Phase out EF [Emergency Fund]?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Alex GR
Posts: 88
Joined: Mon Jul 31, 2017 9:17 am

Re: Phase out EF?

Post by Alex GR » Mon Jul 15, 2019 8:04 am

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
Hi KlangFool,
Saw many of your posts before and remember that you're always on the conservative side. In general I agree with you here. I personally knew several people in 2008/2009 who were nearly suicidal (lost house + job, +upside-down mortgage i.e. bought a house for $500k that was suddenly worth $270k, etc.).
However if I may play devil's advocate for a moment and ask you:
Would it be ok in your opinion not to have EF under the following circumstances:
- Fully paid off house that I don't plan to sell
- Coupon payments on the bond portion of the portfolio covers monthly living expenses. So in case of sudden loss of income I would simply turn off automatic reinvestments.
I realize taxable/non-taxable is the next question here as well as the issue of being unable to draw from non-taxable so let's just assume it's all in taxable.
Thanks!

SDLinguist
Posts: 122
Joined: Wed Jan 31, 2018 2:39 pm

Re: Phase out EF?

Post by SDLinguist » Mon Jul 15, 2019 8:38 am

willthrill81 wrote:
Sun Jul 14, 2019 11:57 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?
$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.
I don't know what a water heater costs! I have never needed to replace one, one of the perks of renting. :D

I was just trying to find some hypothetical scenario that isn't $100 or $100k dollars.

The reason I asked is because in June we had about $7k in totally unexpected expenses which really made me think about how to deal with those kinds of situations. For us it was a collection of just unfortunate incidents, each one individually easily covered but combined it started adding up. But we have a plan in place and I didn't lose too much sleep.

Often you think about the really bad $100k emergency in planning but I rarely see those smaller yet still tidy sum emergencies discussed here. For us those expenses mean we will realistically save 4k less into taxable this year and instead need to replenish our EF.

I think the EF discussion is not just about where to keep the funds but having plans to deal with emergencies.

Topic Author
bstewie
Posts: 150
Joined: Wed Oct 04, 2017 8:16 pm

Re: Phase out EF?

Post by bstewie » Mon Jul 15, 2019 8:45 am

BlueCable wrote:
Mon Jul 15, 2019 6:53 am
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.
Agree it’s mental accounting, I think of AA in aggregate. Would it keep you up at night if you were selling 15-22% of your bonds during an emergency while 78-85% of your stocks were growing? Over a period of time, proper rebalancing would grow the EF well beyond the initial basis and you may even have the entire EF in additional bonds while the remainder of the original basis is 78-85% at work in stocks. I think there’s a common fear that every use of EF is a depletion scenario. It’s more elastic than that in practice. I understand there are some worst case scenarios that will deplete the EF and maybe even bankrupt you, but on average I just don’t believe these are common and planning for them is inconsequentially conservative because they may consume well beyond your EF and the EF basis - whether it was cash or invested - won’t significantly change the outcome.
Last edited by bstewie on Mon Jul 15, 2019 8:50 am, edited 1 time in total.

User avatar
willthrill81
Posts: 12642
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Phase out EF?

Post by willthrill81 » Mon Jul 15, 2019 8:46 am

SDLinguist wrote:
Mon Jul 15, 2019 8:38 am
willthrill81 wrote:
Sun Jul 14, 2019 11:57 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?
$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.
I don't know what a water heater costs! I have never needed to replace one, one of the perks of renting. :D

I was just trying to find some hypothetical scenario that isn't $100 or $100k dollars.

The reason I asked is because in June we had about $7k in totally unexpected expenses which really made me think about how to deal with those kinds of situations. For us it was a collection of just unfortunate incidents, each one individually easily covered but combined it started adding up. But we have a plan in place and I didn't lose too much sleep.

Often you think about the really bad $100k emergency in planning but I rarely see those smaller yet still tidy sum emergencies discussed here. For us those expenses mean we will realistically save 4k less into taxable this year and instead need to replenish our EF.

I think the EF discussion is not just about where to keep the funds but having plans to deal with emergencies.
I see your point. The same applies if you own a vehicle; you never know when you might have to replace a $3k transmission, for instance.

We've been homeowners for a while, and from our own experiences and those of our friends and family, replacing a roof or getting your house repainted are about the most expensive events you're likely to experience, but thankfully you can see them coming from a long ways off and prepare accordingly. It's true, though, that especially in older homes, there could be major and sudden expenses like replacing unsafe wiring or plumbing.
“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
Posts: 150
Joined: Wed Oct 04, 2017 8:16 pm

Re: Phase out EF?

Post by bstewie » Mon Jul 15, 2019 8:47 am

SDLinguist wrote:
Mon Jul 15, 2019 8:38 am
I think the EF discussion is not just about where to keep the funds but having plans to deal with emergencies.
Agree with this wholeheartedly

jpdion
Posts: 116
Joined: Thu Feb 13, 2014 12:52 pm

Re: Phase out EF?

Post by jpdion » Mon Jul 15, 2019 8:59 am

If one does the math - say holding 5% cash in an EF, portfolio performance of 6% total return, cash at 2%, then you are missing out on .2% of total return. That is the cost of insurance for meeting expenses for two years into the future. Worth it?

Topic Author
bstewie
Posts: 150
Joined: Wed Oct 04, 2017 8:16 pm

Re: Phase out EF?

Post by bstewie » Mon Jul 15, 2019 9:03 am

jpdion wrote:
Mon Jul 15, 2019 8:59 am
If one does the math - say holding 5% cash in an EF, portfolio performance of 6% total return, cash at 2%, then you are missing out on .2% of total return. That is the cost of insurance for meeting expenses for two years into the future. Worth it?
In absolute terms, .2% matters a lot over 30 years. If we weren’t talking about EF and were simply comparing “identical” funds with 0.05% ER vs. 0.25% ER there would be a unanimous decision.

Your example also indicates 40x expenses, I would be retired and we wouldn’t be discussing this :D

KlangFool
Posts: 13378
Joined: Sat Oct 11, 2008 12:35 pm

Re: Phase out EF?

Post by KlangFool » Mon Jul 15, 2019 9:19 am

Alex GR wrote:
Mon Jul 15, 2019 8:04 am

However if I may play devil's advocate for a moment and ask you:
Would it be ok in your opinion not to have EF under the following circumstances:
- Fully paid off house that I don't plan to sell
- Coupon payments on the bond portion of the portfolio covers monthly living expenses. So in case of sudden loss of income I would simply turn off automatic reinvestments.
Alex GR,

<<- Fully paid off house that I don't plan to sell>>

You still need to pay property tax.

<<Coupon payments on the bond portion>>

1) Cash is a good hedge against short-term deflation.

2) With the interest rate of the Treasury MM about the same as the bond, why not keep some of that money in cash equivalent like MM fund?

3) The interest rate hike will kill the bond. So, you lose the principal.

Cash is an asset class. Diversification is a good thing.

KlangFool
Last edited by KlangFool on Mon Jul 15, 2019 9:30 am, edited 1 time in total.

KlangFool
Posts: 13378
Joined: Sat Oct 11, 2008 12:35 pm

Re: Phase out EF?

Post by KlangFool » Mon Jul 15, 2019 9:22 am

bstewie wrote:
Mon Jul 15, 2019 9:03 am
jpdion wrote:
Mon Jul 15, 2019 8:59 am
If one does the math - say holding 5% cash in an EF, portfolio performance of 6% total return, cash at 2%, then you are missing out on .2% of total return. That is the cost of insurance for meeting expenses for two years into the future. Worth it?
In absolute terms, .2% matters a lot over 30 years.
bstewie,

Only if you are fully-employed continuously over the 30 years. But, if you are wiped out in one of the multiple recessions over the 30 years, it won't matter at all. Make sure that you can survive the next coming recession first.

You need to survive in order to succeed.

KlangFool

Topic Author
bstewie
Posts: 150
Joined: Wed Oct 04, 2017 8:16 pm

Re: Phase out EF?

Post by bstewie » Mon Jul 15, 2019 9:30 am

KlangFool wrote:
Mon Jul 15, 2019 9:22 am
bstewie wrote:
Mon Jul 15, 2019 9:03 am
jpdion wrote:
Mon Jul 15, 2019 8:59 am
If one does the math - say holding 5% cash in an EF, portfolio performance of 6% total return, cash at 2%, then you are missing out on .2% of total return. That is the cost of insurance for meeting expenses for two years into the future. Worth it?
In absolute terms, .2% matters a lot over 30 years.
bstewie,

Only if you are fully-employed continuously over the 30 years. But, if you are wiped out in one of the multiple recessions over the 30 years, it won't matter at all. Make sure that you can survive the next coming recession first.

You need to survive in order to succeed.

KlangFool
Correct. Again though, we are discussing in context of a taxable account that is already a multiple of expenses, and adding more multiples of expenses with a lot of runway to go. We are ignoring tax advantaged accounts altogether (which are maxed).

KlangFool
Posts: 13378
Joined: Sat Oct 11, 2008 12:35 pm

Re: Phase out EF?

Post by KlangFool » Mon Jul 15, 2019 9:34 am

bstewie wrote:
Mon Jul 15, 2019 9:30 am
KlangFool wrote:
Mon Jul 15, 2019 9:22 am
bstewie wrote:
Mon Jul 15, 2019 9:03 am
jpdion wrote:
Mon Jul 15, 2019 8:59 am
If one does the math - say holding 5% cash in an EF, portfolio performance of 6% total return, cash at 2%, then you are missing out on .2% of total return. That is the cost of insurance for meeting expenses for two years into the future. Worth it?
In absolute terms, .2% matters a lot over 30 years.
bstewie,

Only if you are fully-employed continuously over the 30 years. But, if you are wiped out in one of the multiple recessions over the 30 years, it won't matter at all. Make sure that you can survive the next coming recession first.

You need to survive in order to succeed.

KlangFool
Correct. Again though, we are discussing in context of a taxable account that is already a multiple of expenses, and adding more multiples of expenses with a lot of runway to go. We are ignoring tax advantaged accounts altogether (which are maxed).
bstewie,

All it takes is one forced-sell event (financial and/or medical emergency) to wipe out all your potential gain of 0.5% over 30 years. This is a lousy bet. Why take the risk?

How much will you lose over the next recession if you are unemployed?

I have 1 year of the emergency and 500K of 100% stock in my taxable account. I could be 100% stock in my taxable account because I have 1 year of the emergency fund. I gained additional tax savings because of this combination. It is much more than 0.5% per year.

KlangFool
Last edited by KlangFool on Mon Jul 15, 2019 9:37 am, edited 1 time in total.

JediMisty
Posts: 288
Joined: Tue Aug 07, 2018 7:06 am
Location: Central NJ

Re: Phase out EF?

Post by JediMisty » Mon Jul 15, 2019 9:35 am

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?
If your house is paid for and you are at or near retirement with "enough" to retire, I would think of your entire portfolio as an EF, especially if you have taxable and Roth along with tax deferred. That said I have 30k in a short term bond fund in taxable. It won't be tragedy if I sell it at a loss to buy a car or a new roof. I do like the current MM returns, which is a great place to keep some ready cash, especially in a taxable account. My taxable is 91 percent stock, but includes some unrealized gains I wpuld rather not harvest until I'm in a lower bracket (retiring in a year or two)

User avatar
willthrill81
Posts: 12642
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Phase out EF?

Post by willthrill81 » Mon Jul 15, 2019 9:35 am

bstewie wrote:
Mon Jul 15, 2019 9:30 am
KlangFool wrote:
Mon Jul 15, 2019 9:22 am
bstewie wrote:
Mon Jul 15, 2019 9:03 am
jpdion wrote:
Mon Jul 15, 2019 8:59 am
If one does the math - say holding 5% cash in an EF, portfolio performance of 6% total return, cash at 2%, then you are missing out on .2% of total return. That is the cost of insurance for meeting expenses for two years into the future. Worth it?
In absolute terms, .2% matters a lot over 30 years.
bstewie,

Only if you are fully-employed continuously over the 30 years. But, if you are wiped out in one of the multiple recessions over the 30 years, it won't matter at all. Make sure that you can survive the next coming recession first.

You need to survive in order to succeed.

KlangFool
Correct. Again though, we are discussing in context of a taxable account that is already a multiple of expenses, and adding more multiples of expenses with a lot of runway to go. We are ignoring tax advantaged accounts altogether (which are maxed).
bstewie, don't let fear mongering dissuade you from logical analysis of your situation. Other very intelligent people have come to the same conclusion as you.
“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

User avatar
Sandtrap
Posts: 8288
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: Phase out EF?

Post by Sandtrap » Mon Jul 15, 2019 9:38 am

To me, cash and a hefty EF, are financial "shock absorbers" towards and through retirement.
Without them, it's a pretty rough ride.

j
Wiki Bogleheads Wiki: Everything You Need to Know

tenkuky
Posts: 803
Joined: Sun Dec 14, 2014 4:28 pm

Re: Phase out EF?

Post by tenkuky » Mon Jul 15, 2019 9:42 am

KlangFool wrote:
Sun Jul 14, 2019 7:38 pm
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
Klang:
I've been debating between treasury MM vs. muni MM. I know the latter is much lower yield, but if I'm trying to shelter interest/dividends from taxation, isn't the latter better (federal + some state vs. state only)?

Topic Author
bstewie
Posts: 150
Joined: Wed Oct 04, 2017 8:16 pm

Re: Phase out EF?

Post by bstewie » Mon Jul 15, 2019 9:43 am

KlangFool wrote:
Mon Jul 15, 2019 9:34 am
bstewie wrote:
Mon Jul 15, 2019 9:30 am
KlangFool wrote:
Mon Jul 15, 2019 9:22 am
bstewie wrote:
Mon Jul 15, 2019 9:03 am
jpdion wrote:
Mon Jul 15, 2019 8:59 am
If one does the math - say holding 5% cash in an EF, portfolio performance of 6% total return, cash at 2%, then you are missing out on .2% of total return. That is the cost of insurance for meeting expenses for two years into the future. Worth it?
In absolute terms, .2% matters a lot over 30 years.
bstewie,

Only if you are fully-employed continuously over the 30 years. But, if you are wiped out in one of the multiple recessions over the 30 years, it won't matter at all. Make sure that you can survive the next coming recession first.

You need to survive in order to succeed.

KlangFool
Correct. Again though, we are discussing in context of a taxable account that is already a multiple of expenses, and adding more multiples of expenses with a lot of runway to go. We are ignoring tax advantaged accounts altogether (which are maxed).
bstewie,

All it takes is one forced-sell event (financial and/or medical emergency) to wipe out all your potential gain of 0.5% over 30 years. This is a lousy bet. Why take the risk?

How much will you lose over the next recession if you are unemployed?

KlangFool
I think it depends on circumstances, I’m considering a slightly more aggressive approach specifically due to my circumstances. If I had more liabilities I would probably stick with a more traditional approach. Impact of job loss in a recession is a function of liabilities IMO.

KlangFool
Posts: 13378
Joined: Sat Oct 11, 2008 12:35 pm

Re: Phase out EF?

Post by KlangFool » Mon Jul 15, 2019 9:43 am

willthrill81 wrote:
Mon Jul 15, 2019 9:35 am
bstewie wrote:
Mon Jul 15, 2019 9:30 am
KlangFool wrote:
Mon Jul 15, 2019 9:22 am
bstewie wrote:
Mon Jul 15, 2019 9:03 am
jpdion wrote:
Mon Jul 15, 2019 8:59 am
If one does the math - say holding 5% cash in an EF, portfolio performance of 6% total return, cash at 2%, then you are missing out on .2% of total return. That is the cost of insurance for meeting expenses for two years into the future. Worth it?
In absolute terms, .2% matters a lot over 30 years.
bstewie,

Only if you are fully-employed continuously over the 30 years. But, if you are wiped out in one of the multiple recessions over the 30 years, it won't matter at all. Make sure that you can survive the next coming recession first.

You need to survive in order to succeed.

KlangFool
Correct. Again though, we are discussing in context of a taxable account that is already a multiple of expenses, and adding more multiples of expenses with a lot of runway to go. We are ignoring tax advantaged accounts altogether (which are maxed).
bstewie, don't let fear mongering dissuade you from logical analysis of your situation. Other very intelligent people have come to the same conclusion as you.
willthrill8,

This is from you. Just to be clear for OP.

<< 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.>>

KlangFool

KlangFool
Posts: 13378
Joined: Sat Oct 11, 2008 12:35 pm

Re: Phase out EF?

Post by KlangFool » Mon Jul 15, 2019 9:45 am

tenkuky wrote:
Mon Jul 15, 2019 9:42 am
KlangFool wrote:
Sun Jul 14, 2019 7:38 pm
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
Klang:
I've been debating between treasury MM vs. muni MM. I know the latter is much lower yield, but if I'm trying to shelter interest/dividends from taxation, isn't the latter better (federal + some state vs. state only)?
tenkuky,

I do not trust muni (MM or bond) at all.

KlangFool

KlangFool
Posts: 13378
Joined: Sat Oct 11, 2008 12:35 pm

Re: Phase out EF?

Post by KlangFool » Mon Jul 15, 2019 9:48 am

bstewie wrote:
Mon Jul 15, 2019 9:43 am

I think it depends on circumstances, I’m considering a slightly more aggressive approach specifically due to my circumstances. If I had more liabilities I would probably stick with a more traditional approach. Impact of job loss in a recession is a function of liabilities IMO.
bstewie,

I wish you the best of lucks.

KlangFool

Topic Author
bstewie
Posts: 150
Joined: Wed Oct 04, 2017 8:16 pm

Re: Phase out EF?

Post by bstewie » Mon Jul 15, 2019 9:49 am

JediMisty wrote:
Mon Jul 15, 2019 9:35 am
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?
If your house is paid for and you are at or near retirement with "enough" to retire, I would think of your entire portfolio as an EF, especially if you have taxable and Roth along with tax deferred. That said I have 30k in a short term bond fund in taxable. It won't be tragedy if I sell it at a loss to buy a car or a new roof. I do like the current MM returns, which is a great place to keep some ready cash, especially in a taxable account. My taxable is 91 percent stock, but includes some unrealized gains I wpuld rather not harvest until I'm in a lower bracket (retiring in a year or two)
Thanks jedi, far from a paid off mortgage, far from retirement. I have a less aggressive AA than you even at a young age (80/20 - 29y). I agree, selling bonds in need would not be a tragedy. Also agree MM returns aren’t horrible at the moment, both my short term cash needs and EF are in MM at the moment.

Topic Author
bstewie
Posts: 150
Joined: Wed Oct 04, 2017 8:16 pm

Re: Phase out EF?

Post by bstewie » Mon Jul 15, 2019 9:52 am

willthrill81 wrote:
Mon Jul 15, 2019 9:35 am
bstewie wrote:
Mon Jul 15, 2019 9:30 am
KlangFool wrote:
Mon Jul 15, 2019 9:22 am
bstewie wrote:
Mon Jul 15, 2019 9:03 am
jpdion wrote:
Mon Jul 15, 2019 8:59 am
If one does the math - say holding 5% cash in an EF, portfolio performance of 6% total return, cash at 2%, then you are missing out on .2% of total return. That is the cost of insurance for meeting expenses for two years into the future. Worth it?
In absolute terms, .2% matters a lot over 30 years.
bstewie,

Only if you are fully-employed continuously over the 30 years. But, if you are wiped out in one of the multiple recessions over the 30 years, it won't matter at all. Make sure that you can survive the next coming recession first.

You need to survive in order to succeed.

KlangFool
Correct. Again though, we are discussing in context of a taxable account that is already a multiple of expenses, and adding more multiples of expenses with a lot of runway to go. We are ignoring tax advantaged accounts altogether (which are maxed).
bstewie, don't let fear mongering dissuade you from logical analysis of your situation. Other very intelligent people have come to the same conclusion as you.
Agreed. I suppose the net result of this discussion could be that I feel I have too large of an EF? Maybe if I start unwinding a portion into AA, I find a happy medium between some cash equivalents but at a smaller overall %?

Topic Author
bstewie
Posts: 150
Joined: Wed Oct 04, 2017 8:16 pm

Re: Phase out EF?

Post by bstewie » Mon Jul 15, 2019 9:54 am

Sandtrap wrote:
Mon Jul 15, 2019 9:38 am
To me, cash and a hefty EF, are financial "shock absorbers" towards and through retirement.
Without them, it's a pretty rough ride.

j
Thanks sandtrap. Out of curiosity, did you carry a conservative, average, or aggressive AA during accumulation?

Topic Author
bstewie
Posts: 150
Joined: Wed Oct 04, 2017 8:16 pm

Re: Phase out EF?

Post by bstewie » Mon Jul 15, 2019 9:55 am

KlangFool wrote:
Mon Jul 15, 2019 9:48 am
bstewie wrote:
Mon Jul 15, 2019 9:43 am

I think it depends on circumstances, I’m considering a slightly more aggressive approach specifically due to my circumstances. If I had more liabilities I would probably stick with a more traditional approach. Impact of job loss in a recession is a function of liabilities IMO.
bstewie,

I wish you the best of lucks.

KlangFool
Thanks Klang, see latest reply to will. I think some of this discussion may simply drive me towards a smaller EF, perhaps that’s what’s driving the question, maybe I feel my EF is too large.

User avatar
simplesimon
Posts: 3350
Joined: Mon Feb 25, 2008 8:53 pm
Location: Boston, MA

Re: Phase out EF?

Post by simplesimon » Mon Jul 15, 2019 9:59 am

There's no way to know going forward if having cash will hurt or help you.

If you keep a relatively fixed dollar amount in EF, it will phase itself out over time as you keep saving and investing and the proportion of cash to your total wealth diminishes.

User avatar
Misenplace
Moderator
Posts: 1001
Joined: Mon Feb 01, 2016 9:46 pm

Re: Phase out EF [Emergency Fund]?

Post by Misenplace » Mon Jul 15, 2019 10:04 am

The title has been edited to add the bracketed material for clarification.

Moderator Misenplace

Topic Author
bstewie
Posts: 150
Joined: Wed Oct 04, 2017 8:16 pm

Re: Phase out EF?

Post by bstewie » Mon Jul 15, 2019 10:13 am

simplesimon wrote:
Mon Jul 15, 2019 9:59 am
There's no way to know going forward if having cash will hurt or help you.

If you keep a relatively fixed dollar amount in EF, it will phase itself out over time as you keep saving and investing and the proportion of cash to your total wealth diminishes.
Catch 22, by the time it’s inconsequential in absolute dollars you are probably near FI. If you try to maximize absolute dollars you are betting you won’t need the invested cash. For example, I wouldn’t consider 10x expenses in taxable with 2x expenses in cash EF a rounding error in overall AA especially if there’s a lot of remaining runway.

User avatar
Sandtrap
Posts: 8288
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: Phase out EF?

Post by Sandtrap » Mon Jul 15, 2019 10:18 am

bstewie wrote:
Mon Jul 15, 2019 9:54 am
Sandtrap wrote:
Mon Jul 15, 2019 9:38 am
To me, cash and a hefty EF, are financial "shock absorbers" towards and through retirement.
Without them, it's a pretty rough ride.

j
Thanks sandtrap. Out of curiosity, did you carry a conservative, average, or aggressive AA during accumulation?
100% Allocation to physically held apartment buildings.
j :D
Wiki Bogleheads Wiki: Everything You Need to Know

KlangFool
Posts: 13378
Joined: Sat Oct 11, 2008 12:35 pm

Re: Phase out EF?

Post by KlangFool » Mon Jul 15, 2019 10:22 am

JediMisty wrote:
Mon Jul 15, 2019 9:35 am
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?
If your house is paid for and you are at or near retirement with "enough" to retire, I would think of your entire portfolio as an EF, especially if you have taxable and Roth along with tax deferred. That said I have 30k in a short term bond fund in taxable. It won't be tragedy if I sell it at a loss to buy a car or a new roof. I do like the current MM returns, which is a great place to keep some ready cash, especially in a taxable account. My taxable is 91 percent stock, but includes some unrealized gains I wpuld rather not harvest until I'm in a lower bracket (retiring in a year or two)
JediMisty,

Selling MM fund generates no taxable gain or loss. It is a useful feature for tax management during retirement.

KlangFool

Topic Author
bstewie
Posts: 150
Joined: Wed Oct 04, 2017 8:16 pm

Re: Phase out EF?

Post by bstewie » Mon Jul 15, 2019 10:23 am

Sandtrap wrote:
Mon Jul 15, 2019 10:18 am
bstewie wrote:
Mon Jul 15, 2019 9:54 am
Sandtrap wrote:
Mon Jul 15, 2019 9:38 am
To me, cash and a hefty EF, are financial "shock absorbers" towards and through retirement.
Without them, it's a pretty rough ride.

j
Thanks sandtrap. Out of curiosity, did you carry a conservative, average, or aggressive AA during accumulation?
100% Allocation to physically held apartment buildings.
j :D
:beer I can very much understand a hefty cash basis in that light

KlangFool
Posts: 13378
Joined: Sat Oct 11, 2008 12:35 pm

Re: Phase out EF?

Post by KlangFool » Mon Jul 15, 2019 10:24 am

bstewie wrote:
Mon Jul 15, 2019 9:55 am
KlangFool wrote:
Mon Jul 15, 2019 9:48 am
bstewie wrote:
Mon Jul 15, 2019 9:43 am

I think it depends on circumstances, I’m considering a slightly more aggressive approach specifically due to my circumstances. If I had more liabilities I would probably stick with a more traditional approach. Impact of job loss in a recession is a function of liabilities IMO.
bstewie,

I wish you the best of lucks.

KlangFool
Thanks Klang, see latest reply to will. I think some of this discussion may simply drive me towards a smaller EF, perhaps that’s what’s driving the question, maybe I feel my EF is too large.
bstewie,

1) How many months of expense is in your EF now?

2) How long will you need to find a job if you are unemployed over the next recession?

KlangFool

mbasherp
Posts: 227
Joined: Mon Jun 26, 2017 8:48 am

Re: Phase out EF [Emergency Fund]?

Post by mbasherp » Mon Jul 15, 2019 10:28 am

If we're trying to be truly objective about this, the best analysis I've seen is here:
https://earlyretirementnow.com/2018/04/ ... in-stocks/

The math doesn't lie when you take a comprehensive approach. Personally, I am shifting away from a sacred cash emergency fund. I am fully funding future expenses as much as I can though. Once I've covered:

1) Expected home maintenance
2) Upcoming vehicle needs
3) Known medical expenditures
4) Slush fund due to variable/seasonal income

I'm already holding more cash than I used to as an emergency fund, but it's done with a clearer picture of why. The biggest difference now is that if my cash was drained, I would not stop everything in order to build it back up. I might or might not, depending on the outlook at that time. I would call that phasing out the EF. Cash should only be held for a purpose, imo. It is a proven investment loser.

Luckywon
Posts: 499
Joined: Tue Mar 28, 2017 10:33 am

Re: Phase out EF [Emergency Fund]?

Post by Luckywon » Mon Jul 15, 2019 10:28 am

My portfolio is 65:35. i have no EF. I do keep about 2 months expenses in checking, as operating funds, not emergency funds.

I never liked the idea of keeping an EF. If a disaster occurs which includes a drop in equities and loss of my income, I would expect to sell first bonds, then equities to cover my expenses. Since I don't have an EF, I'm starting out from a higher point than if I did sideline some of money in cash for the last 30 years.

KlangFool
Posts: 13378
Joined: Sat Oct 11, 2008 12:35 pm

Re: Phase out EF?

Post by KlangFool » Mon Jul 15, 2019 10:29 am

bstewie wrote:
Mon Jul 15, 2019 10:13 am
simplesimon wrote:
Mon Jul 15, 2019 9:59 am
There's no way to know going forward if having cash will hurt or help you.

If you keep a relatively fixed dollar amount in EF, it will phase itself out over time as you keep saving and investing and the proportion of cash to your total wealth diminishes.
Catch 22, by the time it’s inconsequential in absolute dollars you are probably near FI. If you try to maximize absolute dollars you are betting you won’t need the invested cash. For example, I wouldn’t consider 10x expenses in taxable with 2x expenses in cash EF a rounding error in overall AA especially if there’s a lot of remaining runway.
bstewie,

This is a non-issue for me since I save 1 year of expense every year whenever I am employed. I keep 1 year of EF all the time.

At my saving rate, this (1 year of EF) does not matter at all.

KlangFool

Topic Author
bstewie
Posts: 150
Joined: Wed Oct 04, 2017 8:16 pm

Re: Phase out EF?

Post by bstewie » Mon Jul 15, 2019 10:30 am

KlangFool wrote:
Mon Jul 15, 2019 10:24 am
bstewie wrote:
Mon Jul 15, 2019 9:55 am
KlangFool wrote:
Mon Jul 15, 2019 9:48 am
bstewie wrote:
Mon Jul 15, 2019 9:43 am

I think it depends on circumstances, I’m considering a slightly more aggressive approach specifically due to my circumstances. If I had more liabilities I would probably stick with a more traditional approach. Impact of job loss in a recession is a function of liabilities IMO.
bstewie,

I wish you the best of lucks.

KlangFool
Thanks Klang, see latest reply to will. I think some of this discussion may simply drive me towards a smaller EF, perhaps that’s what’s driving the question, maybe I feel my EF is too large.
bstewie,

1) How many months of expense is in your EF now?

2) How long will you need to find a job if you are unemployed over the next recession?

KlangFool
1)
Maintaining current lifestyle: 18mo
With obvious cuts under duress: 24mo

2)
Optimistically: 1-3mo
Pessimistically: 6mo

Topic Author
bstewie
Posts: 150
Joined: Wed Oct 04, 2017 8:16 pm

Re: Phase out EF [Emergency Fund]?

Post by bstewie » Mon Jul 15, 2019 10:31 am

mbasherp wrote:
Mon Jul 15, 2019 10:28 am
If we're trying to be truly objective about this, the best analysis I've seen is here:
https://earlyretirementnow.com/2018/04/ ... in-stocks/

The math doesn't lie when you take a comprehensive approach. Personally, I am shifting away from a sacred cash emergency fund. I am fully funding future expenses as much as I can though. Once I've covered:

1) Expected home maintenance
2) Upcoming vehicle needs
3) Known medical expenditures
4) Slush fund due to variable/seasonal income

I'm already holding more cash than I used to as an emergency fund, but it's done with a clearer picture of why. The biggest difference now is that if my cash was drained, I would not stop everything in order to build it back up. I might or might not, depending on the outlook at that time. I would call that phasing out the EF. Cash should only be held for a purpose, imo. It is a proven investment loser.
Will take a look, thanks for sharing

KlangFool
Posts: 13378
Joined: Sat Oct 11, 2008 12:35 pm

Re: Phase out EF [Emergency Fund]?

Post by KlangFool » Mon Jul 15, 2019 10:32 am

mbasherp wrote:
Mon Jul 15, 2019 10:28 am
If we're trying to be truly objective about this, the best analysis I've seen is here:
https://earlyretirementnow.com/2018/04/ ... in-stocks/

The math doesn't lie when you take a comprehensive approach. Personally, I am shifting away from a sacred cash emergency fund. I am fully funding future expenses as much as I can though. Once I've covered:

1) Expected home maintenance
2) Upcoming vehicle needs
3) Known medical expenditures
4) Slush fund due to variable/seasonal income


I'm already holding more cash than I used to as an emergency fund, but it's done with a clearer picture of why. The biggest difference now is that if my cash was drained, I would not stop everything in order to build it back up. I might or might not, depending on the outlook at that time. I would call that phasing out the EF. Cash should only be held for a purpose, imo. It is a proven investment loser.
mbasherp,

<< Once I've covered:

1) Expected home maintenance
2) Upcoming vehicle needs
3) Known medical expenditures
4) Slush fund due to variable/seasonal income
>>

As opposed to my simpler approach. I keep 1 year of EF so that I do not need to calculate any of that. I am covered for all possibilities with one pool of money. I could buy a new car any time with my EF.

KlangFool

Topic Author
bstewie
Posts: 150
Joined: Wed Oct 04, 2017 8:16 pm

Re: Phase out EF [Emergency Fund]?

Post by bstewie » Mon Jul 15, 2019 10:33 am

Luckywon wrote:
Mon Jul 15, 2019 10:28 am
My portfolio is 65:35. i have no EF. I do keep about 2 months expenses in checking, as operating funds, not emergency funds.

I never liked the idea of keeping an EF. If a disaster occurs which includes a drop in equities and loss of my income, I would expect to sell first bonds, then equities to cover my expenses. Since I don't have an EF, I'm starting out from a higher point than if I did sideline some of money in cash for the last 30 years.
This is my long term thought process to some degree as well. Obviously there would be short term risk if I put EF at 100/0 AA today and lost my job tomorrow.

KlangFool
Posts: 13378
Joined: Sat Oct 11, 2008 12:35 pm

Re: Phase out EF?

Post by KlangFool » Mon Jul 15, 2019 10:34 am

bstewie wrote:
Mon Jul 15, 2019 10:30 am
KlangFool wrote:
Mon Jul 15, 2019 10:24 am
bstewie wrote:
Mon Jul 15, 2019 9:55 am
KlangFool wrote:
Mon Jul 15, 2019 9:48 am
bstewie wrote:
Mon Jul 15, 2019 9:43 am

I think it depends on circumstances, I’m considering a slightly more aggressive approach specifically due to my circumstances. If I had more liabilities I would probably stick with a more traditional approach. Impact of job loss in a recession is a function of liabilities IMO.
bstewie,

I wish you the best of lucks.

KlangFool
Thanks Klang, see latest reply to will. I think some of this discussion may simply drive me towards a smaller EF, perhaps that’s what’s driving the question, maybe I feel my EF is too large.
bstewie,

1) How many months of expense is in your EF now?

2) How long will you need to find a job if you are unemployed over the next recession?

KlangFool
1)
Maintaining current lifestyle: 18mo
With obvious cuts under duress: 24mo

2)
Optimistically: 1-3mo
Pessimistically: 6mo
bstewie,

Then, reduce your EF to 9 to 12 months is a reasonable compromise.

KlangFool

Topic Author
bstewie
Posts: 150
Joined: Wed Oct 04, 2017 8:16 pm

Re: Phase out EF?

Post by bstewie » Mon Jul 15, 2019 10:35 am

KlangFool wrote:
Mon Jul 15, 2019 10:29 am
bstewie wrote:
Mon Jul 15, 2019 10:13 am
simplesimon wrote:
Mon Jul 15, 2019 9:59 am
There's no way to know going forward if having cash will hurt or help you.

If you keep a relatively fixed dollar amount in EF, it will phase itself out over time as you keep saving and investing and the proportion of cash to your total wealth diminishes.
Catch 22, by the time it’s inconsequential in absolute dollars you are probably near FI. If you try to maximize absolute dollars you are betting you won’t need the invested cash. For example, I wouldn’t consider 10x expenses in taxable with 2x expenses in cash EF a rounding error in overall AA especially if there’s a lot of remaining runway.
bstewie,

This is a non-issue for me since I save 1 year of expense every year whenever I am employed. I keep 1 year of EF all the time.

At my saving rate, this (1 year of EF) does not matter at all.

KlangFool
Would you feel the same if you saved >1y expenses in taxable while maxing tax deferred and still had 30y of runway?

mbasherp
Posts: 227
Joined: Mon Jun 26, 2017 8:48 am

Re: Phase out EF [Emergency Fund]?

Post by mbasherp » Mon Jul 15, 2019 10:36 am

KlangFool wrote:
Mon Jul 15, 2019 10:32 am
I am covered for all possibilities with one pool of money. I could buy a new car any time with my EF.

KlangFool
No you couldn't, without violating your own rule of keeping 1 year of emergency fund. That's the difference. Your approach is static. Life is dynamic and my approach reflects that.

Topic Author
bstewie
Posts: 150
Joined: Wed Oct 04, 2017 8:16 pm

Re: Phase out EF?

Post by bstewie » Mon Jul 15, 2019 10:39 am

KlangFool wrote:
Mon Jul 15, 2019 10:34 am
bstewie wrote:
Mon Jul 15, 2019 10:30 am
KlangFool wrote:
Mon Jul 15, 2019 10:24 am
bstewie wrote:
Mon Jul 15, 2019 9:55 am
KlangFool wrote:
Mon Jul 15, 2019 9:48 am


bstewie,

I wish you the best of lucks.

KlangFool
Thanks Klang, see latest reply to will. I think some of this discussion may simply drive me towards a smaller EF, perhaps that’s what’s driving the question, maybe I feel my EF is too large.
bstewie,

1) How many months of expense is in your EF now?

2) How long will you need to find a job if you are unemployed over the next recession?

KlangFool
1)
Maintaining current lifestyle: 18mo
With obvious cuts under duress: 24mo

2)
Optimistically: 1-3mo
Pessimistically: 6mo
bstewie,

Then, reduce your EF to 9 to 12 months is a reasonable compromise.

KlangFool
Yes, I think a slow unwind of the EF until there’s a happy medium may be the right approach

Admiral
Posts: 2285
Joined: Mon Oct 27, 2014 12:35 pm

Re: Phase out EF [Emergency Fund]?

Post by Admiral » Mon Jul 15, 2019 10:44 am

My taxable account IS my EF. $100k, 15k in MM and 85k in stocks. No bonds. The cash balance goes up and down as it's used (school bills, vacations, and other things cash flow doesn't always cover) and then replenished. I've only had to sell stocks once in the last 10 years, mostly due to poor planning. It sucked but it was like $1500 in LTC so it didn't break the bank.

Topic Author
bstewie
Posts: 150
Joined: Wed Oct 04, 2017 8:16 pm

Re: Phase out EF [Emergency Fund]?

Post by bstewie » Mon Jul 15, 2019 10:47 am

Admiral wrote:
Mon Jul 15, 2019 10:44 am
My taxable account IS my EF. $100k, 15k in MM and 85k in stocks. No bonds. The cash balance goes up and down as it's used (school bills, vacations, and other things cash flow doesn't always cover) and then replenished. I've only had to sell stocks once in the last 10 years, mostly due to poor planning. It sucked but it was like $1500 in LTC so it didn't break the bank.
Thanks for the data point Admiral. I think the risk of selling at a loss diminishes over time, as you’ve witnessed. I don’t think it’s a good starting point for someone with a NW close to 0 and risk of multiple looming emergencies unrelated to job loss / medical.

Admiral
Posts: 2285
Joined: Mon Oct 27, 2014 12:35 pm

Re: Phase out EF [Emergency Fund]?

Post by Admiral » Mon Jul 15, 2019 10:50 am

mbasherp wrote:
Mon Jul 15, 2019 10:28 am
Cash should only be held for a purpose, imo. It is a proven investment loser.
I think we need to be careful here. It may be a "proven investment loser" compared to stocks over the long term... but so is everything else.

2% on a MM is not that horrible versus yields on taxable bonds and their associated tax drag for higher earners. For a cash amount of, say, 10-20k the difference in return is a rounding error. At least it's not .01% like it was. If you need, or think you may need, the money in a short time frame I see no big downside in holding cash...at least lately.

KlangFool
Posts: 13378
Joined: Sat Oct 11, 2008 12:35 pm

Re: Phase out EF [Emergency Fund]?

Post by KlangFool » Mon Jul 15, 2019 10:51 am

mbasherp wrote:
Mon Jul 15, 2019 10:36 am
KlangFool wrote:
Mon Jul 15, 2019 10:32 am
I am covered for all possibilities with one pool of money. I could buy a new car any time with my EF.

KlangFool
No you couldn't, without violating your own rule of keeping 1 year of emergency fund. That's the difference. Your approach is static. Life is dynamic and my approach reflects that.
mbasherp,

Who says so? I keep 1 year of EF. But, I won't mind letting the EF oscillate between 6 months to 12 months. My saving rate is 1 year of expense every year. It does not take long for me to refill my EF.

In fact, with 500K in my taxable account, I could add a few months to my EF just by not reinvesting my dividend/distribution.

My EF is dynamic.

KlangFool

Admiral
Posts: 2285
Joined: Mon Oct 27, 2014 12:35 pm

Re: Phase out EF [Emergency Fund]?

Post by Admiral » Mon Jul 15, 2019 10:55 am

bstewie wrote:
Mon Jul 15, 2019 10:47 am
Admiral wrote:
Mon Jul 15, 2019 10:44 am
My taxable account IS my EF. $100k, 15k in MM and 85k in stocks. No bonds. The cash balance goes up and down as it's used (school bills, vacations, and other things cash flow doesn't always cover) and then replenished. I've only had to sell stocks once in the last 10 years, mostly due to poor planning. It sucked but it was like $1500 in LTC so it didn't break the bank.
Thanks for the data point Admiral. I think the risk of selling at a loss diminishes over time, as you’ve witnessed. I don’t think it’s a good starting point for someone with a NW close to 0 and risk of multiple looming emergencies unrelated to job loss / medical.
Right. Age and job security (not to mention income) are important. My spouse and I are both mid-to-late career and in very stable jobs. Even a single job loss would be unlikely and we could live on one salary (albeit at a reduced standard; but we wouldn't lose our home). The chance of a double loss is extremely low. Therefore, the need to keep a big EF is commensurately low. (Plus, there's always the Roth accounts.)

For a younger person in a less secure job, with uneven income, saving for a big purchase, I think an EF is wise and some cash is necessary. How much is a question up to each person and based on circumstances.

JediMisty
Posts: 288
Joined: Tue Aug 07, 2018 7:06 am
Location: Central NJ

Re: Phase out EF?

Post by JediMisty » Mon Jul 15, 2019 11:00 am

bstewie wrote:
Mon Jul 15, 2019 9:49 am
JediMisty wrote:
Mon Jul 15, 2019 9:35 am
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?
If your house is paid for and you are at or near retirement with "enough" to retire, I would think of your entire portfolio as an EF, especially if you have taxable and Roth along with tax deferred. That said I have 30k in a short term bond fund in taxable. It won't be tragedy if I sell it at a loss to buy a car or a new roof. I do like the current MM returns, which is a great place to keep some ready cash, especially in a taxable account. My taxable is 91 percent stock, but includes some unrealized gains I wpuld rather not harvest until I'm in a lower bracket (retiring in a year or two)
Thanks jedi, far from a paid off mortgage, far from retirement. I have a less aggressive AA than you even at a young age (80/20 - 29y). I agree, selling bonds in need would not be a tragedy. Also agree MM returns aren’t horrible at the moment, both my short term cash needs and EF are in MM at the moment.
Sorry, that was an incomplete statement. My taxable AA is 91/9. My overall AA is 61/39. Seventeen percent of total assets in taxable, also seventeen percent in Roth. I keep a running balance in my checking account of at least 7k, though, for living expenses fluctuates.

mbasherp
Posts: 227
Joined: Mon Jun 26, 2017 8:48 am

Re: Phase out EF [Emergency Fund]?

Post by mbasherp » Mon Jul 15, 2019 11:01 am

KlangFool wrote:
Mon Jul 15, 2019 10:51 am


Who says so? I keep 1 year of EF. But, I won't mind letting the EF oscillate between 6 months to 12 months.
I stand corrected. From your numerous posts, I thought you continuously reiterated that you always keep 12 months.

KlangFool
Posts: 13378
Joined: Sat Oct 11, 2008 12:35 pm

Re: Phase out EF [Emergency Fund]?

Post by KlangFool » Mon Jul 15, 2019 11:23 am

mbasherp wrote:
Mon Jul 15, 2019 11:01 am
KlangFool wrote:
Mon Jul 15, 2019 10:51 am


Who says so? I keep 1 year of EF. But, I won't mind letting the EF oscillate between 6 months to 12 months.
I stand corrected. From your numerous posts, I thought you continuously reiterated that you always keep 12 months.
mbasherp,

I use a dynamic EF to handle those lumpy expenses. And, I could increase my EF to more than 12 months if I knew those expenses a few months ahead of time. Meanwhile, some folks have a strict static EF and save separately for those lumpy expenses.

Ditto, some folks have multiple portfolios: one for retirement, one for the house down payment, one for the college education. I have one portfolio.

I believe this is simpler for me. But, for others, they believe this is complicated. To each its own.

There is more than one approach to solve this problem.

KlangFool

Arbol
Posts: 29
Joined: Sun Jul 14, 2019 3:12 pm

Re: Phase out EF [Emergency Fund]?

Post by Arbol » Mon Jul 15, 2019 12:13 pm

Hi,

No mortgages and zero debt.
Rental properties generate cash flow.
Retired.
Fully invested with $1M+ stock portfolio.
If necessary, I would use my untapped margin account in an emergency. Interest rate is LIBOR + 0.75% = less than 4%.

Anyone else?

Post Reply