. I agree with everything else he said.
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Re: Article: "Our emergency fund is exactly $0.00"
My job is not guaranteed. I don't have taxable investments, only taxable cash.
The opportunity cost of sacrificed theoretical long-term gains is the premium I pay to insure myself against hefty emergencies. This self-insurance package also includes not having to worry about complicated or stress-inducing raids of retirement accounts (during, say, a market crash correlated with negative labor market distortions causing a personal emergency to me) in order to cover reasonable expenses.
I take the author's point, but question its applicability to a young, modest earner, without the best job stability in the world.
The opportunity cost of sacrificed theoretical long-term gains is the premium I pay to insure myself against hefty emergencies. This self-insurance package also includes not having to worry about complicated or stress-inducing raids of retirement accounts (during, say, a market crash correlated with negative labor market distortions causing a personal emergency to me) in order to cover reasonable expenses.
I take the author's point, but question its applicability to a young, modest earner, without the best job stability in the world.
85% Global Stock, 15% US Fixed Income
Re: Article: "Our emergency fund is exactly $0.00"
I read the article say he would use his credit cards and pay off the balance in full from other sources at the end of the month.fantasytensai wrote: However as for his strategy of using 0% interest credit cards, I can tell you that it doesn't work that way. 0% interest is usually only offered as a limited signup reward. So unless you would like to apply for a new credit card every time you make a large purchase, it doesn't float this boat. I agree with everything else he said.
Or if you wanted to you could easily apply for a new 0% CC every 18 months and ensure yourself some breathing room.
Re: Article: "Our emergency fund is exactly $0.00"
An emergency fund makes sense for people who live paycheck to paycheck but not as much sense for someone with a lot of financial resources. My emergency fund is a few twenty dollar bills kept on hand in case I need some cash to buy food and there is a widespread power outage and I happen not to have enough cash in my wallet to buy some. If I had an emergency, I would use my credit card or write a check from one of any number of accounts.
I never even kept that small amount of cash on hand until all of the panic about the Y2K Bug (when was the last time that REALLY BIG DEAL crossed your mind?) and I thought it would not be a bad idea to have $100 on hand for food, just in case.
I never even kept that small amount of cash on hand until all of the panic about the Y2K Bug (when was the last time that REALLY BIG DEAL crossed your mind?) and I thought it would not be a bad idea to have $100 on hand for food, just in case.
Last edited by Pajamas on Tue May 16, 2017 4:26 pm, edited 1 time in total.
- triceratop
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Re: Article: "Our emergency fund is exactly $0.00"
Yes, you do have taxable investments. Every dollar you have is invested in some way. You choose to invest in cash in your taxable account, which has 0-duration and low yield (~1% at Ally).Rainmaker41 wrote:My job is not guaranteed. I don't have taxable investments, only taxable cash.
The opportunity cost of sacrificed theoretical long-term gains is the premium I pay to insure myself against hefty emergencies. This self-insurance package also includes not having to worry about complicated or stress-inducing raids of retirement accounts (during, say, a market crash correlated with negative labor market distortions causing a personal emergency to me) in order to cover reasonable expenses.
I take the author's point, but question its applicability to a young, modest earner, without the best job stability in the world.
Yes, this may be viewed as a nitpick.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."
Re: Article: "Our emergency fund is exactly $0.00"
With a large portfolio, reliable access to cheap credit, secure employment, and a thoroughly rational attitude towards money, you can do just fine without an emergency fund. If the portfolio is big enough you can probably forget the other requirements. And if you have a tendency towards impulse spending, you might be better off not keeping ready money close to hand. This is not a description that fits everyone.
Also, when sorrows come they come not single spies but in battalions. What if the stock market crashes and Papa ERN's employer goes bankrupt and can't pay that generous severance package? These might not be unrelated events, and it might also be the moment when access to credit dries up, especially if the value of the house goes down. With their portfolio they're probably still OK. But with that portfolio, why are they obsessing about a little cash drag?
Also, when sorrows come they come not single spies but in battalions. What if the stock market crashes and Papa ERN's employer goes bankrupt and can't pay that generous severance package? These might not be unrelated events, and it might also be the moment when access to credit dries up, especially if the value of the house goes down. With their portfolio they're probably still OK. But with that portfolio, why are they obsessing about a little cash drag?
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Re: Article: "Our emergency fund is exactly $0.00"
Fair point. This came up in a thread a while ago. My reasoning is that I judge it not worth the effort to hold a cash equivalent in my 403b, stock fund in a taxable account, and then exchange these in an emergency, as my 403b is clunky.triceratop wrote:Yes, you do have taxable investments. Every dollar you have is invested in some way. You choose to invest in cash in your taxable account, which has 0-duration and low yield (~1% at Ally).Rainmaker41 wrote:My job is not guaranteed. I don't have taxable investments, only taxable cash.
The opportunity cost of sacrificed theoretical long-term gains is the premium I pay to insure myself against hefty emergencies. This self-insurance package also includes not having to worry about complicated or stress-inducing raids of retirement accounts (during, say, a market crash correlated with negative labor market distortions causing a personal emergency to me) in order to cover reasonable expenses.
I take the author's point, but question its applicability to a young, modest earner, without the best job stability in the world.
Yes, this may be viewed as a nitpick.
Yes, this is 'bucketing', but the cash reserve will not receive new contributions, whereas the retirement accounts will. Eventually, the cash reserve will become fairly insignificant.
85% Global Stock, 15% US Fixed Income
Re: Article: "Our emergency fund is exactly $0.00"
There's something about having cash on hand to me that is just comforting. Maybe for other's it's not. Some also count their cash as part of their fixed allocation- so 80/20 with bonds vs. 80/20 with cash. Both are 80/20- one says they have an 'emergency fund' and one doesn't but they're both 80/20.
Chase the good life my whole life long, look back on my life and my life gone...where did I go wrong?
Re: Article: "Our emergency fund is exactly $0.00"
fantasytensai wrote:I don't think there is anything wrong with this author's strategy.
Personally I am able to keep $30k at rewards checking accounts earning 4.59 to 5% APY while being as liquid as a regular checking account, so that serves as my emergency fund. But I can absolutely see myself using a HELOC as well.
Where are you getting that APY in a checking account?
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Re: Article: "Our emergency fund is exactly $0.00"
The drag of a few thousand in a savings account on a 6 or 7 figure portfolio is minimal.
When an EF is really needed is when you are just starting out, or you are digging yourself out of a hole
and changing behaviors.
When you are retired and hopefully have a large portfolio, the EF is really either about convenience
or peace of mind. If you can't sleep at night because you may have to sell stocks in a down market,
even though you still have $1 million in investments, what good is that?
Before 59 1/2 there is a penalty for non-ROTH retirement fund withdrawals, so you need some money that
is accessible.
My first tier EF is my short term liquidity fund in a savings account.
My second-tier EF is my ROTH contributions.
Once I;m retired, I won't have an EF, I'll just have the categories:
short term,
taxable ,
taxable deferred and
tax exempt
When an EF is really needed is when you are just starting out, or you are digging yourself out of a hole
and changing behaviors.
When you are retired and hopefully have a large portfolio, the EF is really either about convenience
or peace of mind. If you can't sleep at night because you may have to sell stocks in a down market,
even though you still have $1 million in investments, what good is that?
Before 59 1/2 there is a penalty for non-ROTH retirement fund withdrawals, so you need some money that
is accessible.
My first tier EF is my short term liquidity fund in a savings account.
My second-tier EF is my ROTH contributions.
Once I;m retired, I won't have an EF, I'll just have the categories:
short term,
taxable ,
taxable deferred and
tax exempt
Re: Article: "Our emergency fund is exactly $0.00"
this only makes sense if one is holding all/mostly stocks. For the typical balance portfolio, one would be selling bonds in a market downturn -- to eat and/or buy stocks.MathWizard wrote:When you are retired and hopefully have a large portfolio, the EF is really either about convenience
or peace of mind. If you can't sleep at night because you may have to sell stocks in a down market,
even though you still have $1 million in investments, what good is that?
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
Re: Article: "Our emergency fund is exactly $0.00"
This reminds me of a quote from Buffet many years ago. At the time, Berkshire Hathaway had $20 billion in cash on its balance sheet. Buffet was criticized by many for having too much cash. His response: "With $20B in cash, I sleep very well".MathWizard wrote: If you can't sleep at night because you may have to sell stocks in a down market,
even though you still have $1 million in investments, what good is that?
So if you can't sleep at night due to the size of your ER (whether it is $0, or $10k or $100k, or whatever), then you have the wrong size ER.
Re: Article: "Our emergency fund is exactly $0.00"
(Please stay focused to help the OP.)
See the wiki: Emergency fund
pax - I notice you have 9 months of expenses saved up here: Portfolio Questions and Review
Do you have any questions on what to do with the 9 months of expenses?
See the wiki: Emergency fund
pax - I notice you have 9 months of expenses saved up here: Portfolio Questions and Review
Do you have any questions on what to do with the 9 months of expenses?
Re: Article: "Our emergency fund is exactly $0.00"
Many people's HELOCs were cancelled during the last financial crisis. One should not rely primarily on a HELOC for emergency. as it can go away, just like a job can.
Re: Article: "Our emergency fund is exactly $0.00"
I am not impressed when the first alternative is to use a credit card. Another choic is a heloc. Having cash at hand is good for emergencies.
Re: Article: "Our emergency fund is exactly $0.00"
I'm 64. I have $0. I do have a house paid off, can get $50000 tomorrow at the bank. I have never had a emergency fund.
Re: Article: "Our emergency fund is exactly $0.00"
Makes sense to me at this point in my life. I count as emergency fund anything I can get to within a credit card billing cycle without paying withdrawal penalties. I had a $12k emergency home repair earlier this year; I paid on credit cards and then sold assets from taxable to cover the bill.
Re: Article: "Our emergency fund is exactly $0.00"
Never had an EF until I had 2 heart attacks. Now there is enough money in there so my wife doesn't have to think about money for at least 6 months. I am not retired and have a large taxable account. But if you've ever seen a widow after their husband dies, they have other things to worry about than where is the money coming from while I bury my husband. (you can swap widower for widow and wife for husband).
Consistently sets low goals and fails to achieve them.
Re: Article: "Our emergency fund is exactly $0.00"
My entire net worth is my emergency account. If it means becoming homeless or eating cat food I will be selling anything and everything to prevent that situation.
Re: Article: "Our emergency fund is exactly $0.00"
OP,
I have multiple levels of Emergency Fund.
1) 1 year of expense in checking account and Vanguard money market account.
2) A few hundred up to 1 thousand in cash on hand.
3) Gold jewelry
4) At least 1 week worth of food and plenty of bottled water in the pantry.
So, I am prepared.
KlangFool
I have multiple levels of Emergency Fund.
1) 1 year of expense in checking account and Vanguard money market account.
2) A few hundred up to 1 thousand in cash on hand.
3) Gold jewelry
4) At least 1 week worth of food and plenty of bottled water in the pantry.
So, I am prepared.
KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Re: Article: "Our emergency fund is exactly $0.00"
My Vanguard Roth IRA is my emergency fund. (I retired January 2014.)
Gordon
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Re: Article: "Our emergency fund is exactly $0.00"
Sure. I don't keep a so called "emergency fund". All your taxable assets are your emergency fund so I look at my whole portfolio for asset allocation.
The real concern if any should be time: If day 0 has emergency, how many days to get cash?
1) Day0: My small checking account which just has enough for daily bills. It gets replenished every month with my paycheck. It is a trivial amount (less than 0.1% of my assets) so I don't care about optimizing it.
2) Day0: Credit cards that you can then pay at month end so have day0+ 30 buffer without having to pay any interest.
3) Day0+2: Mutual funds sold in taxable
4) Day0+5: ETF sold in taxable.
So, my worst case is ~5 days all my taxable assets are available. I don't see the reason to have a separate emergency fund in today's day and age with credit cards, internet and quick access to liquid mutual funds/etf.
The real concern if any should be time: If day 0 has emergency, how many days to get cash?
1) Day0: My small checking account which just has enough for daily bills. It gets replenished every month with my paycheck. It is a trivial amount (less than 0.1% of my assets) so I don't care about optimizing it.
2) Day0: Credit cards that you can then pay at month end so have day0+ 30 buffer without having to pay any interest.
3) Day0+2: Mutual funds sold in taxable
4) Day0+5: ETF sold in taxable.
So, my worst case is ~5 days all my taxable assets are available. I don't see the reason to have a separate emergency fund in today's day and age with credit cards, internet and quick access to liquid mutual funds/etf.
Re: Article: "Our emergency fund is exactly $0.00"
In addition to the things Dirghatamas lists, I also have portfolio line of credit (which is basically like a home equity line of credit but based on my taxable portfolio instead) with WellsFargo which allows me to borrow (approximately) 50% of my portfolio value without needing to liquidate anything. I have access to the money instantly so that's another option in the D0 to D0+2 time frame.Dirghatamas wrote:1) Day0: My small checking account which just has enough for daily bills. It gets replenished every month with my paycheck. It is a trivial amount (less than 0.1% of my assets) so I don't care about optimizing it.
2) Day0: Credit cards that you can then pay at month end so have day0+ 30 buffer without having to pay any interest.
3) Day0+2: Mutual funds sold in taxable
4) Day0+5: ETF sold in taxable.
- Lieutenant.Columbo
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Re: Article: "Our emergency fund is exactly $0.00"
AlohaJoe,AlohaJoe wrote:...portfolio line of credit (which is basically like a home equity line of credit but based on my taxable portfolio instead) with WellsFargo which allows me to borrow (approximately) 50% of my portfolio value without needing to liquidate anything. I have access to the money instantly so that's another option in the D0 to D0+2 time frame.
This portfolio line of credit (PLC) as EF concept is new and interesting to me (with, essentially, no per-se EF). Can one only have PLC through the portfolio's custodian? Is there any cost to the PLC while it's dormant/unused? Will the cost+interests incurred when using the PLC be higher than the cost of selling shares for a comparable value in the taxable aspect of the portfolio? If so, why not liquidate the portfolio instead of using the PLC? Thanks!
Last edited by Lieutenant.Columbo on Wed May 17, 2017 6:52 am, edited 1 time in total.
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!
Re: Article: "Our emergency fund is exactly $0.00"
Seems like it might be the economic equivalent of a margin account. Presumably there is a call provision if the value of the equity portfolio falls.Lieutenant.Columbo wrote:AlohaJoe,AlohaJoe wrote:...portfolio line of credit (which is basically like a home equity line of credit but based on my taxable portfolio instead) with WellsFargo which allows me to borrow (approximately) 50% of my portfolio value without needing to liquidate anything. I have access to the money instantly so that's another option in the D0 to D0+2 time frame.
This portfolio line of credit (PLC) as EF concept is new and interesting to me (with, essentially, to per-se EF). Can one only have PLC through the portfolio's custodian? Is there any cost to the PLC while it's dormant/unused? Will the cost+interests incurred when using the PLC be higher than selling shares for a comparable value in the taxable aspect of the portfolio? If so, why not liquidate the portfolio instead of using the PLC? Thanks!
I always wanted to be a procrastinator.
Re: Article: "Our emergency fund is exactly $0.00"
From the article:BogleMelon wrote:I didn't see the word "Job loss" in the whole article! The writer seems ignored it at purpose (unless I missed it). The main reason I have EF is the risk of job loss.
Of course, what applies to him doesn't apply to everyone. One size doesn't fit all in terms of life situation/strategy/comfort zone/etc. I'd agree totally that ERN doesn't need an emergency fund. I don't need one either, but have one anyway. My emergency fund, together with real estate investment income covers ~1 years expenses. My EF is in a Capitol One acct earning 1%. But then I'm perhaps near early retirement, and the drag of my emergency fund isn't much to speak of and would become my first money to spend anyway. Earning 1% on about 1.8% of my liquid assets, vs earning the 2.43% VBTLX pays is in the noise, so I just count it as part of my fixed income investments.If Papa ERN were to lose his job, we currently have enough net worth to completely retire.
Re: Article: "Our emergency fund is exactly $0.00"
I agree that blog writers write articles to draw attention to their site. I think that is the third or fourth article where he writes on that topic.
I prefer ones that don't paint people who disagree with their "opinions" as bozos and idiots.
I think it is a good thing to have an emergency fund. It has real life benefits of available cash as well as a psychological benefit.
For most we also aren't talking about huge sums of money that the lower potential rate of return makes a huge difference.
From personal experience I can tell you that when my well regarded health insurance refused to pay for surgery for my daughter and the hospital wanted a check BEFORE the surgery for $50,000 it was nice to have that emergency fund.
I prefer ones that don't paint people who disagree with their "opinions" as bozos and idiots.
I think it is a good thing to have an emergency fund. It has real life benefits of available cash as well as a psychological benefit.
For most we also aren't talking about huge sums of money that the lower potential rate of return makes a huge difference.
From personal experience I can tell you that when my well regarded health insurance refused to pay for surgery for my daughter and the hospital wanted a check BEFORE the surgery for $50,000 it was nice to have that emergency fund.
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Re: Article: "Our emergency fund is exactly $0.00"
He is not working for money then. He has reached a financial independence point. That explains a lot. But yes, it doesn't apply to everyone specially people who are still working for money (such as myself)..
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather
Re: Article: "Our emergency fund is exactly $0.00"
People with a six figure taxable account can use that as an emergency fund if they want. Most people don't have a six figure taxable account.
Warning: I am about 80% satisficer (accepting of good enough) and 20% maximizer
Re: Article: "Our emergency fund is exactly $0.00"
I agree with most of the article. Keeping an emergency fund to me means that you're locking in a lower expected return. I don't see why someone with a sizable portfolio (enough to cover several years worth of expenses) would need one. If you have a large enough portfolio with a healthy stock/bond allocation, even in a big market downturn one should have enough to cover most emergencies. I can understand why one would have one if you're just starting out, but once you reach a significant net worth, the benefits of having one are largely psychological.
Re: Article: "Our emergency fund is exactly $0.00"
Guess I am more conservative than most. My wife and I are retiring later this year and I like the idea of having 2-3 years of expenses in high yielding savings accounts and CDs so we would not have to withdraw from investments in the event of a prolonged Bear Market.
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Re: Article: "Our emergency fund is exactly $0.00"
Correct.BogleMelon wrote:I didn't see the word "Job loss" in the whole article! The writer seems ignored it at purpose (unless I missed it). The main reason I have EF is the risk of job loss.
Even in my working days, mostly pre BH, I never had a real E fund.
Now in retirement, I keep several thousand dollars in checking to buffer expenses. Above that, I toss extra income into my taxable investment account, presently total stock market VTSAX.
Note: there is a category of retirees called Bucketeers who keep X months or years of expenses in their Cash Bucket.
Whether this is effectively an E fund or not can be argued, but it has the same cash drag effect...
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Re: Article: "Our emergency fund is exactly $0.00"
That becomes definitional though. CDs are (or can be) part of your fixed income portfolio. They may or may not be suitable for an emergency fund. While typically you can withdraw money from a CD on demand with an associated interest penalty of x months, the fine print may well say the bank can refuse to allow that at their discretion.bikechuck wrote:Guess I am more conservative than most. My wife and I are retiring later this year and I like the idea of having 2-3 years of expenses in high yielding savings accounts and CDs so we would not have to withdraw from investments in the event of a prolonged Bear Market.
That said, spending beyond the current year could just as well be in conservative bonds, which are unlikely to fall much. I guess the distinction between fixed income investments and emergency fund can be a bit blurry anyway.
Re: Article: "Our emergency fund is exactly $0.00"
Yes. I sort of look at the opportunity cost for an EF as an insurance policy. Buy it when you need it. Drop it when you don't. I dropped our EF when I was 40, dropped all the supplemental life insurance and disability (kept company provided of course) when I was 50. On the other hand, as I got older and our assets grew, I increased our umbrella liability insurance.keystone wrote:I agree with most of the article. Keeping an emergency fund to me means that you're locking in a lower expected return. I don't see why someone with a sizable portfolio (enough to cover several years worth of expenses) would need one. If you have a large enough portfolio with a healthy stock/bond allocation, even in a big market downturn one should have enough to cover most emergencies. I can understand why one would have one if you're just starting out, but once you reach a significant net worth, the benefits of having one are largely psychological.
If someone has annuities (or pension equivalent) they have already bought a form of insurance.
I always wanted to be a procrastinator.
Re: Article: "Our emergency fund is exactly $0.00"
I think that the decision to have an emergency fund is based upon the individual's personality. I do not have an emergency fund but as one poster said I can convert my taxable assets to cash within 2 days. I am retired now but I never felt the need to have an emergency fund when I worked. I never liked the idea of cash just sitting there earning diddly. But that decision is based on my personality. Some people like having available cash. That fits their personality. No right or wrong answer.
"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley
Re: Article: "Our emergency fund is exactly $0.00"
LadyGeek wrote:(Please stay focused to help the OP.)
See the wiki: Emergency fund
pax - I notice you have 9 months of expenses saved up here: Portfolio Questions and Review
Do you have any questions on what to do with the 9 months of expenses?
LadyGeek:
Thanks for noticing! I do have a struggle since I am re-doing all of my retirement AA (Taxable will be next).
Here's more background:
I was self-employed (IT Consultant) for 16.5 years and before I started, I told myself that I needed 1 year of mortgage payments in cash as an emergency fund since I had just bought a large house. *Now*, I have been an employee for 5 years now (I don't like it but that's off topic) and now I have about 9 months of expenses in the Emergency Fund.
Questions:
As I create my AA, should I have an allocation for Cash, as well; in my retriement and my taxable portfolios? The thinking is that liquidity (and maybe this is not the same as cash) is needed to rebalance the AA, maybe taxes in the taxable portfolio, etc.
After reading, this article, I wonder if I could re-route some of that Emergency Fund money to Equitiies? And hw much?
I also have other "Cash" accounts: one where I am saving 1 year of nursing home care for Mom (she is 97 yrs old with Alzheimers and we have 2 and 1/2 years left in the bank for her care), new car fund (which I might have to re-direct to Mom's care) and other small (Home Projects and Vacation) cash accounts. So, I feel, that maybe I have too much "cash" and I am feeling the "opportunity cost".
Sorry to get personal but finances are personal!
Thanks!
Pax
Re: Article: "Our emergency fund is exactly $0.00"
Pax,Pax wrote:
I also have other "Cash" accounts: one where I am saving 1 year of nursing home care for Mom (she is 97 yrs old with Alzheimers and we have 2 and 1/2 years left in the bank for her care), new car fund (which I might have to re-direct to Mom's care) and other small (Home Projects and Vacation) cash accounts. So, I feel, that maybe I have too much "cash" and I am feeling the "opportunity cost".
Sorry to get personal but finances are personal!
Thanks!
Pax
You slice and dice your "cash" funds. Then, you think that you save too much cash. But, you may or may not be correct. That is your problem.
I don't have this problem. I keep 1 year worth of emergency fund. Then, I have other flows of cash: my annual savings into the taxable account and taxable account dividend and distribution. I can redirect the flow for car purchase and so on. Or, I can invest those flows.
You may want to take a look at my approach.
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Re: Article: "Our emergency fund is exactly $0.00"
I have no emergency fund and don't plan to. I keep anywhere from 5k-10k in my bank account to maintain liquidity.
Any personal emergency can be withdrawn from my stock investments. I'll sell the batches with the least realized gains.
The only hole in this plan is the correlation between personal emergency and stock collapses - like in 2008 when we lost 50% market value AND everyone was getting fired - if this happens to me again, I'll be forced to sell at the bottom, and not by chance. But for me the risk is worth it.
Any personal emergency can be withdrawn from my stock investments. I'll sell the batches with the least realized gains.
The only hole in this plan is the correlation between personal emergency and stock collapses - like in 2008 when we lost 50% market value AND everyone was getting fired - if this happens to me again, I'll be forced to sell at the bottom, and not by chance. But for me the risk is worth it.