Phase out EF [Emergency Fund]?

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Topic Author
bstewie
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Phase out EF [Emergency Fund]?

Post by bstewie »

At what point might it make sense to fold your EF into your taxable? Let’s ignore tax-advantaged accounts and short term cash liabilities (e.g., I know I need to spend X on Y soon). I often struggle with holding so much “cash”. For those of you who don’t carry an EF in “cash”, at what point did you decide to merge the two? When your taxable was 2x desired EF? 3x? 10x?

In general we try to not time the market. A classic argument is the market could go down 50% but maybe it goes up 100% before that occurs. In general, emergencies are sparse events. When assets are small, I understand the intent of keeping “cash”, but at a certain point it seems overzealous to be missing out on years of growth of the EF basis when emergencies are few and far between.

Thoughts?
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willthrill81
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Re: Phase out EF?

Post by willthrill81 »

This year, we invested about two-thirds of our EF into our portfolio. We just don't have much of a need for the liquidity any more. If our house burned down, we'd be out $1k. The same goes for the destruction of our car due to our fault. Our HSA already has two years' worth of our out-of-pocket maximum for our health insurance. I have a long-term employment contract, so sudden unemployment isn't a real issue, and once our mortgage is gone next year, we could satisfy our essential spending from unemployment benefits alone. And we always have our Roth IRA contributions that could be accessed with no penalty if we really needed the funds. Also, we save monthly for non-monthly and irregular expenditures like property taxes, home and auto maintenance, etc., so those are well covered already.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
Topic Author
bstewie
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Re: Phase out EF?

Post by bstewie »

willthrill81 wrote: Sun Jul 14, 2019 3:42 pm This year, we invested about two-thirds of our EF into our portfolio. We just don't have much of a need for the liquidity any more. If our house burned down, we'd be out $1k. The same goes for the destruction of our car due to our fault. Our HSA already has two years' worth of our out-of-pocket maximum for our health insurance. I have a long-term employment contract, so sudden unemployment isn't a real issue, and once our mortgage is gone next year, we could satisfy our essential spending from unemployment benefits alone. And we always have our Roth IRA contributions that could be accessed with no penalty if we really needed the funds. Also, we save monthly for non-monthly and irregular expenditures like property taxes, home and auto maintenance, etc., so those are well covered already.
This is along my line of thinking as well. In general, I would consider job loss or an unexpected severe medical incident to be the real potential emergencies in my life, and those are rare. My non-liquid assets are well insured and well maintained.
retiredjg
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Re: Phase out EF?

Post by retiredjg »

bstewie wrote: Sun Jul 14, 2019 3:39 pm At what point might it make sense to fold your EF into your taxable?
Maybe the fact that you are asking that question indicates that you are near that point.

In making your decision, though, don't forget that loss of income often happens at the same time as an extended downturned market. Many folks faced the loss of both their jobs and their savings in 2008. And it seems to have been particularly hard on those who faced age discrimination in finding new jobs when it was all over.

I'd be careful about being too frisky. :happy
Topic Author
bstewie
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Re: Phase out EF?

Post by bstewie »

retiredjg wrote: Sun Jul 14, 2019 3:58 pm
bstewie wrote: Sun Jul 14, 2019 3:39 pm At what point might it make sense to fold your EF into your taxable?
Maybe the fact that you are asking that question indicates that you are near that point.

In making your decision, though, don't forget that loss of income often happens at the same time as an extended downturned market. Many folks faced the loss of both their jobs and their savings in 2008. And it seems to have been particularly hard on those who faced age discrimination in finding new jobs when it was all over.

I'd be careful about being too frisky. :happy
Correct, I feel I’m close enough to this point that it bothers me in the back of my mind, hence the question. I’m curious to the circumstances of others who went down the same path and at what point they were convinced to do the same. To will’s point, I’ve been considering a 50-75% DCA timeline (1-2y) to unload most of the cash without being too frisky. I feel I am at least a decade away from age discrimination in a job loss scenario but it is a very valid point.
retiredjg
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Re: Phase out EF?

Post by retiredjg »

Maybe you could invest it all at one time, but invest in bonds, not stocks.
KlangFool
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Re: Phase out EF?

Post by KlangFool »

OP,

I have 1 year of the emergency fund and 500K (100% stock) in my taxable account. My overall AA is 60/40. My portfolio is big enough (20 X annual expense) that I do not care whether my emergency fund is making any money.

KlangFool
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bluquark
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Re: Phase out EF?

Post by bluquark »

Cash is ~equivalent to ultra short term bonds anyway. So holding a larger emergency fund is ~equivalent to choosing a bond fund with somewhat lower duration for the bond part of your AA. In that light holding a separate EF is an unnecessary complication that can be avoided.

Personally, I've never had an emergency fund. (That's probably because I'm originally from Canada where one cannot be crushed by sudden medical expenses, so I didn't really hear about the idea when I started investing.)
Last edited by bluquark on Sun Jul 14, 2019 4:47 pm, edited 1 time in total.
70/30 portfolio | Equity: global market weight | Bonds: 20% long-term munis - 10% LEMB
Topic Author
bstewie
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Re: Phase out EF?

Post by bstewie »

retiredjg wrote: Sun Jul 14, 2019 4:18 pm Maybe you could invest it all at one time, but invest in bonds, not stocks.
I have considered something along these lines as part of the phase out, perhaps increase bond allocation by 5-10% and call it a day (currently 80/20 AA).
Topic Author
bstewie
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Re: Phase out EF?

Post by bstewie »

KlangFool wrote: Sun Jul 14, 2019 4:22 pm OP,

I have 1 year of the emergency fund and 500K (100% stock) in my taxable account. My overall AA is 60/40. My portfolio is big enough (20 X annual expense) that I do not care whether my emergency fund is making any money.

KlangFool
And what would the size of your taxable portfolio be had your EF been invested all this time (including any applicable drawdowns of the EF)?
KlangFool
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Re: Phase out EF?

Post by KlangFool »

bstewie wrote: Sun Jul 14, 2019 4:48 pm
KlangFool wrote: Sun Jul 14, 2019 4:22 pm OP,

I have 1 year of the emergency fund and 500K (100% stock) in my taxable account. My overall AA is 60/40. My portfolio is big enough (20 X annual expense) that I do not care whether my emergency fund is making any money.

KlangFool
And what would the size of your taxable portfolio be had your EF been invested all this time (including any applicable drawdowns of the EF)?
bstewie,

1) I do not care. It would not change my FI date by much at all.

2) Back to you,

A) How much would invest your EF helps you? The MM fund is paying 2+% now.

B) How much would you lose if you are wrong?

1) Selling the stock at 50% loss in order to feed your family?

2) The pain of having to sell your stock at a loss every month while looking for a job? Do you really want the additional stress?

C) On 1/1/2009, my employer laid off 50% of the employees at my location. I have 1 year of the emergency fund. I could sleep at night.

KlangFool
Topic Author
bstewie
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Re: Phase out EF?

Post by bstewie »

KlangFool wrote: Sun Jul 14, 2019 5:01 pm
bstewie wrote: Sun Jul 14, 2019 4:48 pm
KlangFool wrote: Sun Jul 14, 2019 4:22 pm OP,

I have 1 year of the emergency fund and 500K (100% stock) in my taxable account. My overall AA is 60/40. My portfolio is big enough (20 X annual expense) that I do not care whether my emergency fund is making any money.

KlangFool
And what would the size of your taxable portfolio be had your EF been invested all this time (including any applicable drawdowns of the EF)?
bstewie,

1) I do not care. It would not change my FI date by much at all.

2) Back to you,

A) How much would invest your EF helps you? The MM fund is paying 2+% now.

B) How much would you lose if you are wrong?

1) Selling the stock at 50% loss in order to feed your family?

2) The pain of having to sell your stock at a loss every month while looking for a job? Do you really want the additional stress?

C) On 1/1/2009, my employer laid off 50% of the employees at my location. I have 1 year of the emergency fund. I could sleep at night.

KlangFool
I am pained by the opportunity cost, just as I would be pained by selling at a loss, doesn’t matter either way. It’s ok if you prefer the insurance policy, just an indication you want cash as part of your asset allocation.
KlangFool
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Re: Phase out EF?

Post by KlangFool »

bstewie wrote: Sun Jul 14, 2019 5:16 pm
I am pained by the opportunity cost, just as I would be pained by selling at a loss, doesn’t matter either way. It’s ok if you prefer the insurance policy, just an indication you want cash as part of your asset allocation.
bstewie,

Have you ever been unemployed? Have you ever been unemployed in a recession?

A) <<I am pained by the opportunity cost>>

B) <<I would be pained by selling at a loss>>

(A) is not the same as (B).

<<doesn’t matter either way.>>

Really? Have you ever been unemployed in a recession?

Just think about this for a moment.

1) You have 1 year of the emergency fund. You know that you have 1 year before you need to sell the stock to feed the family. You have a bit of slack before you need to find a new job.

Versus

2) You have no emergency fund. Every month that you are unemployed, you will lose $XXX by selling the stock to feed your family.

Is (1) and (2) equivalent?

I had been through

Houston Oil Bust, Texas Saving & Loan Crisis, Asian Currency Crisis, Telecom Bust, 2008/2009 recession.

I could always count on 100/0 and zero emergency fund folks to capitulate. And, with the 10 years bull market, there will be many folks in that sinking ship.

KlangFool
Topic Author
bstewie
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Re: Phase out EF?

Post by bstewie »

KlangFool wrote: Sun Jul 14, 2019 5:25 pm
bstewie wrote: Sun Jul 14, 2019 5:16 pm
I am pained by the opportunity cost, just as I would be pained by selling at a loss, doesn’t matter either way. It’s ok if you prefer the insurance policy, just an indication you want cash as part of your asset allocation.
bstewie,

Have you ever been unemployed? Have you ever been unemployed in a recession?

A) <<I am pained by the opportunity cost>>

B) <<I would be pained by selling at a loss>>

(A) is not the same as (B).

<<doesn’t matter either way.>>

Really? Have you ever been unemployed in a recession?

Just think about this for a moment.

1) You have 1 year of the emergency fund. You know that you have 1 year before you need to sell the stock to feed the family. You have a bit of slack before you need to find a new job.

Versus

2) You have no emergency fund. Every month that you are unemployed, you will lose $XXX by selling the stock to feed your family.

Is (1) and (2) equivalent?

I had been through

Houston Oil Bust, Texas Saving & Loan Crisis, Asian Currency Crisis, Telecom Bust, 2008/2009 recession.

I could always count on 100/0 and zero emergency fund folks to capitulate. And, with the 10 years bull market, there will be many folks in that sinking ship.

KlangFool
Getting off topic from my actual question, let’s agree to disagree. A large enough taxable portfolio with a reasonable AA with no cash position is not the same as selling stocks at a loss due to 100/0 AA with no EF.
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siamond
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Re: Phase out EF?

Post by siamond »

I hate cash. I never kept an emergency fund.

I view my position in IT bonds as an emotional ballast AND an emergency fund of sorts (in addition to credit cards for truly immediate needs). I don't care that it may go down a bit every now and then, there will be enough left for any remotely foreseeable emergency. Viewing bonds as an EF of sorts actually helped me justifying to myself the presence of bonds in my portfolio...

This is 100% a behavioral issue though. My choice maps to my behavior. Other reasonable people approach it in a very different way. OP, whatever makes you the most comfortable is what you should do.
bubbadog
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Re: Phase out EF?

Post by bubbadog »

bstewie wrote: Sun Jul 14, 2019 3:39 pm At what point might it make sense to fold your EF into your taxable? Let’s ignore tax-advantaged accounts and short term cash liabilities (e.g., I know I need to spend X on Y soon). I often struggle with holding so much “cash”. For those of you who don’t carry an EF in “cash”, at what point did you decide to merge the two? When your taxable was 2x desired EF? 3x? 10x?

In general we try to not time the market. A classic argument is the market could go down 50% but maybe it goes up 100% before that occurs. In general, emergencies are sparse events. When assets are small, I understand the intent of keeping “cash”, but at a certain point it seems overzealous to be missing out on years of growth of the EF basis when emergencies are few and far between.

Thoughts?
I gave up an EF several years ago. My taxable account could sustain our cost of living for probably more than 15 years.

I prefer to have most of my money invested. I keep enough in a checking account to handle monthly expenses with a reasonable cushion. When an excess of funds builds up in checking, I move it over to my taxable account.

I agree with the idea of an EF. When your taxable fund gets sufficiently large, I think it becomes a defacto EF.
Topic Author
bstewie
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Re: Phase out EF?

Post by bstewie »

siamond wrote: Sun Jul 14, 2019 5:36 pm I hate cash. I never kept an emergency fund.

I view my position in IT bonds as an emotional ballast AND an emergency fund of sorts (in addition to credit cards for truly immediate needs). I don't care that it may go down a bit every now and then, there will be enough left for any remotely foreseeable emergency. Viewing bonds as an EF of sorts actually helped me justifying to myself the presence of bonds in my portfolio...

This is 100% a behavioral issue though. My choice maps to my behavior. Other reasonable people approach it in a very different way. OP, whatever makes you the most comfortable is what you should do.
Thanks for sharing, I can definitely see the bonds as EF argument given my allocation / age. Perhaps a decent empirical indicator of whether I have enough to forgo an EF.
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bstewie
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Re: Phase out EF?

Post by bstewie »

bubbadog wrote: Sun Jul 14, 2019 5:38 pm
bstewie wrote: Sun Jul 14, 2019 3:39 pm At what point might it make sense to fold your EF into your taxable? Let’s ignore tax-advantaged accounts and short term cash liabilities (e.g., I know I need to spend X on Y soon). I often struggle with holding so much “cash”. For those of you who don’t carry an EF in “cash”, at what point did you decide to merge the two? When your taxable was 2x desired EF? 3x? 10x?

In general we try to not time the market. A classic argument is the market could go down 50% but maybe it goes up 100% before that occurs. In general, emergencies are sparse events. When assets are small, I understand the intent of keeping “cash”, but at a certain point it seems overzealous to be missing out on years of growth of the EF basis when emergencies are few and far between.

Thoughts?
I gave up an EF several years ago. My taxable account could sustain our cost of living for probably more than 15 years.

I prefer to have most of my money invested. I keep enough in a checking account to handle monthly expenses with a reasonable cushion. When an excess of funds builds up in checking, I move it over to my taxable account.

I agree with the idea of an EF. When your taxable fund gets sufficiently large, I think it becomes a defacto EF.
Thanks for sharing. Not quite at 15y expenses in taxable, but I could see it being an easy decision at that point without losing any sleep.
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Wiggums
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Re: Phase out EF?

Post by Wiggums »

My SIL list her job recently and the economy is doing “great”. At 51, she is still looking for a job after working at the same place for 25 years. So goodbye pension, medical and paycheck for now.

Your EF can be in many different forms. Especially if you have a portfolio much larger than your expense. But I would caution you from putting your EF in stocks without considering a market that crashes and takes years to recover, unemployment, illness, serious accident, etc. I was extremely heathy and one day I woke up and required two operations and one year of therapy.

I’m only suggesting that you consider some negative life events before you make your final decision. Sometimes when it rains, it pours.

Good luck to you...
KlangFool
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Re: Phase out EF?

Post by KlangFool »

bstewie wrote: Sun Jul 14, 2019 5:36 pm

Getting off topic from my actual question, let’s agree to disagree. A large enough taxable portfolio with a reasonable AA with no cash position is not the same as selling stocks at a loss due to 100/0 AA with no EF.
bstewie,

Then, what do you plan to invest in your taxable account? Bond?

A) Bond could go down too in a recession. It just goes down less.

B) With treasury MM fund paying 2+%, why bother keeping money in the bond?

I have a reasonable AA in my taxable account: 1 year of the emergency fund plus 500K of 100% stock.

KlangFool
Last edited by KlangFool on Sun Jul 14, 2019 6:02 pm, edited 1 time in total.
Topic Author
bstewie
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Re: Phase out EF?

Post by bstewie »

Wiggums wrote: Sun Jul 14, 2019 5:56 pm My SIL list her job recently and the economy is doing “great”. At 51, she is still looking for a job after working at the same place for 25 years. So goodbye pension, medical and paycheck for now.

Your EF can be in many different forms. Especially if you have a portfolio much larger than your expense. But I would caution you from putting your EF in stocks without considering a market that crashes and takes years to recover, unemployment, illness, serious accident, etc. I was extremely heathy and one day I woke up and required two operations and one year of therapy.

I’m only suggesting that you consider some negative life events before you make your final decision. Sometimes when it rains, it pours.

Good luck to you...
Wiggums, good points. Definitely not considering unloading the EF to 100/0 AA. Sorry to hear about SIL, hope it all works out for her. My biggest fear would be something tragic on the medical front whether accidental or naturally occurring, but I’m not sure any amount can plan to protect from that with certainty these days all things considered.
Topic Author
bstewie
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Re: Phase out EF?

Post by bstewie »

KlangFool wrote: Sun Jul 14, 2019 6:00 pm
bstewie wrote: Sun Jul 14, 2019 5:36 pm

Getting off topic from my actual question, let’s agree to disagree. A large enough taxable portfolio with a reasonable AA with no cash position is not the same as selling stocks at a loss due to 100/0 AA with no EF.
bstewie,

Then, what do you plan to invest in your taxable account? Bond?

A) Bond could go down too in a recession. It just goes down less.

B) With treasury MM fund paying 2+%, why bother keeping money in the bond?

KlangFool
I would likely increase my bond allocation a tad bit. I understand bonds fluctuate, I just don’t plan on life crippling emergencies year over year for the remainder of my life. If the basis doubles by the time I needed it, I don’t care if it is down 50%. Increasing my bond allocation a tad bit would still result in more absolute EF dollars purchasing stocks. Treating the AA in aggregate would make it a little easier to optimize for taxes with little annual effort. I have a great bond option in my 401k, but no stable value / MM equivalents. Arguably in current form, my taxable MM selection should be one of the more sheltered options (high fed, high state taxes over here).
KlangFool
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Re: Phase out EF?

Post by KlangFool »

bstewie wrote: Sun Jul 14, 2019 6:01 pm
Wiggums wrote: Sun Jul 14, 2019 5:56 pm My SIL list her job recently and the economy is doing “great”. At 51, she is still looking for a job after working at the same place for 25 years. So goodbye pension, medical and paycheck for now.

Your EF can be in many different forms. Especially if you have a portfolio much larger than your expense. But I would caution you from putting your EF in stocks without considering a market that crashes and takes years to recover, unemployment, illness, serious accident, etc. I was extremely heathy and one day I woke up and required two operations and one year of therapy.

I’m only suggesting that you consider some negative life events before you make your final decision. Sometimes when it rains, it pours.

Good luck to you...
Wiggums, good points. Definitely not considering unloading the EF to 100/0 AA. Sorry to hear about SIL, hope it all works out for her. My biggest fear would be something tragic on the medical front whether accidental or naturally occurring, but I’m not sure any amount can plan to protect from that with certainty these days all things considered.
bstewie,

I was unemployed for more than 1 year.

A) My son was starting college while I was unemployed. My daughter was starting college in the following year.

B) I need cataract eye surgeries on both eyes.

There was no financial damage to my portfolio and I could sleep well at night because of my emergency fund.

I pay for all that with my emergency fund and the dividend/distribution of my taxable account.

KlangFool
Topic Author
bstewie
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Re: Phase out EF?

Post by bstewie »

KlangFool wrote: Sun Jul 14, 2019 6:08 pm
bstewie wrote: Sun Jul 14, 2019 6:01 pm
Wiggums wrote: Sun Jul 14, 2019 5:56 pm My SIL list her job recently and the economy is doing “great”. At 51, she is still looking for a job after working at the same place for 25 years. So goodbye pension, medical and paycheck for now.

Your EF can be in many different forms. Especially if you have a portfolio much larger than your expense. But I would caution you from putting your EF in stocks without considering a market that crashes and takes years to recover, unemployment, illness, serious accident, etc. I was extremely heathy and one day I woke up and required two operations and one year of therapy.

I’m only suggesting that you consider some negative life events before you make your final decision. Sometimes when it rains, it pours.

Good luck to you...
Wiggums, good points. Definitely not considering unloading the EF to 100/0 AA. Sorry to hear about SIL, hope it all works out for her. My biggest fear would be something tragic on the medical front whether accidental or naturally occurring, but I’m not sure any amount can plan to protect from that with certainty these days all things considered.
bstewie,

I was unemployed for more than 1 year.

A) My son was starting college while I was unemployed. My daughter was starting college in the following year.

B) I need cataract eye surgeries on both eyes.

There was no financial damage to my portfolio and I could sleep well at night because of my emergency fund.

I pay for all that with my emergency fund and the dividend/distribution of my taxable account.

KlangFool
I have no dependents, I would likely carry a cash position with no question if I had dependents and never think twice about it.
KlangFool
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Re: Phase out EF?

Post by KlangFool »

bstewie wrote: Sun Jul 14, 2019 6:07 pm
KlangFool wrote: Sun Jul 14, 2019 6:00 pm
bstewie wrote: Sun Jul 14, 2019 5:36 pm

Getting off topic from my actual question, let’s agree to disagree. A large enough taxable portfolio with a reasonable AA with no cash position is not the same as selling stocks at a loss due to 100/0 AA with no EF.
bstewie,

Then, what do you plan to invest in your taxable account? Bond?

A) Bond could go down too in a recession. It just goes down less.

B) With treasury MM fund paying 2+%, why bother keeping money in the bond?

KlangFool
I would likely increase my bond allocation a tad bit. I understand bonds fluctuate, I just don’t plan on life crippling emergencies year over year for the remainder of my life. If the basis doubles by the time I needed it, I don’t care if it is down 50%. Increasing my bond allocation a tad bit would still result in more absolute EF dollars purchasing stocks. Treating the AA in aggregate would make it a little easier to optimize for taxes with little annual effort. I have a great bond option in my 401k, but no stable value / MM equivalents. Arguably in current form, my taxable MM selection should be one of the more sheltered options (high fed, high state taxes over here).
bstewie,

Have you do the math and calculate whether this decision will impact your FI/Retirement date at all? If yes, how much?

KlangFool
Mr.BB
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Re: Phase out EF?

Post by Mr.BB »

Obviously everyone has a different point of view on this topic, and much does depend on your own savings and financial holdings. One of biggest factors are if you are single or married. If there is two of you, maybe one of you is still working and minimizes the impact of loss revenue, versus being single. Personally I like having a one year safety net (I also like the idea of the bucket structure in retirement). One of the other advantages of having cash available is if there is a large market turndown, you could use some of the funds for investments.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."
Topic Author
bstewie
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Re: Phase out EF?

Post by bstewie »

KlangFool wrote: Sun Jul 14, 2019 6:11 pm
bstewie wrote: Sun Jul 14, 2019 6:07 pm
KlangFool wrote: Sun Jul 14, 2019 6:00 pm
bstewie wrote: Sun Jul 14, 2019 5:36 pm

Getting off topic from my actual question, let’s agree to disagree. A large enough taxable portfolio with a reasonable AA with no cash position is not the same as selling stocks at a loss due to 100/0 AA with no EF.
bstewie,

Then, what do you plan to invest in your taxable account? Bond?

A) Bond could go down too in a recession. It just goes down less.

B) With treasury MM fund paying 2+%, why bother keeping money in the bond?

KlangFool
I would likely increase my bond allocation a tad bit. I understand bonds fluctuate, I just don’t plan on life crippling emergencies year over year for the remainder of my life. If the basis doubles by the time I needed it, I don’t care if it is down 50%. Increasing my bond allocation a tad bit would still result in more absolute EF dollars purchasing stocks. Treating the AA in aggregate would make it a little easier to optimize for taxes with little annual effort. I have a great bond option in my 401k, but no stable value / MM equivalents. Arguably in current form, my taxable MM selection should be one of the more sheltered options (high fed, high state taxes over here).
bstewie,

Have you do the math and calculate whether this decision will impact your FI/Retirement date at all? If yes, how much?

KlangFool
Per some arbitrary selections on portfolio visiualizer I would expect it to improve FI by 3-5y as I still have a 30y+ trajectory to retirement. I will likely be FI before I retire (love the job).
KlangFool
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Re: Phase out EF?

Post by KlangFool »

bstewie wrote: Sun Jul 14, 2019 6:10 pm
KlangFool wrote: Sun Jul 14, 2019 6:08 pm
bstewie wrote: Sun Jul 14, 2019 6:01 pm
Wiggums wrote: Sun Jul 14, 2019 5:56 pm My SIL list her job recently and the economy is doing “great”. At 51, she is still looking for a job after working at the same place for 25 years. So goodbye pension, medical and paycheck for now.

Your EF can be in many different forms. Especially if you have a portfolio much larger than your expense. But I would caution you from putting your EF in stocks without considering a market that crashes and takes years to recover, unemployment, illness, serious accident, etc. I was extremely heathy and one day I woke up and required two operations and one year of therapy.

I’m only suggesting that you consider some negative life events before you make your final decision. Sometimes when it rains, it pours.

Good luck to you...
Wiggums, good points. Definitely not considering unloading the EF to 100/0 AA. Sorry to hear about SIL, hope it all works out for her. My biggest fear would be something tragic on the medical front whether accidental or naturally occurring, but I’m not sure any amount can plan to protect from that with certainty these days all things considered.
bstewie,

I was unemployed for more than 1 year.

A) My son was starting college while I was unemployed. My daughter was starting college in the following year.

B) I need cataract eye surgeries on both eyes.

There was no financial damage to my portfolio and I could sleep well at night because of my emergency fund.

I pay for all that with my emergency fund and the dividend/distribution of my taxable account.

KlangFool
I have no dependents, I would likely carry a cash position with no question if I had dependents and never think twice about it.
bstewie,

<< I have no dependents>>

A) We sent some money to our niece when her house was flooded in Houston.

B) When my mother was sick, I sent some money back for her medical treatment.

KlangFool
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Re: Phase out EF?

Post by KlangFool »

bstewie wrote: Sun Jul 14, 2019 6:15 pm
Per some arbitrary selections on portfolio visiualizer I would expect it to improve FI by 3-5y as I still have a 30y+ trajectory to retirement. I will likely be FI before I retire (love the job).
bstewie,

Do the calculation. Find out how much you could lose if you are unemployed for

A) 1 year

B) 2 years.

If you believe that is acceptable, go ahead.

KlangFool
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Re: Phase out EF?

Post by KlangFool »

Mr.BB wrote: Sun Jul 14, 2019 6:14 pm Obviously everyone has a different point of view on this topic, and much does depend on your own savings and financial holdings. One of biggest factors are if you are single or married. If there is two of you, maybe one of you is still working and minimizes the impact of loss revenue, versus being single. Personally I like having a one year safety net (I also like the idea of the bucket structure in retirement). One of the other advantages of having cash available is if there is a large market turndown, you could use some of the funds for investments.
Mr.BB,

Or, you have a mortgage. You could lose your house if you cannot pay the mortgage.

KlangFool
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bstewie
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Re: Phase out EF?

Post by bstewie »

KlangFool wrote: Sun Jul 14, 2019 6:21 pm
bstewie wrote: Sun Jul 14, 2019 6:15 pm
Per some arbitrary selections on portfolio visiualizer I would expect it to improve FI by 3-5y as I still have a 30y+ trajectory to retirement. I will likely be FI before I retire (love the job).
bstewie,

Do the calculation. Find out how much you could lose if you are unemployed for

A) 1 year

B) 2 years.

If you believe that is acceptable, go ahead.

KlangFool
Per prior comment re: applying EF to family, that’s actually a decent argument for maintaining a cash equivalent position. Contextually I would say it’s less relevant to my life situation but I can see it being a very valid argument when looking at the bigger picture.

I think 2 years would be the safe bet and I think I’m not quite there yet.
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Re: Phase out EF?

Post by Mr.BB »

KlangFool wrote: Sun Jul 14, 2019 6:23 pm
Mr.BB wrote: Sun Jul 14, 2019 6:14 pm Obviously everyone has a different point of view on this topic, and much does depend on your own savings and financial holdings. One of biggest factors are if you are single or married. If there is two of you, maybe one of you is still working and minimizes the impact of loss revenue, versus being single. Personally I like having a one year safety net (I also like the idea of the bucket structure in retirement). One of the other advantages of having cash available is if there is a large market turndown, you could use some of the funds for investments.
Mr.BB,

Or, you have a mortgage. You could lose your house if you cannot pay the mortgage.

KlangFool
I know a few million people that would agree with that statement.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."
tindel
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Re: Phase out EF?

Post by tindel »

Have you considered I-bonds for your e-fund? I-bonds are basically short bonds. We decided to put 6 months of our 12 month EF in I-bonds. They never lose value. Taxes are deferred until you pull the funds. They are indexed to inflation in addition to a small fixed rate (currently 0.5%). I consider this part of our "fixed-income" (rather than "bond") allocation in our portfolio and not cash, but I still maintain the liquidity and security of having the funds in an EF.

We keep 3 months of our EF in 13-week treasuries, rotating in a ~4-week ladder. This way I at least don't pay state income taxes on the gains.

We keep 2 months of cold-hard cash in a high-yield money market account with check writing ability.
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Re: Phase out EF?

Post by HEDGEFUNDIE »

Just decided to go this route this year. 50% long term munis / 50% equities.

Our net worth is at $1M, but I don’t necessarily think that had anything to do with the decision.
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bstewie
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Re: Phase out EF?

Post by bstewie »

tindel wrote: Sun Jul 14, 2019 7:15 pm Have you considered I-bonds for your e-fund? I-bonds are basically short bonds. We decided to put 6 months of our 12 month EF in I-bonds. They never lose value. Taxes are deferred until you pull the funds. They are indexed to inflation in addition to a small fixed rate (currently 0.5%). I consider this part of our "fixed-income" (rather than "bond") allocation in our portfolio and not cash, but I still maintain the liquidity and security of having the funds in an EF.

We keep 3 months of our EF in 13-week treasuries, rotating in a ~4-week ladder. This way I at least don't pay state income taxes on the gains.

We keep 2 months of cold-hard cash in a high-yield money market account with check writing ability.
I have, but haven’t bought any to date, for no particular reason. If I keep cash equivalents I should look into a more tax efficient holding vs. prime MM
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bstewie
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Re: Phase out EF?

Post by bstewie »

HEDGEFUNDIE wrote: Sun Jul 14, 2019 7:17 pm Just decided to go this route this year. 50% long term munis / 50% equities.

Our net worth is at $1M, but I don’t necessarily think that had anything to do with the decision.
Thanks for the data point
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Re: Phase out EF?

Post by KlangFool »

bstewie wrote: Sun Jul 14, 2019 7:23 pm
tindel wrote: Sun Jul 14, 2019 7:15 pm Have you considered I-bonds for your e-fund? I-bonds are basically short bonds. We decided to put 6 months of our 12 month EF in I-bonds. They never lose value. Taxes are deferred until you pull the funds. They are indexed to inflation in addition to a small fixed rate (currently 0.5%). I consider this part of our "fixed-income" (rather than "bond") allocation in our portfolio and not cash, but I still maintain the liquidity and security of having the funds in an EF.

We keep 3 months of our EF in 13-week treasuries, rotating in a ~4-week ladder. This way I at least don't pay state income taxes on the gains.

We keep 2 months of cold-hard cash in a high-yield money market account with check writing ability.
I have, but haven’t bought any to date, for no particular reason. If I keep cash equivalents I should look into a more tax efficient holding vs. prime MM
How about treasury MM? This is what I use for my EF.

KlangFool
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Re: Phase out EF?

Post by abuss368 »

bstewie wrote: Sun Jul 14, 2019 3:39 pm At what point might it make sense to fold your EF into your taxable? Let’s ignore tax-advantaged accounts and short term cash liabilities (e.g., I know I need to spend X on Y soon). I often struggle with holding so much “cash”. For those of you who don’t carry an EF in “cash”, at what point did you decide to merge the two? When your taxable was 2x desired EF? 3x? 10x?

In general we try to not time the market. A classic argument is the market could go down 50% but maybe it goes up 100% before that occurs. In general, emergencies are sparse events. When assets are small, I understand the intent of keeping “cash”, but at a certain point it seems overzealous to be missing out on years of growth of the EF basis when emergencies are few and far between.

Thoughts?
Do you keep enough cash in checking?
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Phase out EF?

Post by abuss368 »

I would expect that the answer may be if you are sleeping fine at night than you are probably ok.
John C. Bogle: “Simplicity is the master key to financial success."
SDLinguist
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Re: Phase out EF?

Post by SDLinguist »

Question to the OP, let's say you get rid of your emergency fund, all of a sudden you're hot water heater dies. Nothing catastrophic. It doesn't explode or leak, just dies so you can't file an insurance claim, replacing the tank will cost you $7k. Where do you get the money from?

I'm not trying to be facetious, real question. Do you put it on the CC? How are you then going to pay that off?
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Re: Phase out EF?

Post by HEDGEFUNDIE »

SDLinguist wrote: Sun Jul 14, 2019 10:36 pm Question to the OP, let's say you get rid of your emergency fund, all of a sudden you're hot water heater dies. Nothing catastrophic. It doesn't explode or leak, just dies so you can't file an insurance claim, replacing the tank will cost you $7k. Where do you get the money from?

I'm not trying to be facetious, real question. Do you put it on the CC? How are you then going to pay that off?
If they take credit card, I have at least 30 days to cash out investments to meet the obligation.

If they don’t take credit card, Vanguard mutual fund sales settle to cash in one business day.
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Re: Phase out EF?

Post by KyleAAA »

For me, about 5x my desired EF. But I will never go below 3-4months worth of expenses in cash. That's a small enough portion of my portfolio to be inconsequential, or at least itnwull be soon.
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Re: Phase out EF?

Post by abuss368 »

The old saying “cash is king” is good advice.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Phase out EF?

Post by bstewie »

SDLinguist wrote: Sun Jul 14, 2019 10:36 pm Question to the OP, let's say you get rid of your emergency fund, all of a sudden you're hot water heater dies. Nothing catastrophic. It doesn't explode or leak, just dies so you can't file an insurance claim, replacing the tank will cost you $7k. Where do you get the money from?

I'm not trying to be facetious, real question. Do you put it on the CC? How are you then going to pay that off?
First off, a 7k hot water heater? Mine would be closer to 3-3.5k including labor to replace. I would probably install it myself and save a chunk of that. In a perfect world I would throw it on a CC and pay it off within the week by offsetting new contributions from the next paycheck or selling a few shares of something. In a less than perfect world I’m taking cold showers.
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Re: Phase out EF?

Post by bstewie »

HEDGEFUNDIE wrote: Sun Jul 14, 2019 10:41 pm
SDLinguist wrote: Sun Jul 14, 2019 10:36 pm Question to the OP, let's say you get rid of your emergency fund, all of a sudden you're hot water heater dies. Nothing catastrophic. It doesn't explode or leak, just dies so you can't file an insurance claim, replacing the tank will cost you $7k. Where do you get the money from?

I'm not trying to be facetious, real question. Do you put it on the CC? How are you then going to pay that off?
If they take credit card, I have at least 30 days to cash out investments to meet the obligation.

If they don’t take credit card, Vanguard mutual fund sales settle to cash in one business day.
^ this
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bstewie
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Re: Phase out EF?

Post by bstewie »

abuss368 wrote: Sun Jul 14, 2019 10:13 pm I would expect that the answer may be if you are sleeping fine at night than you are probably ok.
Definitely sleeping fine. I do keep about 1m expenses in checking and do not consider it part of EF. No intentional reasoning behind 1m expenses in checking, it fluctuates up and down, that’s probably the average on any given date.
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Re: Phase out EF?

Post by willthrill81 »

SDLinguist wrote: Sun Jul 14, 2019 10:36 pm Question to the OP, let's say you get rid of your emergency fund, all of a sudden you're hot water heater dies. Nothing catastrophic. It doesn't explode or leak, just dies so you can't file an insurance claim, replacing the tank will cost you $7k. Where do you get the money from?

I'm not trying to be facetious, real question. Do you put it on the CC? How are you then going to pay that off?
$7k for a water heater? Most of those at our local stores run about $500. Even if you pay that much again for installation, it's a far cry from that.

Your general question is valid though. Even though we have almost no dedicated EF any more, we do save for irregular and non-monthly expenses, including home maintenance, to pay for such things as they occur. In five years, it's worked flawlessly for us.
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Re: Phase out EF?

Post by BlueCable »

I keep my emergency fund in I-Bonds. I am replacing the 0% fixed rates ones with 0.5% bonds as long as the rate stays there.

Does that mean I have a 85/15 asset allocation with an additional $50k in I-Bonds for an emergency fund, or do I have a 78/22 asset allocation with no emergency fund? It's all mental accounting. I prefer account with an emergency fund because it is easier to be sure I have the right amount saved for an emergency.

Maybe the answer is different if your emergency fund is in stocks. Personally, it would keep me up at night if I had to sell stocks to pay the bills during my 30s. Maybe that's just more mental accounting.
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Re: Phase out EF?

Post by BlueCable »

I keep my emergency fund in I-Bonds. I am replacing the 0% fixed rates ones with 0.5% bonds as long as the rate stays there.

Does that mean I have a 85/15 asset allocation with an additional $50k in I-Bonds for an emergency fund, or do I have a 78/22 asset allocation with no emergency fund? It's all mental accounting. I prefer to count with an emergency fund because it is easier to be sure I have the right amount saved for an emergency.

Maybe the answer is different if your emergency fund is in stocks. Personally, it would keep me up at night if I had to sell stocks to pay the bills during my 30s. Maybe that's just more mental accounting.
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Re: Phase out EF?

Post by Dandy »

In my accumulation years with 2 kids, college, 4 cars at one time and a stay at home spouse I had a decent cash-cash like allocation. Good thing - wife had serious illness and lost my job at 52 while all this was happening. It was helpful to have a stash of "safe" assets since there was so much else to be focused on. All things worked out well.

In retirement with "enough" I have about 1/2 my fixed income allocation in cash-like assets and short term bond funds. I don't have the "need" to take much risk and am satisfied with a 43/57 overall allocation. I don't see fixed income allocation as any driver of growth -- that is what the equity side is supposed to do with its associated risk. The difference between intermediate bonds, short term bonds and decent cash alternative is not a big deal to me. My fixed income is for stability and asset preservation.
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