Where to invest emergency fund?

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rshocka
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Joined: Thu Oct 24, 2019 12:54 pm

Where to invest emergency fund?

Post by rshocka »

Where do you prefer to place your emergency fund assets? (e.g. Ally online savings, Fidelity money market, etc.)
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willthrill81
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Location: USA

Re: Where to invest emergency fund?

Post by willthrill81 »

Back when we had an EF (now it's down to 1 month's expenses kept in cash), we had one-third of it in hard cash and two-thirds of it in Wellesley Income. The latter has had some volatility, but I was willing to take that on in order to have a good shot of beating inflation.

Most here keep their EF in a high-yield savings account like Ally or a money market like Vanguard's Prime Money Market fund.
“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
Sconie
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Location: Arizona

Re: Where to invest emergency fund?

Post by Sconie »

I am currently using a combination of Vanguard prime MM, an Incredible Bank savings account and a Marcus.com no penalty CD.
I know you think you understand what you thought I said but I'm not sure you realize that what you heard is not what I meant. - Alan Greenspan
Waiting_for_Godot
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Re: Where to invest emergency fund?

Post by Waiting_for_Godot »

I've been happy with Ally; I actually have my non-401k stash there until I complete my career pivot, as I am not ready to expose myself to market risk.
Blue456
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Re: Where to invest emergency fund?

Post by Blue456 »

willthrill81 wrote: Thu Feb 20, 2020 11:27 am Back when we had an EF (now it's down to 1 month's expenses kept in cash), we had one-third of it in hard cash and two-thirds of it in Wellesley Income. The latter has had some volatility, but I was willing to take that on in order to have a good shot of beating inflation.

Most here keep their EF in a high-yield savings account like Ally or a money market like Vanguard's Prime Money Market fund.
+1 to that.
I keep the split 50:50 Wellesley Income Fund and Ally.
Alternatively you can keep 100% of your fund in I-bonds.

In 2008 I would have lost 9% of the total value. With quick rebound and nice growth over 10 years.

Keep in mind that my emergency fund is truly emergency fund used only to recover income due to job loss or while in between jobs.
mbasherp
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Joined: Mon Jun 26, 2017 8:48 am

Re: Where to invest emergency fund?

Post by mbasherp »

In our case:

Some in high yield savings (1-2 months’ EF + upcoming expenses)
3-4 months of expenses in ibonds
Excess is invested according to our asset allocation in our taxable brokerage account

I always count 50% of the value of the brokerage account when calling anything “emergency fund.”
atdharris
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Joined: Wed Jan 02, 2019 3:18 pm

Re: Where to invest emergency fund?

Post by atdharris »

I keep my cash at Amex. They pay 1.7% which is better than a lot of banks and better than Ally.
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anon_investor
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Re: Where to invest emergency fund?

Post by anon_investor »

At Ally Bank in a savings account and several no penalty CDs. As the CDs expire, I plan to start moving some money into I Bonds.
mortfree
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Re: Where to invest emergency fund?

Post by mortfree »

willthrill81 wrote: Thu Feb 20, 2020 11:27 am Back when we had an EF (now it's down to 1 month's expenses kept in cash), we had one-third of it in hard cash and two-thirds of it in Wellesley Income. The latter has had some volatility, but I was willing to take that on in order to have a good shot of beating inflation.

Most here keep their EF in a high-yield savings account like Ally or a money market like Vanguard's Prime Money Market fund.
Wellesley in a taxable account?

How much of an impact did that have at tax time?
Tdubs
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Re: Where to invest emergency fund?

Post by Tdubs »

Ally no-penalty CDs.
dacalo
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Re: Where to invest emergency fund?

Post by dacalo »

We have our EF split between STAR fund, VTEB, and savings account. We also have mutual funds and ETFs in taxable if necessary.
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anon_investor
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Re: Where to invest emergency fund?

Post by anon_investor »

dacalo wrote: Thu Feb 20, 2020 1:00 pm We have our EF split between STAR fund, VTEB, and savings account. We also have mutual funds and ETFs in taxable if necessary.
Interesting mix of a tax inefficient mutual fund and a muni bond ETF. Any particular reason for that that?
dacalo
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Re: Where to invest emergency fund?

Post by dacalo »

anon_investor wrote: Thu Feb 20, 2020 1:06 pm
dacalo wrote: Thu Feb 20, 2020 1:00 pm We have our EF split between STAR fund, VTEB, and savings account. We also have mutual funds and ETFs in taxable if necessary.
Interesting mix of a tax inefficient mutual fund and a muni bond ETF. Any particular reason for that that?
We have to pay taxes on savings account anyways, so don't see paying taxes on STAR fund to be a big deal. We bought STAR a while back. Besides, it's not a significant holding.
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anon_investor
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Re: Where to invest emergency fund?

Post by anon_investor »

dacalo wrote: Thu Feb 20, 2020 1:09 pm
anon_investor wrote: Thu Feb 20, 2020 1:06 pm
dacalo wrote: Thu Feb 20, 2020 1:00 pm We have our EF split between STAR fund, VTEB, and savings account. We also have mutual funds and ETFs in taxable if necessary.
Interesting mix of a tax inefficient mutual fund and a muni bond ETF. Any particular reason for that that?
We have to pay taxes on savings account anyways, so don't see paying taxes on STAR fund to be a big deal. We bought STAR a while back. Besides, it's not a significant holding.
Ah, I was alluding to the taxes on the annual forced short/long term capital gains distributions (not the dividends). If I were ever to invest a portion of my emergency fund in a set it and forget it manner, I would probably look at the Vanguard Tax Managed Balanced Fund (VTMFX).
anthonyphamy
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Re: Where to invest emergency fund?

Post by anthonyphamy »

anon_investor wrote: Thu Feb 20, 2020 1:20 pm
dacalo wrote: Thu Feb 20, 2020 1:09 pm
anon_investor wrote: Thu Feb 20, 2020 1:06 pm
dacalo wrote: Thu Feb 20, 2020 1:00 pm We have our EF split between STAR fund, VTEB, and savings account. We also have mutual funds and ETFs in taxable if necessary.
Interesting mix of a tax inefficient mutual fund and a muni bond ETF. Any particular reason for that that?
We have to pay taxes on savings account anyways, so don't see paying taxes on STAR fund to be a big deal. We bought STAR a while back. Besides, it's not a significant holding.
Ah, I was alluding to the taxes on the annual forced short/long term capital gains distributions (not the dividends). If I were ever to invest a portion of my emergency fund in a set it and forget it manner, I would probably look at the Vanguard Tax Managed Balanced Fund (VTMFX).
So you'd recommend holding VTMFX instead of something like VTSAX in a taxable brokerage account? Thanks!
BrownEyedGirl_27
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Re: Where to invest emergency fund?

Post by BrownEyedGirl_27 »

rshocka wrote: Thu Feb 20, 2020 11:21 am Where do you prefer to place your emergency fund assets? (e.g. Ally online savings, Fidelity money market, etc.)
Capital One 360 Performance Savings (1.7% APY)
Never had an emergency yet that required dipping into emergency fund, so planning to use part of our high-yield checking account through local credit union (2.5% APY on first 10k) for any sudden smaller emergency.
Credit unions are surprisingly paying more in some states to hold your cash, only learned this recently. If a real killer of an emergency comes up we can always withdraw some funds from our taxable brokerage.

Cheers
"Your mind has a mind of its own. At the very moment when you are most convinced of your own rationality, you may be feeling rather than thinking your way toward a decision.” | Jason Zweig
international001
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Re: Where to invest emergency fund?

Post by international001 »

VT

in other words. If you EF is a small percentage of your net worth (let's say 10%), why bother with an EF at all?
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SmileyFace
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Re: Where to invest emergency fund?

Post by SmileyFace »

Tier 1: HY Online Savings (consolidated into Marcus; have Ally and Synchrony accounts open as well from past bonus programs - move money between these three depending upon who has a current bonus - currently it's Marcus which is my preference between the three anyway)
Tier 2: iBonds (also count these as part of my AA Bond allocation)
Also - have a few of CDs (have used Marcus, Synchrony, Ally in the past - whoever has a current bonus) for large purchases or to use for Emergencies.
Blue456
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Re: Where to invest emergency fund?

Post by Blue456 »

international001 wrote: Thu Feb 20, 2020 2:15 pm VT

in other words. If you EF is a small percentage of your net worth (let's say 10%), why bother with an EF at all?
For some of us it is the only net worth.
Peteacher2018
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Re: Where to invest emergency fund?

Post by Peteacher2018 »

I recommend CIT.com, high yield savings, Feb 20, 2020, yield 1.80%
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willthrill81
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Re: Where to invest emergency fund?

Post by willthrill81 »

mortfree wrote: Thu Feb 20, 2020 12:31 pm
willthrill81 wrote: Thu Feb 20, 2020 11:27 am Back when we had an EF (now it's down to 1 month's expenses kept in cash), we had one-third of it in hard cash and two-thirds of it in Wellesley Income. The latter has had some volatility, but I was willing to take that on in order to have a good shot of beating inflation.

Most here keep their EF in a high-yield savings account like Ally or a money market like Vanguard's Prime Money Market fund.
Wellesley in a taxable account?

How much of an impact did that have at tax time?
1. Don't let the tax tail wag the investment dog. You only pay taxes if you're making money.

2. We held it in a Roth IRA and could have withdrawn the contributions at any time with no tax penalty.
“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
mega317
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Re: Where to invest emergency fund?

Post by mega317 »

There are always multiple threads going on about this. You could make a list of any place possible to put money and would find all of them and more on those threads. Mattress, stock funds, gold, and everything else.
It would be helpful if you can give us some specifics about your situation.
https://www.bogleheads.org/forum/viewtopic.php?t=6212
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anon_investor
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Re: Where to invest emergency fund?

Post by anon_investor »

anthonyphamy wrote: Thu Feb 20, 2020 2:02 pm
anon_investor wrote: Thu Feb 20, 2020 1:20 pm
dacalo wrote: Thu Feb 20, 2020 1:09 pm
anon_investor wrote: Thu Feb 20, 2020 1:06 pm
dacalo wrote: Thu Feb 20, 2020 1:00 pm We have our EF split between STAR fund, VTEB, and savings account. We also have mutual funds and ETFs in taxable if necessary.
Interesting mix of a tax inefficient mutual fund and a muni bond ETF. Any particular reason for that that?
We have to pay taxes on savings account anyways, so don't see paying taxes on STAR fund to be a big deal. We bought STAR a while back. Besides, it's not a significant holding.
Ah, I was alluding to the taxes on the annual forced short/long term capital gains distributions (not the dividends). If I were ever to invest a portion of my emergency fund in a set it and forget it manner, I would probably look at the Vanguard Tax Managed Balanced Fund (VTMFX).
So you'd recommend holding VTMFX instead of something like VTSAX in a taxable brokerage account? Thanks!
Personally, I would not. If it made sense tax wise, I would hold VTSAX and a muni bond fund (otherwise just VBTLX), in the appropriate AA. That would likely result in the best tax efficiency and lowest cost. By not having an all-in-one fund you get to pick which asset class to sell if/when needed.

The reason I would not use STAR or Wellesley in my personal tax situation, is because the annual forced short/long term capital gains distributions (which are different than the dividends, and actually create 0 benefit for the individual investor) create an unnecessary tax drag. If someone was in a lower tax bracket, it might make sense. But for someone that is in say the 24% Federal tax bracket, subject to NII tax and has state income taxes, it would start to create an unnecessary tax drag. If someone does not want to manage a 2 fund portfolio VTMFX is a good choice (if in the high enough tax bracket) as it has never generated forced long/short capital gain distributions, and it uses muni bonds, so the portion of the dividends from the bond coupons is federal income tax exempt.

Personally, I would only keep my emergency in investments that guarantee the principal. I would not ever advocate having more than a small portion of an emergency fund in any other kind of investment. I view my emergency fund as insurance, I want it there when I need it. CD rates have fallen to the point where I Bonds for some of my emergency fund have started to make a lot of sense because the interest is state tax exempt and tax deferred.

If I were to decide to start building a 2nd tier emergency fund or mid-tier fund or future new car fund, I think I would go with a simple to manage 2 fund portfolio of VTSAX and VBTLX or a muni bond fund which ever had a better after tax yield. I know people always say not to let taxes drive you investment decisions, however, I think it is a mistake not to look at tax impacts at all. By having the equities/bonds in separate funds, I can change the bond fund with less tax consequences if I need to (versus having to sell an all in one fund). For example if my tax rate jumps (which it likely will in 2026 if we revert to the old tax rates) or a move to a different state, I can change the bond fund accordingly. Having separate funds, also allows for tax loss harvesting on the equity side (2018 was a unique year where both equities and bonds fell).
BuyandHold37
Posts: 80
Joined: Wed Apr 25, 2018 9:29 am

Re: Where to invest emergency fund?

Post by BuyandHold37 »

I recently asked the same question and a member here pointed out ICSH, and that is where I parked it.

52 week range of 30 cents: Low of $50.15 High of $50.45

Expense ratio: .08%

Yield: 2.60%
anthonyphamy
Posts: 78
Joined: Sun Aug 05, 2018 8:59 pm

Re: Where to invest emergency fund?

Post by anthonyphamy »

anon_investor wrote: Thu Feb 20, 2020 4:15 pm
anthonyphamy wrote: Thu Feb 20, 2020 2:02 pm
anon_investor wrote: Thu Feb 20, 2020 1:20 pm
dacalo wrote: Thu Feb 20, 2020 1:09 pm
anon_investor wrote: Thu Feb 20, 2020 1:06 pm

Interesting mix of a tax inefficient mutual fund and a muni bond ETF. Any particular reason for that that?
We have to pay taxes on savings account anyways, so don't see paying taxes on STAR fund to be a big deal. We bought STAR a while back. Besides, it's not a significant holding.
Ah, I was alluding to the taxes on the annual forced short/long term capital gains distributions (not the dividends). If I were ever to invest a portion of my emergency fund in a set it and forget it manner, I would probably look at the Vanguard Tax Managed Balanced Fund (VTMFX).
So you'd recommend holding VTMFX instead of something like VTSAX in a taxable brokerage account? Thanks!
Personally, I would not. If it made sense tax wise, I would hold VTSAX and a muni bond fund (otherwise just VBTLX), in the appropriate AA. That would likely result in the best tax efficiency and lowest cost. By not having an all-in-one fund you get to pick which asset class to sell if/when needed.

The reason I would not use STAR or Wellesley in my personal tax situation, is because the annual forced short/long term capital gains distributions (which are different than the dividends, and actually create 0 benefit for the individual investor) create an unnecessary tax drag. If someone was in a lower tax bracket, it might make sense. But for someone that is in say the 24% Federal tax bracket, subject to NII tax and has state income taxes, it would start to create an unnecessary tax drag. If someone does not want to manage a 2 fund portfolio VTMFX is a good choice (if in the high enough tax bracket) as it has never generated forced long/short capital gain distributions, and it uses muni bonds, so the portion of the dividends from the bond coupons is federal income tax exempt.

Personally, I would only keep my emergency in investments that guarantee the principal. I would not ever advocate having more than a small portion of an emergency fund in any other kind of investment. I view my emergency fund as insurance, I want it there when I need it. CD rates have fallen to the point where I Bonds for some of my emergency fund have started to make a lot of sense because the interest is state tax exempt and tax deferred.

If I were to decide to start building a 2nd tier emergency fund or mid-tier fund or future new car fund, I think I would go with a simple to manage 2 fund portfolio of VTSAX and VBTLX or a muni bond fund which ever had a better after tax yield. I know people always say not to let taxes drive you investment decisions, however, I think it is a mistake not to look at tax impacts at all. By having the equities/bonds in separate funds, I can change the bond fund with less tax consequences if I need to (versus having to sell an all in one fund). For example if my tax rate jumps (which it likely will in 2026 if we revert to the old tax rates) or a move to a different state, I can change the bond fund accordingly. Having separate funds, also allows for tax loss harvesting on the equity side (2018 was a unique year where both equities and bonds fell).
Thank you for the thorough response. I can count on you for very detailed and informative responses.
NotTooDeepLearning
Posts: 179
Joined: Wed Oct 24, 2018 2:04 pm

Re: Where to invest emergency fund?

Post by NotTooDeepLearning »

Mines fully invested in my ROTH IRA. I'm young with a lowish income and extremely stable job. Once cash flows improve I'll probably only keep 2 months or so in an emergency/large unexpected expenses fund.
BV3273
Posts: 713
Joined: Mon Oct 19, 2015 7:20 pm

Re: Where to invest emergency fund?

Post by BV3273 »

3 months at Credit Union earning 3% (rewards checking)
2 months in iBonds (will continue to buy)
1 month in local brick and mortar earning very little
6 months in Taxable (ITOT - 50%, NYF - 25%, VTEB - 25%)

Going to keep socking it away in taxable 50/50 until I have around 2 years or so saved up.
OpenMinded1
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Joined: Wed Feb 05, 2020 9:27 am

Re: Where to invest emergency fund?

Post by OpenMinded1 »

anthonyphamy wrote: Thu Feb 20, 2020 2:02 pm
anon_investor wrote: Thu Feb 20, 2020 1:20 pm
dacalo wrote: Thu Feb 20, 2020 1:09 pm
anon_investor wrote: Thu Feb 20, 2020 1:06 pm
dacalo wrote: Thu Feb 20, 2020 1:00 pm We have our EF split between STAR fund, VTEB, and savings account. We also have mutual funds and ETFs in taxable if necessary.
Interesting mix of a tax inefficient mutual fund and a muni bond ETF. Any particular reason for that that?
We have to pay taxes on savings account anyways, so don't see paying taxes on STAR fund to be a big deal. We bought STAR a while back. Besides, it's not a significant holding.
Ah, I was alluding to the taxes on the annual forced short/long term capital gains distributions (not the dividends). If I were ever to invest a portion of my emergency fund in a set it and forget it manner, I would probably look at the Vanguard Tax Managed Balanced Fund (VTMFX).
So you'd recommend holding VTMFX instead of something like VTSAX in a taxable brokerage account? Thanks!
I have my emergency money in Capital One 360 and I-bonds. CapitaI One has had one of the highest yields among money market funds for awhile. I'm not willing to switch around a lot just to have the one that pays the absolute highest rates, when those rates may only be 0.2 % more, and might only be teaser rates.

I also have some money in Vanguard Tax Managed Balanced Fund, but wouldn't consider it part of my emergency fund since it can fluctuate in value a lot.

Best 1 Yr Total Return (as of Feb 3, 2019)19.14%
Worst 1 Yr Total Return (as of Feb 3, 2019)-18.32%
Best 3-Yr Total Return19.14%
Worst 3-Yr Total Return-2.16%

Also, a non-tax managed fund might well be a better choice if you have relatively low taxable income resulting in qualified dividends and capital gains not getting taxed. Below $80,000 in taxable income I believe. Even without considering it's tax efficiency VTMFX has been one of the best performing funds in the 30 to 50% stock category though.
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