Emergency Fund Investing

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
dzmoney
Posts: 2
Joined: Tue Apr 10, 2018 11:55 pm

Emergency Fund Investing

Post by dzmoney »

I am curious as to how others manage their emergency funds? I currently hold mine in a high yield savings account, which offers higher returns than a traditional savings account. Because that money should be readily available should an emergency arise, I do not want to comit those funds to a CD( which offers slightly better returns). Any suggestions on other ways of investing that money to get a larger return than a savings account?
sycotik
Posts: 30
Joined: Thu Mar 04, 2010 3:51 am

Re: Emergency Fund Investing

Post by sycotik »

Depending on your savings account returns, I got into Ally 11 month no penalty CD's when they were at 1.75%. I do not think they are that high at the moment, but you could look into something like that. At the time when I got them, 1.75% was higher than my savings account I had the money in, so it was an easy decision for me.
onourway
Posts: 3778
Joined: Thu Dec 08, 2016 2:39 pm

Re: Emergency Fund Investing

Post by onourway »

We keep a fair amount liquid mostly to give a buffer to pay our bills month over month; typically $10-20k. Anything above that gets invested, which is tier 2. Tier 3 is our Roth contributions. Tier 4 all other investments.
User avatar
pokebowl
Posts: 583
Joined: Sat Dec 17, 2016 6:22 pm
Location: Alaska

Re: Emergency Fund Investing

Post by pokebowl »

I used to keep mine in a high yield savings account since the financial crisis, however with Tbills and money markets now beating high yield online accounts, I've since moved my money over. The state tax break is a nice perk as well. Grand scheme of things the additional yield won't really be buying me that private island anytime soon, however it only took a couple mouse clicks to perform so little time and effort wasted to make the change.
User avatar
Psyayeayeduck
Posts: 205
Joined: Mon Mar 07, 2016 6:46 am

Re: Emergency Fund Investing

Post by Psyayeayeduck »

I actually have a tier system when it comes to my emergency fund. The more severe the emergency, the higher tier I'm willing to go to "cash out". I'll give you an example:

- (Tier 1) Checking account with about a month's worth of expenses as a buffer over my normal spending habits

- (Tier 2) Savings account with about 1-2 month's worth of expenses

- (Tier 3) Bonds in a taxable account for any remainder amount of expenses


I would suspect that most emergencies that the general public will encounter are relatively minor (e.g., flat tire) that the tier 1 level would take care of. The only real time I can think of when a tier 2 or 3 would be needed is if a severe medical emergency or layoff occurred. Anyways, this setup works for me. Definitely a YMMV scenario.
lostdog
Posts: 5368
Joined: Thu Feb 04, 2016 1:15 pm

Re: Emergency Fund Investing

Post by lostdog »

Vanguard Prime Money Market or Vanguard Federal Money Market.
Stocks-80% || Bonds-20% || Taxable-VTI/VXUS || IRA-VT/BNDW
frugalmama
Posts: 250
Joined: Tue Mar 20, 2018 12:53 pm

Re: Emergency Fund Investing

Post by frugalmama »

Tier 1 - 1 month in my regular bank account to pay bills off of
Tier 2 - 2 months higher interest bank account
Tier 3 - Roth

We have high job security so it would take something pretty catastrophic to need more than 3 months.
digit8
Posts: 721
Joined: Mon Jul 14, 2008 5:26 pm

Re: Emergency Fund Investing

Post by digit8 »

I call it the passive/agressive approach: 6 months in an MMSA, with regular additional deposits. Once it gets to a decent amount above 6 months worth- usually $500 bucks or so- I move the excess into a taxable S&P 500 fund.
"You can't latte yourself to bankruptcy. The bladder won't allow it." | -Katherine Porter
User avatar
ruralavalon
Posts: 26351
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Emergency Fund Investing

Post by ruralavalon »

Welcome to the forum :) .
dzmoney wrote: Wed Apr 11, 2018 12:02 am I am curious as to how others manage their emergency funds? I currently hold mine in a high yield savings account, which offers higher returns than a traditional savings account. Because that money should be readily available should an emergency arise, I do not want to comit those funds to a CD( which offers slightly better returns). Any suggestions on other ways of investing that money to get a larger return than a savings account?
For your emergency fund you could consider Vanguard Prime Money Market Fund (VMMXX), the current SEC Yield is 1.75%. That has a higher return than a regular savings account, and is more flexible than a CD.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
scrabbler1
Posts: 2798
Joined: Fri Nov 20, 2009 1:39 pm

Re: Emergency Fund Investing

Post by scrabbler1 »

I have a tier system, too. My first tier is an additional $500 in my local bank's checking account (beyond that needed to meet any minimum balance requirements to avoid monthly account fees) which covers small, unforeseen expenses. My second tier is about $40k in an intermediate-term muni bond fund. That fund pays about $90 a month in mostly tax-free interest and has checkwriting privileges so the money is somewhat more accessible in a pinch. I tap into this fund on average less than once a year in the 24 years I have been in the fund. I hate the idea of tying up any really large amount of money into something which earns zilch or nearly zilch, while I am willing to risk some small loss if I have to write a check on the bond fund. (Sometimes, I even make a small profit when I write a check from it.)
mega317
Posts: 5705
Joined: Tue Apr 19, 2016 10:55 am

Re: Emergency Fund Investing

Post by mega317 »

Welcome to the forum.

I second T bills which, at least for me with in a high tax state, are much better than anything else without risk. They are quite liquid but you could also ladder them.

For many more emergency fund ideas you can search the forum, which has at least a few threads on this topic every week. Although curiously, there didn't seem to be any around the second week of February....
BeneIRA
Posts: 879
Joined: Sat Nov 29, 2014 7:43 pm

Re: Emergency Fund Investing

Post by BeneIRA »

The wiki is a good resource for emergency fund information. https://www.bogleheads.org/wiki/Emergency_fund
johan851
Posts: 240
Joined: Sun Apr 17, 2011 12:59 pm

Re: Emergency Fund Investing

Post by johan851 »

Also tiered. Because I usually have a decent amount of cash in savings (meaning the emergency fund really is for emergencies) I do the following:

Tier one: quickly accessible cash
Tier two: Vanguard intermediate term muni bond
Tier three: I-bonds

The bonds and I-bonds aren't super liquid - I can't get cash for a couple of days - but I'm not too worried about that.
User avatar
oldcomputerguy
Moderator
Posts: 17930
Joined: Sun Nov 22, 2015 5:50 am
Location: Tennessee

Re: Emergency Fund Investing

Post by oldcomputerguy »

To my way of thinking, an “emergency fund” is just that — money I may need to meet an emergency. I don’t want to have to think about whether a holding has lost value, whether or not I’ll have to pay a penalty, whether or not I can find a buyer for a bond or CD when I need it. I hold several thousand at Ally, tappable with either my Fidelity Visa or my Delta AmEx, and the rest we have invested here and there. I can forego the few bp of return I might otherwise get with an intermediate-term Treasury bond or a CD for the knowledge that liquid capital is there if I need it.
There is only one success - to be able to spend your life in your own way. (Christopher Morley)
rai
Posts: 1342
Joined: Tue Apr 06, 2010 7:11 am

Re: Emergency Fund Investing

Post by rai »

lostdog wrote: Wed Apr 11, 2018 8:20 am Vanguard Prime Money Market or Vanguard Federal Money Market.
If I'm in taxable (top tax bracket plus 3.8% affordable care tax) would it be better to put in Vanguard Municipal Money Market Fund (VMSXX)?
Last edited by rai on Wed Apr 11, 2018 3:25 pm, edited 1 time in total.
"Life is what happens to you while you're busy making other plans" - John Lennon. | | "You say that money, isn't everything | But I'd like to see you live without it." - Silverchair
MotoTrojan
Posts: 11259
Joined: Wed Feb 01, 2017 7:39 pm

Re: Emergency Fund Investing

Post by MotoTrojan »

Opening a small $5K EF at Insight which pays 5%.
User avatar
Sandtrap
Posts: 19590
Joined: Sat Nov 26, 2016 5:32 pm
Location: Hawaii No Ka Oi - white sandy beaches, N. Arizona 1 mile high.

Re: Emergency Fund Investing

Post by Sandtrap »

dzmoney wrote: Wed Apr 11, 2018 12:02 am I am curious as to how others manage their emergency funds? I currently hold mine in a high yield savings account, which offers higher returns than a traditional savings account. Because that money should be readily available should an emergency arise, I do not want to comit those funds to a CD( which offers slightly better returns). Any suggestions on other ways of investing that money to get a larger return than a savings account?
Given enough EF, you can split it into 2 'Tiers" with varying degree of liquidity and return. The nature of an EF is liquidity and security of principal. Therefore, MM, High yield accounts, Short Term CD's (where early withdrawal terms are only loss of interest earned).
IE: 50k in High Yield or MM accounts. Then 50-100k in Short term or ladder CD's.

aloha
j :D
Wiki Bogleheads Wiki: Everything You Need to Know
gpburdell
Posts: 329
Joined: Sun Jun 17, 2012 9:01 pm

Re: Emergency Fund Investing

Post by gpburdell »

1st tier - 3 months of expenses in money market
2nd tier - 3 months of expenses in short term corp bond
3rd tier - 6+ months of investments in taxable account. If I have to sell any of these, I will buy an equivalent amount in retirement accounts using cash/bonds to keep stock exposure the same.

I used to keep the first 6 months in a bond fund, but it takes a couple days for the cash to become available to transfer out of the account. So I put half in the money market which I can instantly transfer out.

Also, I try to have about 5k in my checking account. My spending can have some big spikes in a month as I will buy things for my parents which I pay upfront and they pay me back later. With paychecks direct deposited, there is usually a 1-2k buffer so I don't have to worry about the account running out of money. When the account goes above 5k, I'll move the extra to the taxable account or to the emergency funds if I had reason to use it.
Topic Author
dzmoney
Posts: 2
Joined: Tue Apr 10, 2018 11:55 pm

Re: Emergency Fund Investing

Post by dzmoney »

Wow!All great suggestions!! I like the idea of the tiered approach and think that is something I will implement. Being new to investing, I didn’t realize u can have bonds with check writing abilities if needed. Thank you all for the information again, I need to tap into the resources offered here and better educate myself on investing.
nwffdiver
Posts: 115
Joined: Mon Oct 01, 2012 9:26 pm
Location: End of the Oregon trail

Re: Emergency Fund Investing

Post by nwffdiver »

lostdog wrote: Wed Apr 11, 2018 8:20 am Vanguard Prime Money Market or Vanguard Federal Money Market.


I have some money in this, as my settlement account, but you’ll get better return with an Ally online savings or MM account. That’s my 2nd tier.
am
Posts: 4233
Joined: Sun Sep 30, 2007 9:55 am

Re: Emergency Fund Investing

Post by am »

Also consider short term or limited term muni for high brackets. These fluctuate < 5% most of the time,
runner540
Posts: 1763
Joined: Sun Feb 26, 2017 4:43 pm

Re: Emergency Fund Investing

Post by runner540 »

dzmoney wrote: Wed Apr 11, 2018 6:47 pm Wow!All great suggestions!! I like the idea of the tiered approach and think that is something I will implement. Being new to investing, I didn’t realize u can have bonds with check writing abilities if needed. Thank you all for the information again, I need to tap into the resources offered here and better educate myself on investing.
To me your question is an oxymoron. I view emergency funds as insurance. Since you are a new investor, you may be underestimating how much risk exists in the markets, underestimating how bad investing outcomes can be correlated with a need for an emergency fund, and overestimating how much you can tolerate.

Some BH's with big taxable accounts don't have a separate emergency fund. If you don't have a big taxable account (think several years worth of expenses) outside of retirement accounts, then I would say you still need an emergency fund in FDIC accounts.
radiowave
Posts: 3352
Joined: Thu Apr 30, 2015 5:01 pm

Re: Emergency Fund Investing

Post by radiowave »

Tier 1: credit cards, checking in b&m bank
Tier 2: high yield savings
Tier 3: short term CDs and Treasury Bills
Tier 4: total stock MF in taxable
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page
scrabbler1
Posts: 2798
Joined: Fri Nov 20, 2009 1:39 pm

Re: Emergency Fund Investing

Post by scrabbler1 »

dzmoney wrote: Wed Apr 11, 2018 6:47 pm Wow!All great suggestions!! I like the idea of the tiered approach and think that is something I will implement. Being new to investing, I didn’t realize u can have bonds with check writing abilities if needed. Thank you all for the information again, I need to tap into the resources offered here and better educate myself on investing.
It may be tough to find a bond fund which has checkwriting privileges these days. This is not as easily available as it was 10 or 20 years ago. Fidelity began phasing it out for bond funds in 2004, not offering it for new account holders.
longleaf
Posts: 290
Joined: Sun Nov 26, 2017 3:13 pm

Re: Emergency Fund Investing

Post by longleaf »

Two checking accounts with daily debit card limit. Credit card.

VG Money Market

VG Intermediate Bond Index

I cannot think of an unforeseeable expense which will exceed the above
Frugality, indexing, time.
Post Reply