Eliminate my emergency fund?

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Lazareth
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Eliminate my emergency fund?

Post by Lazareth »

Last fall I completed my conversion to a Schwab three-fund portfolio, about $1.3MM across our IRAs and taxable accounts. I slashed expenses and I enjoy the new simplicity. But like a drug, I want more... perhaps I further simplify by eliminating the emergency fund.

Inspired by this forum, I had opened a new taxable account just for cash, and funded it with approx $31K as my 'emergency fund'. I put a flat 30K of that in a Schwab Money Market fund SWVXX as I had seen discussed in the forum. But today I noticed the account showed an "Available cash balance: $1,550". So.... the MM funds are NOT 'available'?

It got me thinking... why have this seperate emergency cash account at all? I understand the concern that the ATM's could shut down, and so you keep actual cash in a safe or bank box.

We are in our 60's, expense are modest by many standards. My depression-era parents taught me to keep a checking balance to cover a few month's expenses, and to carry no card debt.

So I ask this forum: Why not shut down the emergency cash account and incorporate that cash into the taxable portfolio? Why not simply and plan that, if I need extra cash for some unforeseen reason I will simply liquidate a small portion of the overall bond allocation? I can re-balance later if necessary.

Thank you for your thought on this.
Last edited by Lazareth on Tue Feb 19, 2019 7:49 pm, edited 1 time in total.
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livesoft
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Re: Eliminate my emergency fund?

Post by livesoft »

Sounds good to me. We have enough cash to pay the next 2 weeks of expenses in our checking account and no emergency fund.
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Grt2bOutdoors
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Re: Eliminate my emergency fund?

Post by Grt2bOutdoors »

Lazareth wrote: Tue Feb 19, 2019 7:46 pm Last fall I completed my conversion to a Schwab three-fund portfolio, about $1.3MM across our IRAs and taxable accounts. I slashed expenses and I enjoy the new simplicity. But like a drug, I want more... perhaps I further simplify by eliminating the emergency fund.

Inspired by this forum, I had opened a new taxable account just for cash, and funded it with approx $31K as my 'emergency fund'. I put a flat 30K of that in a Schwab Money Market fund SWVXX as I had seen discussed in the forum. But today I noticed the account showed an "Available cash balance: $1,550". So.... the MM funds are NOT 'available'?
When did you open the account? Friday? The money is there, but availability is sometimes delayed for the funds to "clear". Schwab should have a disclosure on when funds become available after initial deposit.
It got me thinking... why have this seperate emergency cash account at all? I understand the concern that the ATM's could shut down, and so you keep actual cash in a safe or bank box.
Because cash is super liquid, under normal circumstances so are bonds, but sometimes, just sometime those bonds become illiquid like in 2009 when the market went to hell in a hand basket. Having cash would have come in very handy indeed. Cash, cold hard, cash.
We are in our 60's, expense are modest by many standards. My depression-era parents taught me to keep a checking balance to cover a few month's expenses, and to carry no card debt.
Smart parents. Heard enough stories growing up from my grandparents to know the value of cash. Invest yes, but be sufficiently liquid to tide yourself over while the dust settles.
So I ask this forum: Why not shut down the emergency cash account and incorporate that cash into the taxable portfolio? Why not simply and plan that, if I need extra cash for some unforeseen reason I will simply liquidate a small portion of the overall bond allocation? I can re-balance later if necessary.
Read my response on the 2009 black swan when the fixed income markets froze up. Try selling a bond, that the day before was trading at 100 cents on the dollar, the new offer today is for 61 cents. Deal? Right, that's what those who had cash said - "no way"! Those desperate for cash, well they sold and lived to regret it.
Thank you for your thought on this.
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Topic Author
Lazareth
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Re: Eliminate my emergency fund?

Post by Lazareth »

Grt2bOutdoors wrote: Tue Feb 19, 2019 7:55 pm
Lazareth wrote: Tue Feb 19, 2019 7:46 pm Inspired by this forum, I had opened a new taxable account just for cash, and funded it with approx $31K as my 'emergency fund'. I put a flat 30K of that in a Schwab Money Market fund SWVXX as I had seen discussed in the forum. But today I noticed the account showed an "Available cash balance: $1,550". So.... the MM funds are NOT 'available'?
When did you open the account? Friday? The money is there, but availability is sometimes delayed for the funds to "clear". Schwab should have a disclosure on when funds become available after initial deposit.
..Thank you for the thoughtful reply. I opened the account and purchased the MM shares in November, I know the money is there, but apparently it is technically not available to transfer to checking until I sell the shares.
It got me thinking... why have this separate emergency cash account at all? I understand the concern that the ATM's could shut down, and so you keep actual cash in a safe or bank box.
Because cash is super liquid, under normal circumstances so are bonds, but sometimes, just sometime those bonds become illiquid like in 2009 when the market went to hell in a hand basket. Having cash would have come in very handy indeed. Cash, cold hard, cash.
OK, so have cash, not just bond funds. Perhaps I eliminate the extra taxable brokerage account and just keep a higher cash balance in the taxable investment account
We are in our 60's, expense are modest by many standards. My depression-era parents taught me to keep a checking balance to cover a few month's expenses, and to carry no card debt.
Smart parents. Heard enough stories growing up from my grandparents to know the value of cash. Invest yes, but be sufficiently liquid to tide yourself over while the dust settles.
So I ask this forum: Why not shut down the emergency cash account and incorporate that cash into the taxable portfolio? Why not simply and plan that, if I need extra cash for some unforeseen reason I will simply liquidate a small portion of the overall bond allocation? I can re-balance later if necessary.
Read my response on the 2009 black swan when the fixed income markets froze up. Try selling a bond, that the day before was trading at 100 cents on the dollar, the new offer today is for 61 cents. Deal? Right, that's what those who had cash said - "no way"! Those desperate for cash, well they sold and lived to regret it.
Good point.
Thank you for your thought on this.
a/66, retired, married, enjoy p/t employment.
Topic Author
Lazareth
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Re: Eliminate my emergency fund?

Post by Lazareth »

livesoft wrote: Tue Feb 19, 2019 7:48 pm Sounds good to me. We have enough cash to pay the next 2 weeks of expenses in our checking account and no emergency fund.
Thank you!
a/66, retired, married, enjoy p/t employment.
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whodidntante
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Re: Eliminate my emergency fund?

Post by whodidntante »

Since you have 1.3 million, "protecting" 31k in a MMF seems silly. Invest your money in a tax efficient way and let the chips fall where they may.
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Re: Eliminate my emergency fund?

Post by radiowave »

We're in our 60s, I will retire in a couple years, spouse works part-time. No more separate emergency fund for us, just cash instruments, e.g. CDs and Treasury Bills that will cover first 2-3 years of retirement in taxable and hopefully will not have to touch tax-deferred bonds until RMD. Our philosophy is if we can keep the cash instruments from loosing principle (e.g. return after taxes meet or slightly exceed inflation), that's all we really need for short term purposes.
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bada bing
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Re: Eliminate my emergency fund?

Post by bada bing »

I'm of similar age, similar assets.
I keep ~$2K in cash at home and one month's expense float in checking. Everything else is at brokerage (Schwab),
invested 60/40 in an indexed 3 fund. I haven't found a need for a dedicated "Emergency fund" for the last 30 years.
I have a few credit cards (zero balances) that have a total of $150K in credit limit available that would solve any
short term liquidity issues in case of an "emergency", but haven't yet actually had a real "emergency" need to do
so (knock on wood).

I think the concept of an "Emergency fund" might be useful to someone who doesn't have a lot of unrestricted
savings accumulated yet and needs a little mental push to have a buffer. When you're more established and have
several years or more of savings in a regular investment account, an "Emergency fund" just seems to be a needless
complication to me.
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wintermute
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Re: Eliminate my emergency fund?

Post by wintermute »

What I do is keep more than I need for my efund by 10% or so, and put 20% in IJH midcap (mostly to not have to worry about wash sales).
aristotelian
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Re: Eliminate my emergency fund?

Post by aristotelian »

I have come to the same conclusion. Imagine you have a policy to maintain $XXK emergency fund in cash. You need to replace your roof so you spend the cash. Then per your policy you will need to withdraw from stocks and bonds to refill your EF. The net effect is exactly the same as withdrawing from stocks and bonds directly, except that with the EF you always have $XXK out of market dragging on your portfolio.

I have $10K in a MM fund just for the convenience of avoiding taxable transactions for the occasional large purchase.
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Re: Eliminate my emergency fund?

Post by jebmke »

We ditched our emergency fund almost 30 years ago.
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Re: Eliminate my emergency fund?

Post by Chadnudj »

whodidntante wrote: Tue Feb 19, 2019 8:42 pm Since you have 1.3 million, "protecting" 31k in a MMF seems silly. Invest your money in a tax efficient way and let the chips fall where they may.
I'll play the devil's advocate to this:

If you have $1.3 million invested at your preferred asset allocation, moving this $31k (less than 3% of your total current investment account) from cash to your preferred asset allocation isn't really gonna move the needle that much in terms of long term accumulation, etc.

I'd leave the emergency fund alone, reinvesting interest/dividends. Having a readily available $31k cash bucket in case you need a big expenditure (new roof, new car) right when markets are dropping seems a pretty good tradeoff for the minimal difference investing this amount will have to your long term financial goals.
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Wiggums
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Re: Eliminate my emergency fund?

Post by Wiggums »

Ok, I’ll take the opposing view (smile)...

Cash is king! As long as you don't hold too much of it, cash gives you peace of mind and flexibility. Cash will prevent you from selling the moment your stocks dip. You could sell bonds too, but that assumes we are not in the middle of another liquidity crisis.

All kidding aside, I do believe that you should have some cash available. Some call it an emergency fund, others sleep well at night knowing that their 1-2 years of expenses that are not affected by stock market fluctuations.
Last edited by Wiggums on Wed Feb 20, 2019 9:07 am, edited 2 times in total.
mortfree
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Re: Eliminate my emergency fund?

Post by mortfree »

Rename the account something other than emergency fund.

Problem solved.
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Re: Eliminate my emergency fund?

Post by neilpilot »

Chadnudj wrote: Wed Feb 20, 2019 8:58 am
whodidntante wrote: Tue Feb 19, 2019 8:42 pm Since you have 1.3 million, "protecting" 31k in a MMF seems silly. Invest your money in a tax efficient way and let the chips fall where they may.
I'll play the devil's advocate to this:

If you have $1.3 million invested at your preferred asset allocation, moving this $31k (less than 3% of your total current investment account) from cash to your preferred asset allocation isn't really gonna move the needle that much in terms of long term accumulation, etc.

I'd leave the emergency fund alone, reinvesting interest/dividends. Having a readily available $31k cash bucket in case you need a big expenditure (new roof, new car) right when markets are dropping seems a pretty good tradeoff for the minimal difference investing this amount will have to your long term financial goals.
Continuing your devils advocate theme......if your fully invested in your preferred allocation, then when markets are dropping your allocation is likely to shift out of your preference. So if that’s when you need the cash, simply sell from the segment that has remained stronger to bring your overall allocation back into line. You still shouldn’t need to maintain a separate emergency fund.
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Re: Eliminate my emergency fund?

Post by nisiprius »

Some people seem to be desperate to find reasons not to have an emergency fund. I would phrase the question this way: what are the consequences of having an emergency fund and not needing it, versus the consequences of needing one and not having it?

I put emergency funds into the "eat-your-broccoli" category. Nobody wants to do it but just do it, it's a good thing to do.

This is particularly true now that the best available bank accounts are now in the same general ballpark as bond funds. You're not losing much by having cash at a bank. The pattern of risks and liquidity is different for a bank account than it is for a bond fund. This is particularly true if it is a local physical bank, where you can show live humans physical paper documentation if needed, they have actual physical cash, and of course they can perform services like medallion signature guarantee that you may not know you need until you need them.

Indeed, you can opt for checkwriting access to a Vanguard bond mutual fund, and if a place will accept "a check" they'll accept those checks. I agree that personally, the risk of having to liquidate in a down market for bonds doesn't scare me--so it's down ten percent, big deal, it's an emergency. But how many places will take a paper check? (And our home improvement guy, who does take paper checks, only takes them because he can literally go to our bank in person and present the check for payment at the bank on which it was drawn).

Don't try to squeeze the dollar 'til the eagle screams. A safe local pot of cash is not a bad thing to have, even if it is dragging down your personal portfolio's long-term return by whatever it is (do the math! do the math! Say you have 10% of your portfolio earning 2% in BancLocal Platinum Quadrangle X-Treme Prestige savings account instead of a 3% SEC yield, is that really going to ruin your life?)

P.S. And do check out what happened during the financial crisis to people who thought credit cards or home equity lines of credit would always be there when needed.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Chadnudj
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Re: Eliminate my emergency fund?

Post by Chadnudj »

neilpilot wrote: Wed Feb 20, 2019 9:03 am
Chadnudj wrote: Wed Feb 20, 2019 8:58 am
whodidntante wrote: Tue Feb 19, 2019 8:42 pm Since you have 1.3 million, "protecting" 31k in a MMF seems silly. Invest your money in a tax efficient way and let the chips fall where they may.
I'll play the devil's advocate to this:

If you have $1.3 million invested at your preferred asset allocation, moving this $31k (less than 3% of your total current investment account) from cash to your preferred asset allocation isn't really gonna move the needle that much in terms of long term accumulation, etc.

I'd leave the emergency fund alone, reinvesting interest/dividends. Having a readily available $31k cash bucket in case you need a big expenditure (new roof, new car) right when markets are dropping seems a pretty good tradeoff for the minimal difference investing this amount will have to your long term financial goals.
Continuing your devils advocate theme......if your fully invested in your preferred allocation, then when markets are dropping your allocation is likely to shift out of your preference. So if that’s when you need the cash, simply sell from the segment that has remained stronger to bring your overall allocation back into line. You still shouldn’t need to maintain a separate emergency fund.
Of course cash could still outperform if, in a rising interest rate environment (bonds going lower) the stock market crashes (stocks go lower)....which is pretty much what happened in December 2018 (and there is still a risk of occurring going forward).

I'd keep the cash, not have to worry about rebalancing/selling in a downturn of both bonds and stocks, and enjoy my retirement.
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Re: Eliminate my emergency fund?

Post by FootballFan5548 »

aristotelian wrote: Wed Feb 20, 2019 7:37 am I have come to the same conclusion. Imagine you have a policy to maintain $XXK emergency fund in cash. You need to replace your roof so you spend the cash. Then per your policy you will need to withdraw from stocks and bonds to refill your EF. The net effect is exactly the same as withdrawing from stocks and bonds directly, except that with the EF you always have $XXK out of market dragging on your portfolio.

I have $10K in a MM fund just for the convenience of avoiding taxable transactions for the occasional large purchase.
Just to go counter here, I view the Emergency Fund as truly for worst case scenario emergencies.

Let's say it's 2008/09 all over again. A mid-30's guy who supports his non-working wife and kids had $400k in his investment accounts (half 401k half brokerage). The market tanks, his investments tank, his finance job fires him, and now he's got no income and way less in investments including some that's tied up in his 401k, and he needs to pay his mortgage, feed his family, etc.

That's what the E-fund is for. Keeping you on your feet until you can find another job.
I agree for someone mid-60's and retiring it's less necessary. I do however think it's very necessary for someone in my example.
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Re: Eliminate my emergency fund?

Post by bengal22 »

Lazareth wrote: Tue Feb 19, 2019 7:46 pm Last fall I completed my conversion to a Schwab three-fund portfolio, about $1.3MM across our IRAs and taxable accounts. I slashed expenses and I enjoy the new simplicity. But like a drug, I want more... perhaps I further simplify by eliminating the emergency fund.

Inspired by this forum, I had opened a new taxable account just for cash, and funded it with approx $31K as my 'emergency fund'. I put a flat 30K of that in a Schwab Money Market fund SWVXX as I had seen discussed in the forum. But today I noticed the account showed an "Available cash balance: $1,550". So.... the MM funds are NOT 'available'?

It got me thinking... why have this seperate emergency cash account at all? I understand the concern that the ATM's could shut down, and so you keep actual cash in a safe or bank box.

We are in our 60's, expense are modest by many standards. My depression-era parents taught me to keep a checking balance to cover a few month's expenses, and to carry no card debt.

So I ask this forum: Why not shut down the emergency cash account and incorporate that cash into the taxable portfolio? Why not simply and plan that, if I need extra cash for some unforeseen reason I will simply liquidate a small portion of the overall bond allocation? I can re-balance later if necessary.

Thank you for your thought on this.
Mid 60's and that is exactly what we do. I can get monies for crisis in 2 days. I can easily charge 31k if I need it quicker.
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Watty
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Re: Eliminate my emergency fund?

Post by Watty »

Lazareth wrote: Tue Feb 19, 2019 7:46 pm Inspired by this forum, I had opened a new taxable account just for cash, and funded it with approx $31K as my 'emergency fund'. I put a flat 30K of that in a Schwab Money Market fund SWVXX as I had seen discussed in the forum. But today I noticed the account showed an "Available cash balance: $1,550". So.... the MM funds are NOT 'available'?
I would suspect that you have a default sweep account that is separate from your money market account and some dividend or interest went into that. You can call Schwab and ask them and check to see if you can have that go into your money market account instead.
Eliminate my emergency fund?
I think that it is good to;

1) Keep at least a few hundred dollars in paper cash at home just in case the ATMs are out after a big storm.

2) Keep at least a few thousand dollars at a local "brick and mortar" bank that you can access whenever they are open.

Once you are more financially secure your definition of "emergency" changes. For someone starting out something like a big car repair bill would risk running up credit card debt that would be hard to pay off. Later on something like being laid off would mean that it could be hard to pay your expenses and a mortage payment and you might need to do something like cash out an IRA and pay the taxes and penalty. In those phases having an emergency fund is critical to keep you from digging yourself a hole that would be hard to get out of.

Once you get beyond those stages if you have an unexpected expense it is more of a question about which account you would need to pay it out of so I agree that there is little need for an emergency fund once you have maybe a years expenses in a taxable accounts. With a years expenses you would still have six months expenses available even after a big market drop like in 2008.
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Re: Eliminate my emergency fund?

Post by rgs92 »

I feel that emergency funds are for those living paycheck to paycheck.
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Re: Eliminate my emergency fund?

Post by pward »

I actually have my "emergency fund" in my brokerage account as part of my AA. I keep 1 year of expenses in treasury bills as part of my bond allocation. One could also use something like SHV if you don't want to own the bills direct. Either way, it's good to have some short term liquidity that is not susceptible to market risk, interest rate risk, or credit risk. It can be included as part of your portfolio, as opposed to a boring separate "emergency fund". Personally, mentally I find it easier to hold short term liquidity when it's part of my AA and I look at it as an investment as opposed to just a rainy day fund. I then use some long term treasuries as a barbell to bring my total bond average maturity up to where I want it, so I get the best of both worlds. Intermediate term treasury like performance on the whole, with liquidity built in just in case.
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Re: Eliminate my emergency fund?

Post by mega317 »

Chadnudj wrote: Wed Feb 20, 2019 8:58 am If you have $1.3 million invested at your preferred asset allocation, moving this $31k (less than 3% of your total current investment account) from cash to your preferred asset allocation isn't really gonna move the needle that much in terms of long term accumulation, etc.
This is what I typically say in these threads. When you have enough to be considering the question, then it doesn't matter. So you're just deciding on how to weight various unlikely but not impossible risks and simplicity.
https://www.bogleheads.org/forum/viewtopic.php?t=6212
CurlyDave
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Re: Eliminate my emergency fund?

Post by CurlyDave »

I have always looked at our entire portfolio as being available for a dire enough emergency.

I think of it in tiers depending on the pain it will cause to liquidate enough to meet a need for cash.

We have a small amount of a "working fund" -- the money in the checking account, and a very small amount of cash on hand for storms, really unexpected events, that kind of thing.

In today's world there is really no need for a large cash reserve. I can't think of a single thing that can't be done with a credit card or on credit. If the furnace dies in the middle of a blizzard, the repair guy is going to send me a bill, not demand cash before he will work on it. Hospitals will never demand cash up front, although they will sometimes give a substantial discount for pre-payment with a credit card.

OTOH, I don't do things where I might have to pay off a drug cartel, or repay an underworld loan...

The scenarios where bonds are selling at 60% of their true value just cries out for accepting paying a few months credit card interest until markets stabilize.
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Re: Eliminate my emergency fund?

Post by Noble Knight »

I have a similar portfolio worth as you and I include my emergency fund as part of my portfolio. My emergency fund is my bonds and I liquidate if necessary and keep around 15-18K in a MMF.
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Re: Eliminate my emergency fund?

Post by bloom2708 »

I can see my local bank branch out the window of work sitting in my cube. Looking at it now through a blanket of snow falling. Spring? Spring?

I keep enough money in checking/savings where I could walk over there and take some out.

Invest the rest where you want. With a large taxable account, you are fine as long as you can wait out the 2-3 day transfer to your local branch.

That 2-3 day wait is the weak point for an "emergency" where you need some cash now. How often do those happen? I hope I don't find out.
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Re: Eliminate my emergency fund?

Post by UpsetRaptor »

If you have a decent-sized taxable account built up, you do not need a separate "emergency fund". You're already covered.

https://www.bogleheads.org/wiki/Placing ... ed_account
MnD
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Re: Eliminate my emergency fund?

Post by MnD »

We went 33 years without what would be considered a BH-approved emergency fund. Have a taxable account from 1986 to current 100% in equity.
Most "emergencies" were handled by adjustments in spending, cash flow, unemployment compensation, 0% interest and no payments for 12 months on appliances at Home Depot with their credit card, other credit cards paid in full ect. The couple of emergencies that required it over 3+ decades we spent from equity in taxable and sold fixed income and bought equity in retirement accounts.

Curiously just into retirement, we now have what might qualify for EF status in a 6-month t-bill ladder and MM fund in a taxable account.
We call it our spending account and it was funded by a big drop in expenses 18 months or so prior to retirement and a couple of one-off events.
After we pay for the camper we ordered and the home office remodel it will be much smaller but still 2.65% TEY on the t-bills. We will count it in our AA and hence will sell bonds and buy stock in other accounts assuming we have no short-term firm plans to spend it. And it might be zero - remodeling projects have a way of doing that. The taxable equity account is flush so no worries going back to the ways we've always handled things. We dumped the local bank and on-line bank accounts some time ago.
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atdharris
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Re: Eliminate my emergency fund?

Post by atdharris »

I've always thought about this, but I'm only 30, and if I were to lose my job, I'm not sure I would want to sell any of the $140k I have in a taxable account to cover expenses. I keep about $25k in a high yield savings account that makes me about $500 a year. Maybe I'm doing it wrong.
UpsetRaptor wrote: Wed Feb 20, 2019 10:19 am If you have a decent-sized taxable account built up, you do not need a separate "emergency fund". You're already covered.

https://www.bogleheads.org/wiki/Placing ... ed_account
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Re: Eliminate my emergency fund?

Post by FoolMeOnce »

aristotelian wrote: Wed Feb 20, 2019 7:37 am I have come to the same conclusion. Imagine you have a policy to maintain $XXK emergency fund in cash. You need to replace your roof so you spend the cash. Then per your policy you will need to withdraw from stocks and bonds to refill your EF. The net effect is exactly the same as withdrawing from stocks and bonds directly, except that with the EF you always have $XXK out of market dragging on your portfolio.

I have $10K in a MM fund just for the convenience of avoiding taxable transactions for the occasional large purchase.
Not necessarily. You can replenish the EF over many months via cash flow. So you sacrifice some future investment, but you aren't withdrawing from your Investments directly. Not sure if that math works out the same, but it can't be identical (no LTCG tax consequences).

If emergencies strike back-to-back (to-back, etc), you might need to liquidate from taxable, sure
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Re: Eliminate my emergency fund?

Post by UpsetRaptor »

atdharris wrote: Wed Feb 20, 2019 10:42 am I've always thought about this, but I'm only 30, and if I were to lose my job, I'm not sure I would want to sell any of the $140k I have in a taxable account to cover expenses. I keep about $25k in a high yield savings account that makes me about $500 a year. Maybe I'm doing it wrong.
UpsetRaptor wrote: Wed Feb 20, 2019 10:19 am If you have a decent-sized taxable account built up, you do not need a separate "emergency fund". You're already covered.

https://www.bogleheads.org/wiki/Placing ... ed_account
You're a perfect example of why, in my opinion, the often parroted emergency fund advice given on these boards is poor. A young person parking a bunch of money is a money market fund forever is a big long-term opportunity cost loss, if you do the math. And you have a six-figure taxable account, plenty to work as an e-fund.
Broken Man 1999
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Re: Eliminate my emergency fund?

Post by Broken Man 1999 »

DW and I have never had an emergency fund. However, we have always had sterling credit. Also we had stable employment.

A lot of time people equate an "emergency" as an unknown, unanticipated major expense. Do those events ever happen? Sure, no doubt at all.
But an emergency doesn't always equate to an instantaneous need for cash. We have never experienced an emergency with a requirement for cash for anything.

We have a couple of high limit credit cards, and I can get $$ quickly from Vanguard at any time either by transferring, or immediately writing a check on an account. If I use a credit card I then have a 25+ days grace period to determine the best method to get funds, plus the 25+ days grace period also allows me to pay the credit card charge before interest is due. Obviously those who have problems using credit cards, or in credit general, should avoid digging themselves a deeper hole.

I believe people starting out in life should have an emergency fund, or at the very least know how to handle an emergency need for funds, not necessarily cash.

Once a portfolio is larger, I think the best course of action is to keep funds invested as much as possible, according to your short-term needs for expenses.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain
aristotelian
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Re: Eliminate my emergency fund?

Post by aristotelian »

FoolMeOnce wrote: Wed Feb 20, 2019 10:49 am
aristotelian wrote: Wed Feb 20, 2019 7:37 am I have come to the same conclusion. Imagine you have a policy to maintain $XXK emergency fund in cash. You need to replace your roof so you spend the cash. Then per your policy you will need to withdraw from stocks and bonds to refill your EF. The net effect is exactly the same as withdrawing from stocks and bonds directly, except that with the EF you always have $XXK out of market dragging on your portfolio.

I have $10K in a MM fund just for the convenience of avoiding taxable transactions for the occasional large purchase.
Not necessarily. You can replenish the EF over many months via cash flow. So you sacrifice some future investment, but you aren't withdrawing from your Investments directly. Not sure if that math works out the same, but it can't be identical (no LTCG tax consequences).

If emergencies strike back-to-back (to-back, etc), you might need to liquidate from taxable, sure
But then you would be going without an emergency fund! What if another emergency happens?
MathWizard
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Re: Eliminate my emergency fund?

Post by MathWizard »

atdharris wrote: Wed Feb 20, 2019 10:42 am I've always thought about this, but I'm only 30, and if I were to lose my job, I'm not sure I would want to sell any of the $140k I have in a taxable account to cover expenses. I keep about $25k in a high yield savings account that makes me about $500 a year. Maybe I'm doing it wrong.
UpsetRaptor wrote: Wed Feb 20, 2019 10:19 am If you have a decent-sized taxable account built up, you do not need a separate "emergency fund". You're already covered.

https://www.bogleheads.org/wiki/Placing ... ed_account
At 30 you have 140K in taxable?

Do you have any in tax advantaged, like a 401k or IRA?
atdharris
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Re: Eliminate my emergency fund?

Post by atdharris »

UpsetRaptor wrote: Wed Feb 20, 2019 11:03 am
atdharris wrote: Wed Feb 20, 2019 10:42 am I've always thought about this, but I'm only 30, and if I were to lose my job, I'm not sure I would want to sell any of the $140k I have in a taxable account to cover expenses. I keep about $25k in a high yield savings account that makes me about $500 a year. Maybe I'm doing it wrong.
UpsetRaptor wrote: Wed Feb 20, 2019 10:19 am If you have a decent-sized taxable account built up, you do not need a separate "emergency fund". You're already covered.

https://www.bogleheads.org/wiki/Placing ... ed_account
You're a perfect example of why, in my opinion, the often parroted emergency fund advice given on these boards is poor. A young person parking a bunch of money is a money market fund forever is a big long-term opportunity cost loss, if you do the math. And you have a six-figure taxable account, plenty to work as an e-fund.
I guess the argument I've always heard is, "if you lose your job during a market crash, you'll be forced to sell your stock at a loss to live off of until you find employment," which is an argument I understand. However, there are days I wonder how much money I am losing by earning 2.1% APY when, if I had invested it 2 years ago, it would be worth a lot more.

Of course, past performance is not a predictor of future performance. The market could have easily crashed. Hindsight is always 20/20.
atdharris
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Re: Eliminate my emergency fund?

Post by atdharris »

Broken Man 1999 wrote: Wed Feb 20, 2019 11:14 am DW and I have never had an emergency fund. However, we have always had sterling credit. Also we had stable employment.

A lot of time people equate an "emergency" as an unknown, unanticipated major expense. Do those events ever happen? Sure, no doubt at all.
But an emergency doesn't always equate to an instantaneous need for cash. We have never experienced an emergency with a requirement for cash for anything.

We have a couple of high limit credit cards, and I can get $$ quickly from Vanguard at any time either by transferring, or immediately writing a check on an account. If I use a credit card I then have a 25+ days grace period to determine the best method to get funds, plus the 25+ days grace period also allows me to pay the credit card charge before interest is due. Obviously those who have problems using credit cards, or in credit general, should avoid digging themselves a deeper hole.

I believe people starting out in life should have an emergency fund, or at the very least know how to handle an emergency need for funds, not necessarily cash.

Once a portfolio is larger, I think the best course of action is to keep funds invested as much as possible, according to your short-term needs for expenses.

Broken Man 1999
You're right. I broke a tooth last year and needed emergency surgery, which ended up costing me $6000 (needed an extraction, implant). The surgeon offered a 0% interest payment plan for a year, so I ended up being able to pay it off over time rather than liquidating $6000 immediately. I have never come across a situation where I needed cash immediately. I use credit cards as a debit card and only need to withdraw cash from my checking once a month when the bill is due.
atdharris
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Re: Eliminate my emergency fund?

Post by atdharris »

MathWizard wrote: Wed Feb 20, 2019 11:20 am
atdharris wrote: Wed Feb 20, 2019 10:42 am I've always thought about this, but I'm only 30, and if I were to lose my job, I'm not sure I would want to sell any of the $140k I have in a taxable account to cover expenses. I keep about $25k in a high yield savings account that makes me about $500 a year. Maybe I'm doing it wrong.
UpsetRaptor wrote: Wed Feb 20, 2019 10:19 am If you have a decent-sized taxable account built up, you do not need a separate "emergency fund". You're already covered.

https://www.bogleheads.org/wiki/Placing ... ed_account
At 30 you have 140K in taxable?

Do you have any in tax advantaged, like a 401k or IRA?
I have had a Roth IRA for 3 years now (about 22k in it), and just now became eligible for a 401k at my law firm. I'm a bit behind when it comes to tax advantaged accounts because I did not start working until after law school, and my firm does not give employees access to the 401k immediately upon hiring.
Dandy
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Re: Eliminate my emergency fund?

Post by Dandy »

Most exposure in the accumulation stage is loss of job and still have large expenses at that time e.g. mortgage and maybe some on the near horizon e.g. education for children. Then there is the wait or lack of re employment especially for those in their 50's -- that often means the risk of funding expenses to Medicare and Social Security.

Once you are past those risks the emergency fund seems less of a need. You may still have to meet other unexpected expenses e.g. car or roof replacement and a spike in medical expenses -- and eventually something like long term care. If you are comfortable funding those type of sudden/unexpected expenses via your portfolio that is fine. I would opt for a decent allocation to some short term bond funds/FDIC products but that is a personal choice.
FoolMeOnce
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Re: Eliminate my emergency fund?

Post by FoolMeOnce »

aristotelian wrote: Wed Feb 20, 2019 11:19 am
FoolMeOnce wrote: Wed Feb 20, 2019 10:49 am
aristotelian wrote: Wed Feb 20, 2019 7:37 am I have come to the same conclusion. Imagine you have a policy to maintain $XXK emergency fund in cash. You need to replace your roof so you spend the cash. Then per your policy you will need to withdraw from stocks and bonds to refill your EF. The net effect is exactly the same as withdrawing from stocks and bonds directly, except that with the EF you always have $XXK out of market dragging on your portfolio.

I have $10K in a MM fund just for the convenience of avoiding taxable transactions for the occasional large purchase.
Not necessarily. You can replenish the EF over many months via cash flow. So you sacrifice some future investment, but you aren't withdrawing from your Investments directly. Not sure if that math works out the same, but it can't be identical (no LTCG tax consequences).

If emergencies strike back-to-back (to-back, etc), you might need to liquidate from taxable, sure
But then you would be going without an emergency fund! What if another emergency happens?
An EF within an EF (ad infinitum) - you'll eventually approach the absence of an emergency, but never fully get there!

But seriously, the EF is already for low probability events and, as many have suggested, isn't worth it. It is far less worth the cost of an EF that covers back-to-back low-probability events. It is perfectly reasonable to plan to refill an EF though cash flow.
ThankYouJack
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Re: Eliminate my emergency fund?

Post by ThankYouJack »

Lazareth wrote: Tue Feb 19, 2019 7:46 pm

It got me thinking... why have this seperate emergency cash account at all?

Thank you for your thought on this.
This gets discussed a lot and it comes down to personal preference.

I don't have an emergency fund myself as I would just liquidate some of my taxable. It's simpler, should get better returns in the long run, and one could say that you have a $1.3MM emergency fund.

On the flip side, if someone sleeps better at night by having X months of expenses in checking, then of course that is fine too.
Atilla
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Re: Eliminate my emergency fund?

Post by Atilla »

We keep about a year's bare expenses in cash but don't call it an emergency fund. Most is in an online bank but some is kept more handy than that. :moneybag

I remember 2008-2009. Cash was KING.

I don't worry about the drag of keeping some cash. The bigger our portfolio grows, the lower percentage of it is held in cash.
crg11
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Re: Eliminate my emergency fund?

Post by crg11 »

mortfree wrote: Wed Feb 20, 2019 9:02 am Rename the account something other than emergency fund.

Problem solved.
This is actually what I did recently. I now just have one big savings account for my cash. This is used for emergency fund as well as things like saving for trips, down payments, etc. It's at a separate financial firm from my day-to-day banking so that I don't get the urge to do an immediate transfer for something frivolous and the balance has generally been for the most part growing from dividends (its in a Money Market fund) and monthly scheduled contributions.
aristotelian
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Re: Eliminate my emergency fund?

Post by aristotelian »

FoolMeOnce wrote: Wed Feb 20, 2019 11:26 am
aristotelian wrote: Wed Feb 20, 2019 11:19 am
FoolMeOnce wrote: Wed Feb 20, 2019 10:49 am
aristotelian wrote: Wed Feb 20, 2019 7:37 am I have come to the same conclusion. Imagine you have a policy to maintain $XXK emergency fund in cash. You need to replace your roof so you spend the cash. Then per your policy you will need to withdraw from stocks and bonds to refill your EF. The net effect is exactly the same as withdrawing from stocks and bonds directly, except that with the EF you always have $XXK out of market dragging on your portfolio.

I have $10K in a MM fund just for the convenience of avoiding taxable transactions for the occasional large purchase.
Not necessarily. You can replenish the EF over many months via cash flow. So you sacrifice some future investment, but you aren't withdrawing from your Investments directly. Not sure if that math works out the same, but it can't be identical (no LTCG tax consequences).

If emergencies strike back-to-back (to-back, etc), you might need to liquidate from taxable, sure
But then you would be going without an emergency fund! What if another emergency happens?
An EF within an EF (ad infinitum) - you'll eventually approach the absence of an emergency, but never fully get there!

But seriously, the EF is already for low probability events and, as many have suggested, isn't worth it. It is far less worth the cost of an EF that covers back-to-back low-probability events. It is perfectly reasonable to plan to refill an EF though cash flow.
If you have the ability to fund your emergency fund with cashflow without worrying about emergencies, that tells me that you really don't need an emergency fund. Why not liquidate your EF now and start saving for the next emergency?
aristotelian
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Re: Eliminate my emergency fund?

Post by aristotelian »

FootballFan5548 wrote: Wed Feb 20, 2019 9:16 am
Just to go counter here, I view the Emergency Fund as truly for worst case scenario emergencies.

Let's say it's 2008/09 all over again. A mid-30's guy who supports his non-working wife and kids had $400k in his investment accounts (half 401k half brokerage). The market tanks, his investments tank, his finance job fires him, and now he's got no income and way less in investments including some that's tied up in his 401k, and he needs to pay his mortgage, feed his family, etc.

That's what the E-fund is for. Keeping you on your feet until you can find another job.
I agree for someone mid-60's and retiring it's less necessary. I do however think it's very necessary for someone in my example.
Absolutely, someone who is low income with no investments needs to have some safe cash. OP has $1.3M across accounts. He has plenty of liquidity for any conceivable purpose.
Thecallofduty
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Re: Eliminate my emergency fund?

Post by Thecallofduty »

This thread about having EFs or not and the threads regarding 529 or not always have very interesting points.

Personally I keep my EF in a money market account. I do not want to touch my taxable total stock market fund in next 15 years unless I am purposefully going to tax loss harvest.

Carry on :sharebeer
-thecallofduty
FoolMeOnce
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Re: Eliminate my emergency fund?

Post by FoolMeOnce »

aristotelian wrote: Wed Feb 20, 2019 11:48 am
FoolMeOnce wrote: Wed Feb 20, 2019 11:26 am
aristotelian wrote: Wed Feb 20, 2019 11:19 am
FoolMeOnce wrote: Wed Feb 20, 2019 10:49 am
aristotelian wrote: Wed Feb 20, 2019 7:37 am I have come to the same conclusion. Imagine you have a policy to maintain $XXK emergency fund in cash. You need to replace your roof so you spend the cash. Then per your policy you will need to withdraw from stocks and bonds to refill your EF. The net effect is exactly the same as withdrawing from stocks and bonds directly, except that with the EF you always have $XXK out of market dragging on your portfolio.

I have $10K in a MM fund just for the convenience of avoiding taxable transactions for the occasional large purchase.
Not necessarily. You can replenish the EF over many months via cash flow. So you sacrifice some future investment, but you aren't withdrawing from your Investments directly. Not sure if that math works out the same, but it can't be identical (no LTCG tax consequences).

If emergencies strike back-to-back (to-back, etc), you might need to liquidate from taxable, sure
But then you would be going without an emergency fund! What if another emergency happens?
An EF within an EF (ad infinitum) - you'll eventually approach the absence of an emergency, but never fully get there!

But seriously, the EF is already for low probability events and, as many have suggested, isn't worth it. It is far less worth the cost of an EF that covers back-to-back low-probability events. It is perfectly reasonable to plan to refill an EF though cash flow.
If you have the ability to fund your emergency fund with cashflow without worrying about emergencies, that tells me that you really don't need an emergency fund. Why not liquidate your EF now and start saving for the next emergency?
Because then you won't be ready for the first emergency? The EF could cover a short term emergency, but take, say, 12 months to replenish. Some people want to be prepared for one emergency without needing to liquidate in taxable. You don't think that's necessary with a large enough taxable account. That's fine. But your arguments don't seem to undermine the logic of covering one emergency. I'm agnostic on this. But your arguments are essentially: 1) if you can't cover two emergencies, there's no reason to cover one; and 2) if you can cover one a year from now, there's no reason to cover one now. These don't undermine the logic of being prepared for one emergency.
aristotelian
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Re: Eliminate my emergency fund?

Post by aristotelian »

FoolMeOnce wrote: Wed Feb 20, 2019 1:32 pm
aristotelian wrote: Wed Feb 20, 2019 11:48 am
FoolMeOnce wrote: Wed Feb 20, 2019 11:26 am
aristotelian wrote: Wed Feb 20, 2019 11:19 am
FoolMeOnce wrote: Wed Feb 20, 2019 10:49 am

Not necessarily. You can replenish the EF over many months via cash flow. So you sacrifice some future investment, but you aren't withdrawing from your Investments directly. Not sure if that math works out the same, but it can't be identical (no LTCG tax consequences).

If emergencies strike back-to-back (to-back, etc), you might need to liquidate from taxable, sure
But then you would be going without an emergency fund! What if another emergency happens?
An EF within an EF (ad infinitum) - you'll eventually approach the absence of an emergency, but never fully get there!

But seriously, the EF is already for low probability events and, as many have suggested, isn't worth it. It is far less worth the cost of an EF that covers back-to-back low-probability events. It is perfectly reasonable to plan to refill an EF though cash flow.
If you have the ability to fund your emergency fund with cashflow without worrying about emergencies, that tells me that you really don't need an emergency fund. Why not liquidate your EF now and start saving for the next emergency?
Because then you won't be ready for the first emergency? The EF could cover a short term emergency, but take, say, 12 months to replenish. Some people want to be prepared for one emergency without needing to liquidate in taxable. You don't think that's necessary with a large enough taxable account. That's fine. But your arguments don't seem to undermine the logic of covering one emergency. I'm agnostic on this. But your arguments are essentially: 1) if you can't cover two emergencies, there's no reason to cover one; and 2) if you can cover one a year from now, there's no reason to cover one now. These don't undermine the logic of being prepared for one emergency.
We are talking in circles. Your argument for having an emergency fund for one emergency should logically argue for refilling your EF. For some reason your policy is to cover one, but only one, emergency. There is no logical reason for that, as your risk of an emergency happening at any given time is exactly the same. Having your house flooded during a hurricane does not reduce your risk of your car dying.
ashegam
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Re: Eliminate my emergency fund?

Post by ashegam »

you guys forced me to register since I didn't see one of my favorite options, which btw covers many of the points discussed by the differing views.

OP - Start reading up on "Rewards Checking". long story short it's a checking account many banks/credit unions offer and pays interest up to a certain dollar amount. Very common ones pay 3% upto the $10k. The two I use pay 3.33% and 4% upto $25k and $30k respectively. This allows you to have an FDIC insured account, no loss of your principle, as liquid as they get, and earn an interest rate that beats many long term CD's/treasuries etc.
In return you must do some basic things like have at least one direct deposit, estatements, log in to online banking, use your debit card a minimal amount of times etc., each institution will have their own set of minimum requirements.

So do your research/due diligence and try to better understand how these work and if it's right for you. But you wanted options so add this one to your list :)
Last edited by ashegam on Wed Feb 20, 2019 2:23 pm, edited 1 time in total.
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whodidntante
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Re: Eliminate my emergency fund?

Post by whodidntante »

Some of y'all seem to have a lot of emergencies.
FoolMeOnce
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Re: Eliminate my emergency fund?

Post by FoolMeOnce »

The ex ante cost-benefit analysis changes. The benefit of covering a 1% chance is far greater than the benefit of covering a 0.01% chance (back-to-back 1% events).

Anyway, I think it's fine for people to carry an EF, if only for peace of mind despite possibly sub-optional probabilistic outcomes. I also think it's fine for OP to be fully invested and rely on a $1+ million taxable account when necessary.
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