Is an emergency fund just about market timing?

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bertilak
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Re: Is an emergency fund just about market timing?

Post by bertilak » Wed Oct 03, 2018 5:28 pm

FireProof wrote:
Tue Oct 02, 2018 9:48 am
The only clear one seems to be so that you can avoid selling stocks at a "bad time," but of course judging a "bad time" is classic market timing.
The "bad time" may have nothing to do with the market. Life can throw bad things at you any time.
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Finridge
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Re: Is an emergency fund just about market timing?

Post by Finridge » Wed Oct 03, 2018 5:44 pm

AlohaJoe wrote:
Wed Oct 03, 2018 4:53 pm
Scott S wrote:
Wed Oct 03, 2018 12:51 pm
AlohaJoe wrote:
Wed Oct 03, 2018 12:00 am
Scott S wrote:
Tue Oct 02, 2018 11:27 pm
And as JoMoney points out, the stock market has no obligation to be open during your emergency. ;)
Neither do banks or credit cards, so I'm unclear what options people are suggesting? Keeping six months in cash in a safe in the house?
I can use my credit card or debit card *right now*
Credit cards have no guarantee to work at all times:

https://www.theguardian.com/world/live/ ... ve-updates

I've had two cases in my past where I tried to charge something and the credit card network was down. Once it was the whole Visa network and once it was just my bank.

Also, it should be obvious that banks can and do have "bank holidays", limit withdrawals, and so on. All of which are much more likely to happen when stocks fall 50% (or whatever worst case scenario it is that people are imagining).
Security through redundancy. Have at least one MasterCard card and one Visa card Have two bank accounts. And two investment firms. If one is hacked or has a system outage, use the other. Stay on good terms with your extended family--they are an important part of your "safety net" (and you are part of their's).

And remember, if something truly catastrophic happens, paying your bills and paying them on time will be the least of your concerns.

mirror
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Re: Is an emergency fund just about market timing?

Post by mirror » Wed Oct 03, 2018 7:08 pm

I genuinely curious if someone can come up with an example where they would need 3-6 months' expenses RIGHT NOW in cash only. I feel like some people here wouldn't be happy without 2 years of cash, a year's supply of food, an independent power grid, and a pocket knife for good measure.

Some points to consider:
https://earlyretirementnow.com/2016/09/ ... nds-part1/
https://earlyretirementnow.com/2016/09/ ... nds-part2/

randomguy
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Re: Is an emergency fund just about market timing?

Post by randomguy » Wed Oct 03, 2018 7:20 pm

ER are about liquidity. I don't have an ER. Why would I? With 20x+ of assets I have more than enough bonds to cover any issue. I could take .5x of them and give them a fancy name "Emergency fund" or I could just keep investing with my standard AA and avoid the needless complexity. And no if the market is down, I am not selling stocks to pay for emergencies. That is elementary school math. And no I am not worried about any emergency enough to walk around with a 20k roll of cash in case I happened to need that much money in the next 15 mins.

ER have a purpose for people starting off. It is a bit easier to say 80/20 AA with and additional 2-6 months in bonds/cds/cash than to talk about investing the money and adjusting the AA to maintain enough liquidity. But as you assets grow past 5 or 10x, you will have enough assets to skip the ER if you want to. Or if you like complexity, keep another account around.

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Re: Is an emergency fund just about market timing?

Post by watchnerd » Wed Oct 03, 2018 11:31 pm

mirror wrote:
Wed Oct 03, 2018 7:08 pm
I genuinely curious if someone can come up with an example where they would need 3-6 months' expenses RIGHT NOW in cash only.
When I get a margin call.
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Re: Is an emergency fund just about market timing?

Post by randomguy » Wed Oct 03, 2018 11:37 pm

watchnerd wrote:
Wed Oct 03, 2018 11:31 pm
mirror wrote:
Wed Oct 03, 2018 7:08 pm
I genuinely curious if someone can come up with an example where they would need 3-6 months' expenses RIGHT NOW in cash only.
When I get a margin call.
I don't want to know what type of broker needs you pay off the margin call with a suitcase of CASH instead of allowing a bank wire transfer or selling securities (i.e. bonds) in your account:)

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watchnerd
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Re: Is an emergency fund just about market timing?

Post by watchnerd » Wed Oct 03, 2018 11:40 pm

randomguy wrote:
Wed Oct 03, 2018 11:37 pm
watchnerd wrote:
Wed Oct 03, 2018 11:31 pm
mirror wrote:
Wed Oct 03, 2018 7:08 pm
I genuinely curious if someone can come up with an example where they would need 3-6 months' expenses RIGHT NOW in cash only.
When I get a margin call.
I don't want to know what type of broker needs you pay off the margin call with a suitcase of CASH instead of allowing a bank wire transfer or selling securities (i.e. bonds) in your account:)
Oh, you mean literally a bag of cash? Of course not.

A preference on my part for sending them a bank wire transfer instead of liquidating my bonds?

All of them.
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Scott S
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Re: Is an emergency fund just about market timing?

Post by Scott S » Wed Oct 03, 2018 11:48 pm

AlohaJoe wrote:
Wed Oct 03, 2018 4:53 pm
Scott S wrote:
Wed Oct 03, 2018 12:51 pm
AlohaJoe wrote:
Wed Oct 03, 2018 12:00 am
Scott S wrote:
Tue Oct 02, 2018 11:27 pm
And as JoMoney points out, the stock market has no obligation to be open during your emergency. ;)
Neither do banks or credit cards, so I'm unclear what options people are suggesting? Keeping six months in cash in a safe in the house?
I can use my credit card or debit card *right now*
Credit cards have no guarantee to work at all times:

https://www.theguardian.com/world/live/ ... ve-updates

I've had two cases in my past where I tried to charge something and the credit card network was down. Once it was the whole Visa network and once it was just my bank.

Also, it should be obvious that banks can and do have "bank holidays", limit withdrawals, and so on. All of which are much more likely to happen when stocks fall 50% (or whatever worst case scenario it is that people are imagining).
So the Visa network was anomalously down for 5 hours. The stock market is closed longer than that, every day.

That neither system is perfect doesn't disprove that bank/credit accounts offer better liquidity overall.
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Re: Is an emergency fund just about market timing?

Post by FireProof » Thu Oct 04, 2018 11:39 am

bertilak wrote:
Wed Oct 03, 2018 5:28 pm
FireProof wrote:
Tue Oct 02, 2018 9:48 am
The only clear one seems to be so that you can avoid selling stocks at a "bad time," but of course judging a "bad time" is classic market timing.
The "bad time" may have nothing to do with the market. Life can throw bad things at you any time.
If the market is doing fine then there's zero problem selling investments to meet the expenses resulting from those those bad things. Unless you're part of the camp that worries you may need to raise 3-6 months of expenses in cash before the end of the weekend.

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Re: Is an emergency fund just about market timing?

Post by jalbert » Thu Oct 04, 2018 3:47 pm

Finridge wrote:
Wed Oct 03, 2018 1:03 am
jalbert wrote:
Tue Oct 02, 2018 5:34 pm
Given that equities are perfectly liquid nowadays and generally free to trade (or at the very least, functionally free), what is the rationale for keeping an emergency fund when you can just sell investments to meet any expenses?
They get a lot less liquid at the times people are most likely to lose their jobs.
They're still liquid--just worth less.
Liquidity is not an all-or-nothing concept. When there are a lot more sellers than buyers, liquidity is low. If you want to sell, you have to take a lot less, effectively buying liquidity. This is what you are doing if you sell in a market crash or panic etc.

The fact that all of this is encapsulated into a single number that appears to retail investors as the most recent trade price gives the illusion that you can always sell at whatever price is quoted. That may not be the case. Long-term equity risk is the risk that projected future cash flows do not fully materialize. Short-term equity risk is the risk that you cannot find a buyer today at yesterday’s closing price or the most recent trade price. The latter is a liquidity event.
Risk is not a guarantor of return.

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Re: Is an emergency fund just about market timing?

Post by Hyoga » Thu Oct 04, 2018 7:54 pm

bottlecap wrote:
Wed Oct 03, 2018 12:00 pm
Hyoga wrote:
Wed Oct 03, 2018 11:18 am
The conclusion is that actually the emergency fund's point is not what you said. It's not here to avoid selling when the market goes down. It's to avoid selling altogether when you need to spend money on something that you did not expect. Regardless of the market level.
I trimmed to narrow it down to all that was necessary.

I don't disagree with this statement. I consider it self-evident.

But you are really saying the same thing as I am. If either of us knew the market would never go below the point at which we established our emergency fund, we would keep it in the market.

So, in reality, we are establishing an emergency fund outside of our portfolios for the same reasons, no?

JT
Yes and no? If there are any considerations about market level in the reasons why you establish an EF, it's market timing.
If it's to cover emergencies without taking into account the market level, then it's not. It's just that your AA considers this cash necessary for you.
Initially I was just reacting to the question: "how is judging a 'bad time' market timing?". It definitley is if "bad time" corresponds to "bad market time" (see bertilak's comment on top of this page).

Now, personnally I don't have such an EF. I do have a large stash of cash & equivalent because I now judge very possible that in the near future will occur life events which will require such cash. It's not an EF. 2-3 years ago, I didn't have anything in savings, really, just stocks & bonds. I am not necessarily supportive of a cash EF. The bond portion of an AA can play that role. If the market is down and you need unexpected cash, you will just sell some bonds for that, instead of selling some bonds for rebalancing.
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Re: Is an emergency fund just about market timing?

Post by whodidntante » Thu Oct 04, 2018 8:09 pm

JoMoney wrote:
Tue Oct 02, 2018 10:13 am
FireProof wrote:
Tue Oct 02, 2018 9:48 am
Given that equities are perfectly liquid nowadays...
They're extremely illiquid on Saturdays, Sundays, and holidays... On September 11th 2001, the NYSE and the Nasdaq closed for the week.
I can imagine weather, power, Internet issues being problematic.
I've noted that my credit cards work pretty well when the market is closed. I also have two debit and ATM cards that are linked to margin accounts. And a HELOC with instant transfers. Maybe the stock market will be open before I run through all that.

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Re: Is an emergency fund just about market timing?

Post by watchnerd » Thu Oct 04, 2018 8:10 pm

Hyoga wrote:
Thu Oct 04, 2018 7:54 pm
bottlecap wrote:
Wed Oct 03, 2018 12:00 pm
Hyoga wrote:
Wed Oct 03, 2018 11:18 am
The conclusion is that actually the emergency fund's point is not what you said. It's not here to avoid selling when the market goes down. It's to avoid selling altogether when you need to spend money on something that you did not expect. Regardless of the market level.
I trimmed to narrow it down to all that was necessary.

I don't disagree with this statement. I consider it self-evident.

But you are really saying the same thing as I am. If either of us knew the market would never go below the point at which we established our emergency fund, we would keep it in the market.

So, in reality, we are establishing an emergency fund outside of our portfolios for the same reasons, no?

JT
Yes and no? If there are any considerations about market level in the reasons why you establish an EF, it's market timing.
If it's to cover emergencies without taking into account the market level, then it's not. It's just that your AA considers this cash necessary for you.
Initially I was just reacting to the question: "how is judging a 'bad time' market timing?". It definitley is if "bad time" corresponds to "bad market time" (see bertilak's comment on top of this page).

Now, personnally I don't have such an EF. I do have a large stash of cash & equivalent because I now judge very possible that in the near future will occur life events which will require such cash. It's not an EF. 2-3 years ago, I didn't have anything in savings, really, just stocks & bonds. I am not necessarily supportive of a cash EF. The bond portion of an AA can play that role. If the market is down and you need unexpected cash, you will just sell some bonds for that, instead of selling some bonds for rebalancing.
When people say 'cash', do they really mean it literally?

If it's in CDs, is that cash? Or another type of fixed income more like part of a bond AA?
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Re: Is an emergency fund just about market timing?

Post by Hyoga » Thu Oct 04, 2018 8:59 pm

Cash is whatever is available immediately and not subject to any market fluctuation. I'm not familiar with the U.S. system but I guess CD (as in Cash Deposit or something?) is cash. Bonds are not cash, even short-term.

If people are calling bonds "cash", I quite don't understand that, especially if they have EF in mind. Say Mr. A has an unexpected large expense and needs to sell something. If he considers his bonds as EF, he sells bonds? But if the bond portion is actually lower than what AA says, but not quite low enough yet to rebalance, then it doesn't make sense. He needs to sell stocks instead. So, in effect, he doesn't have an EF.
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Re: Is an emergency fund just about market timing?

Post by watchnerd » Thu Oct 04, 2018 9:02 pm

Hyoga wrote:
Thu Oct 04, 2018 8:59 pm
Cash is whatever is available immediately and not subject to any market fluctuation. I'm not familiar with the U.S. system but I guess CD (as in Cash Deposit or something?) is cash. Bonds are not cash, even short-term.

If people are calling bonds "cash", I quite don't understand that, especially if they have EF in mind. Say Mr. A has an unexpected large expense and needs to sell something. If he considers his bonds as EF, he sells bonds? But if the bond portion is actually lower than what AA says, but not quite low enough yet to rebalance, then it doesn't make sense. He needs to sell stocks instead. So, in effect, he doesn't have an EF.
CD = Certificate of Deposit

Explanation here:

https://en.wikipedia.org/wiki/Certificate_of_deposit
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Re: Is an emergency fund just about market timing?

Post by Hyoga » Thu Oct 04, 2018 9:29 pm

Looks like the penalty for withdrawing early is only part of the interest earned, so we can consider it as cash equivalent I guess.
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Re: Is an emergency fund just about market timing?

Post by dknightd » Thu Oct 04, 2018 9:40 pm

Interesting question and comments. I think an "emergency" fund is basically a slush fund. It smooths things out, and prevents me from paying ridiculous credit card interest rates.

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Re: Is an emergency fund just about market timing?

Post by AndroAsc » Sun Oct 07, 2018 9:15 pm

Assuming that your assets is large enough, would the bond component serve as an emergency fund, and you liquidate that in the event of a market crash and job loss. You can even replace that bond e-fund with CDs for true liquidity.

For example if you have 20% in bonds. You can assign the first $N in bonds to CDs, and the remainder in bonds, where N is the emergency fund for say 12 mth.

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Re: Is an emergency fund just about market timing?

Post by willthrill81 » Sun Oct 07, 2018 9:26 pm

mirror wrote:
Wed Oct 03, 2018 7:08 pm
I genuinely curious if someone can come up with an example where they would need 3-6 months' expenses RIGHT NOW in cash only.
I cannot think of any that couldn't be easily avoided (like the margin call reference above).

To be frank, now that we 'save' for non-monthly expenses every month, we haven't had an 'emergency expense' in years. I think that about the only real need for an emergency fund is for unemployment if one is not financially independent.
mirror wrote:
Wed Oct 03, 2018 7:08 pm
I feel like some people here wouldn't be happy without 2 years of cash, a year's supply of food, an independent power grid, and a pocket knife for good measure.
I don't care to have a two year supply of cash, but what's wrong with the rest? We probably have a year's worth of food on hand. I think it would be ludicrous to have 6 months to a year's worth of cash but only a week's worth of food.
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Re: Is an emergency fund just about market timing?

Post by Rowan Oak » Sun Oct 07, 2018 9:30 pm

Is an emergency fund just about market timing? No.
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Re: Is an emergency fund just about market timing?

Post by watchnerd » Sun Oct 07, 2018 9:46 pm

willthrill81 wrote:
Sun Oct 07, 2018 9:26 pm
mirror wrote:
Wed Oct 03, 2018 7:08 pm
I genuinely curious if someone can come up with an example where they would need 3-6 months' expenses RIGHT NOW in cash only.
I cannot think of any that couldn't be easily avoided (like the margin call reference above).

To be frank, now that we 'save' for non-monthly expenses every month, we haven't had an 'emergency expense' in years. I think that about the only real need for an emergency fund is for unemployment if one is not financially independent.
mirror wrote:
Wed Oct 03, 2018 7:08 pm
I feel like some people here wouldn't be happy without 2 years of cash, a year's supply of food, an independent power grid, and a pocket knife for good measure.
I don't care to have a two year supply of cash, but what's wrong with the rest? We probably have a year's worth of food on hand. I think it would be ludicrous to have 6 months to a year's worth of cash but only a week's worth of food.
Are we talking about investments or zombie apocalypse prepping?
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Re: Is an emergency fund just about market timing?

Post by willthrill81 » Sun Oct 07, 2018 9:54 pm

watchnerd wrote:
Sun Oct 07, 2018 9:46 pm
willthrill81 wrote:
Sun Oct 07, 2018 9:26 pm
mirror wrote:
Wed Oct 03, 2018 7:08 pm
I genuinely curious if someone can come up with an example where they would need 3-6 months' expenses RIGHT NOW in cash only.
I cannot think of any that couldn't be easily avoided (like the margin call reference above).

To be frank, now that we 'save' for non-monthly expenses every month, we haven't had an 'emergency expense' in years. I think that about the only real need for an emergency fund is for unemployment if one is not financially independent.
mirror wrote:
Wed Oct 03, 2018 7:08 pm
I feel like some people here wouldn't be happy without 2 years of cash, a year's supply of food, an independent power grid, and a pocket knife for good measure.
I don't care to have a two year supply of cash, but what's wrong with the rest? We probably have a year's worth of food on hand. I think it would be ludicrous to have 6 months to a year's worth of cash but only a week's worth of food.
Are we talking about investments or zombie apocalypse prepping?
Since when does having more than a week's worth of food on hand have anything to do with a zombie apocalypse?

Food you have on hand is food you don't have to purchase if any kind of emergency comes up, including something as mundane as a job loss. If I was suddenly unemployed, we wouldn't have to buy any food for a long time. Part of our emergency fund is stored food. And that's something we're certain to need if we don't die first.
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Re: Is an emergency fund just about market timing?

Post by AlphaLess » Sun Oct 07, 2018 10:04 pm

Jack FFR1846 wrote:
Tue Oct 02, 2018 9:53 am
Say that some economic catastrophe occurs and you lose your job as a result. The market loses half its value. You really need your e fund now and where you thought you had 6 months saved, in fact, you now only have 3 months saved.
That is a flawed argument.

On the one hand, the most important cornerstone of investing is to invest early and not staying in cash.
Why? Because every day that you are not in the desired allocation, you are missing

So the $30K emergency fund, if having been invested in stocks, would have probably grown to be big enough so that a 50% drop would result in more than $30K.

The only time this does not make sense is when you have so little in assets that $30K is a lot, i.e. in the beginning stages of accumulation.

A far easier argument is to ensure peace of mind when money is needed.
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Re: Is an emergency fund just about market timing?

Post by AlphaLess » Sun Oct 07, 2018 10:06 pm

There are interest paying online checking / savings accounts paying 2.0%.
There are money market mutual funds paying 2%.
There are tax-exempt funds paying 2% or more.

So one does not need to keep 'the emergency fund' in the mattress.
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Re: Is an emergency fund just about market timing?

Post by watchnerd » Sun Oct 07, 2018 10:14 pm

willthrill81 wrote:
Sun Oct 07, 2018 9:54 pm

Since when does having more than a week's worth of food on hand have anything to do with a zombie apocalypse?

Food you have on hand is food you don't have to purchase if any kind of emergency comes up, including something as mundane as a job loss. If I was suddenly unemployed, we wouldn't have to buy any food for a long time. Part of our emergency fund is stored food. And that's something we're certain to need if we don't die first.
Well, a week, sure....get snowed in, earthquake, volcanic eruption. I get that.

But a year?

Food isn't fungible. Once I've committed that money to turning it into food, i can't use it for anything else.

And a year's worth of food is a sizable chunk of money.

I can't really sell the food to raise funds to repair my car if that also breaks while unemployed.
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Re: Is an emergency fund just about market timing?

Post by watchnerd » Sun Oct 07, 2018 10:22 pm

Also:

-Food has to be stored
-If I get a job offer in a new place, do I take a year's worth of food with me to my new location?
-Food doesn't earn interest
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Re: Is an emergency fund just about market timing?

Post by Nate79 » Sun Oct 07, 2018 10:22 pm

AlphaLess wrote:
Sun Oct 07, 2018 10:04 pm
Jack FFR1846 wrote:
Tue Oct 02, 2018 9:53 am
Say that some economic catastrophe occurs and you lose your job as a result. The market loses half its value. You really need your e fund now and where you thought you had 6 months saved, in fact, you now only have 3 months saved.
That is a flawed argument.

On the one hand, the most important cornerstone of investing is to invest early and not staying in cash.
Why? Because every day that you are not in the desired allocation, you are missing

So the $30K emergency fund, if having been invested in stocks, would have probably grown to be big enough so that a 50% drop would result in more than $30K.

The only time this does not make sense is when you have so little in assets that $30K is a lot, i.e. in the beginning stages of accumulation.

A far easier argument is to ensure peace of mind when money is needed.
If a person needs an emergency fund of $30k they are insufficiently protected with a 100% stock portfolio until the account has reached $60k. So they need to either put $60k in immediately or build it in steps (start with $30k cash and then add money in stocks and slowly convert the cash to stocks until reaching $60k slowly).

But if that $30k counts towards the fixed income portion of their portfolio (assuming they aren't targeting 100% stock) there is no portfolio impact to holding emergency fund in safe assets.

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Re: Is an emergency fund just about market timing?

Post by sambb » Sun Oct 07, 2018 10:23 pm

emergency fund is some of the worst advice ive received here, defintely has hurt my returns

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Re: Is an emergency fund just about market timing?

Post by AlphaLess » Sun Oct 07, 2018 10:24 pm

sambb wrote:
Sun Oct 07, 2018 10:23 pm
emergency fund is some of the worst advice ive received here, defintely has hurt my returns
Upvote.
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Re: Is an emergency fund just about market timing?

Post by willthrill81 » Sun Oct 07, 2018 10:26 pm

watchnerd wrote:
Sun Oct 07, 2018 10:14 pm
willthrill81 wrote:
Sun Oct 07, 2018 9:54 pm

Since when does having more than a week's worth of food on hand have anything to do with a zombie apocalypse?

Food you have on hand is food you don't have to purchase if any kind of emergency comes up, including something as mundane as a job loss. If I was suddenly unemployed, we wouldn't have to buy any food for a long time. Part of our emergency fund is stored food. And that's something we're certain to need if we don't die first.
Well, a week, sure....get snowed in, earthquake, volcanic eruption. I get that.
I can't imagine only having a week of food on hand. A month would be the barest minimum I could sleep well with.
watchnerd wrote:
Sun Oct 07, 2018 10:14 pm
But a year?

Food isn't fungible. Once I've committed that money to turning it into food, i can't use it for anything else.
I never said to keep it all there. But if someone has six month's of expenses in an EF, some of those expenses are probably earmarked to buy food. So by buying the food in advance, you've reduced the needed size for your EF.
watchnerd wrote:
Sun Oct 07, 2018 10:14 pm
And a year's worth of food is a sizable chunk of money.
It's need not be as much as you might think. The year's worth of food we have on hand isn't everything that we eat on a regular basis. For instance, we eat a fair amount of fresh vegetables, fruits, and dairy, and storing these for that long isn't viable. But we have a lot of canned goods, frozen foods, and stored grains that could get us to a year. But all of this is just 'advance purchasing' (i.e. it's all food we're going to eat anyway), and we bought nearly all of it when it was on a great sale. For instance, just today our local grocery store was selling pork tenderloin for an incredible price of $1.99/lb., so we got enough to supply us with one tenderloin a week for a year. The cost was just $135.
watchnerd wrote:
Sun Oct 07, 2018 10:14 pm
I can't really sell the food to raise funds to repair my car if that also breaks while unemployed.
I never said that a larder should replace an EF. But the former is certainly part of the latter for us.
watchnerd wrote:
Sun Oct 07, 2018 10:22 pm
Also:

-Food has to be stored
We have a 1,200 sq. ft. home, and the food fits in our kitchen and a small chest freezer in our garage.
watchnerd wrote:
Sun Oct 07, 2018 10:22 pm
-If I get a job offer in a new place, do I take a year's worth of food with me to my new location?
Most of the food isn't frozen, so transporting it is easy.
watchnerd wrote:
Sun Oct 07, 2018 10:22 pm
-Food doesn't earn interest
Neither do your home's furnishings, your vehicle, or your clothes.
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Re: Is an emergency fund just about market timing?

Post by willthrill81 » Sun Oct 07, 2018 10:30 pm

sambb wrote:
Sun Oct 07, 2018 10:23 pm
emergency fund is some of the worst advice ive received here, defintely has hurt my returns
So what alternative do you practice?
“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

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Re: Is an emergency fund just about market timing?

Post by watchnerd » Sun Oct 07, 2018 10:33 pm

willthrill81 wrote:
Sun Oct 07, 2018 10:26 pm
watchnerd wrote:
Sun Oct 07, 2018 10:14 pm
willthrill81 wrote:
Sun Oct 07, 2018 9:54 pm

Since when does having more than a week's worth of food on hand have anything to do with a zombie apocalypse?

Food you have on hand is food you don't have to purchase if any kind of emergency comes up, including something as mundane as a job loss. If I was suddenly unemployed, we wouldn't have to buy any food for a long time. Part of our emergency fund is stored food. And that's something we're certain to need if we don't die first.
Well, a week, sure....get snowed in, earthquake, volcanic eruption. I get that.
I can't imagine only having a week of food on hand. A month would be the barest minimum I could sleep well with.
watchnerd wrote:
Sun Oct 07, 2018 10:14 pm
But a year?

Food isn't fungible. Once I've committed that money to turning it into food, i can't use it for anything else.
I never said to keep it all there. But if someone has six month's of expenses in an EF, some of those expenses are probably earmarked to buy food. So by buying the food in advance, you've reduced the needed size for your EF.
watchnerd wrote:
Sun Oct 07, 2018 10:14 pm
And a year's worth of food is a sizable chunk of money.
It's need not be as much as you might think. The year's worth of food we have on hand isn't everything that we eat on a regular basis. For instance, we eat a fair amount of fresh vegetables, fruits, and dairy, and storing these for that long isn't viable. But we have a lot of canned goods, frozen foods, and stored grains that could get us to a year. But all of this is just 'advance purchasing' (i.e. it's all food we're going to eat anyway), and we bought nearly all of it when it was on a great sale. For instance, just today our local grocery store was selling pork tenderloin for an incredible price of $1.99/lb., so we got enough to supply us with one tenderloin a week for a year. The cost was just $135.
watchnerd wrote:
Sun Oct 07, 2018 10:14 pm
I can't really sell the food to raise funds to repair my car if that also breaks while unemployed.
I never said that a larder should replace an EF. But the former is certainly part of the latter for us.
Well, anything that helps you sleep well is probably money well spent.

Me, personally, I never even think about how much food we have on hand. I'm guessing it's a couple of weeks worth. Maybe 4+ weeks if we really leaned heavily on the dried goods (beans, pasta, rice).

I've only thought about it in the context of natural disasters (when I lived in CA, we regularly talked about how to drink water from your hot water heater and toilet if The Big One hit).

I've been laid off a few times in my life and never once did I think about food. Money, sure. Food, never. And if things got really bad, there were always food charity options.

I'd rather have the money for a year's worth of food in a CD earning interest than actually have the food.
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Re: Is an emergency fund just about market timing?

Post by willthrill81 » Sun Oct 07, 2018 10:37 pm

watchnerd wrote:
Sun Oct 07, 2018 10:33 pm
I'd rather have the money for a year's worth of food in a CD earning interest than actually have the food.
You're overlooking the fact that the food we have stored is maintaining its value over time (i.e. keeping perfect pace with inflation in food costs). Since 2000, the average inflation rate of food has been 2.3%. So the food in my pantry is probably generating a higher 'return' than the money I have with Ally right now.
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Re: Is an emergency fund just about market timing?

Post by Rowan Oak » Sun Oct 07, 2018 10:44 pm

willthrill81 wrote:
Sun Oct 07, 2018 10:26 pm
watchnerd wrote:
Sun Oct 07, 2018 10:14 pm
willthrill81 wrote:
Sun Oct 07, 2018 9:54 pm

Since when does having more than a week's worth of food on hand have anything to do with a zombie apocalypse?

Food you have on hand is food you don't have to purchase if any kind of emergency comes up, including something as mundane as a job loss. If I was suddenly unemployed, we wouldn't have to buy any food for a long time. Part of our emergency fund is stored food. And that's something we're certain to need if we don't die first.
Well, a week, sure....get snowed in, earthquake, volcanic eruption. I get that.
I can't imagine only having a week of food on hand. A month would be the barest minimum I could sleep well with.
watchnerd wrote:
Sun Oct 07, 2018 10:14 pm
But a year?

Food isn't fungible. Once I've committed that money to turning it into food, i can't use it for anything else.
I never said to keep it all there. But if someone has six month's of expenses in an EF, some of those expenses are probably earmarked to buy food. So by buying the food in advance, you've reduced the needed size for your EF.
watchnerd wrote:
Sun Oct 07, 2018 10:14 pm
And a year's worth of food is a sizable chunk of money.
It's need not be as much as you might think. The year's worth of food we have on hand isn't everything that we eat on a regular basis. For instance, we eat a fair amount of fresh vegetables, fruits, and dairy, and storing these for that long isn't viable. But we have a lot of canned goods, frozen foods, and stored grains that could get us to a year. But all of this is just 'advance purchasing' (i.e. it's all food we're going to eat anyway), and we bought nearly all of it when it was on a great sale. For instance, just today our local grocery store was selling pork tenderloin for an incredible price of $1.99/lb., so we got enough to supply us with one tenderloin a week for a year. The cost was just $135.
watchnerd wrote:
Sun Oct 07, 2018 10:14 pm
I can't really sell the food to raise funds to repair my car if that also breaks while unemployed.
I never said that a larder should replace an EF. But the former is certainly part of the latter for us.
watchnerd wrote:
Sun Oct 07, 2018 10:22 pm
Also:

-Food has to be stored
We have a 1,200 sq. ft. home, and the food fits in our kitchen and a small chest freezer in our garage.
watchnerd wrote:
Sun Oct 07, 2018 10:22 pm
-If I get a job offer in a new place, do I take a year's worth of food with me to my new location?
Most of the food isn't frozen, so transporting it is easy.
watchnerd wrote:
Sun Oct 07, 2018 10:22 pm
-Food doesn't earn interest
Neither do your home's furnishings, your vehicle, or your clothes.
I think the amount of food you need to store to feel secure is a personal decision and varies a lot depending on family size, whether you have children or not, ages, geographic location/climate, etc.. Can you grow your own food or are you completely dependent on grocery stores? And on and on. Just too much to consider to argue against in the context of this Bogleheads forum question.
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Re: Is an emergency fund just about market timing?

Post by watchnerd » Sun Oct 07, 2018 10:47 pm

willthrill81 wrote:
Sun Oct 07, 2018 10:37 pm
watchnerd wrote:
Sun Oct 07, 2018 10:33 pm
I'd rather have the money for a year's worth of food in a CD earning interest than actually have the food.
You're overlooking the fact that the food we have stored is maintaining its value over time (i.e. keeping perfect pace with inflation in food costs). Since 2000, the average inflation rate of food has been 2.3%. So the food in my pantry is probably generating a higher 'return' than the money I have with Ally right now.
If it helps you sleep, great. No need to rationalize it.

But I've yet to see a financial advisor recommend "investing" in food.
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Re: Is an emergency fund just about market timing?

Post by willthrill81 » Sun Oct 07, 2018 10:49 pm

watchnerd wrote:
Sun Oct 07, 2018 10:47 pm
But I've yet to see a financial advisor recommend "investing" in food.
Probably because they can't easily charge an AUM fee for it. :wink:

The fact that it keeps pace with inflation is very rational though.
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Re: Is an emergency fund just about market timing?

Post by watchnerd » Sun Oct 07, 2018 10:51 pm

willthrill81 wrote:
Sun Oct 07, 2018 10:49 pm
watchnerd wrote:
Sun Oct 07, 2018 10:47 pm
But I've yet to see a financial advisor recommend "investing" in food.
Probably because they can't easily charge an AUM fee for it. :wink:

The fact that it keeps pace with inflation is very rational though.
My wife would probably say the same thing about her shoe collection....
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Re: Is an emergency fund just about market timing?

Post by Rowan Oak » Sun Oct 07, 2018 10:56 pm

watchnerd wrote:
Sun Oct 07, 2018 10:51 pm
willthrill81 wrote:
Sun Oct 07, 2018 10:49 pm
watchnerd wrote:
Sun Oct 07, 2018 10:47 pm
But I've yet to see a financial advisor recommend "investing" in food.
Probably because they can't easily charge an AUM fee for it. :wink:

The fact that it keeps pace with inflation is very rational though.
My wife would probably say the same thing about her shoe collection....
Can't eat your shoes though.
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

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Re: Is an emergency fund just about market timing?

Post by willthrill81 » Mon Oct 08, 2018 12:14 am

Rowan Oak wrote:
Sun Oct 07, 2018 10:56 pm
watchnerd wrote:
Sun Oct 07, 2018 10:51 pm
willthrill81 wrote:
Sun Oct 07, 2018 10:49 pm
watchnerd wrote:
Sun Oct 07, 2018 10:47 pm
But I've yet to see a financial advisor recommend "investing" in food.
Probably because they can't easily charge an AUM fee for it. :wink:

The fact that it keeps pace with inflation is very rational though.
My wife would probably say the same thing about her shoe collection....
Can't eat your shoes though.
Well...

Image
https://www.amazon.com/Man-Who-Ate-His- ... 0307276562
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Re: Is an emergency fund just about market timing?

Post by Chief_Engineer » Mon Oct 08, 2018 8:09 am

I find this forum's endless arguing about emergency funds to be fascinating. I think it boils down to the fact that many on this forum are financially secure, and an emergency fund is not for them.

An emergency fund is for those who need access to stable liquidity. My wife and I are just starting our careers after grad school We have student loan debt and little savings. We are only investing enough to get our respective employer match, and that is all locked in retirement accounts. Trying to save up double our needed emergency fund in stocks in a taxable account is inefficient. We need to pay off debt. So we have put away enough to sleep at night in savings accounts where we know the money will be there no matter what.

On the other side of the spectrum is a retiree. They have access to all of their assets, and presumably have chosen an asset allocation that will provide enough security during a down market. They don't need an emergency fund, it's part of their asset allocation.

I think many on this forum forget that not everyone is maxing out their tax-advantaged space and saving a considerable amount on top of that in a taxable account. If you have a large taxable account, no you do not *need* and emergency fund. But me? I do.

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Re: Is an emergency fund just about market timing?

Post by MathMann » Mon Oct 08, 2018 8:58 am

*** The only clear one seems to be so that you can avoid selling stocks at a "bad time," but of course judging a "bad time" is classic market timing. I'm not saying the rationale isn't attractive - the biggest emergency like losing a job is most likely to happen after a big market crash, and it is certainly painful to sell when the market is low. But still, we have to admit that is market timing. ***

As Warren Buffett said you want to be buying hamburgers when the price is going down and selling them when the price is going up. Selling stocks (in a bear market) to pay for your leaky roof is a bad strategy. You might not have control over when the roof has a hole.

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Re: Is an emergency fund just about market timing?

Post by willthrill81 » Mon Oct 08, 2018 9:01 am

MathMann wrote:
Mon Oct 08, 2018 8:58 am
As Warren Buffett said you want to be buying hamburgers when the price is going down and selling them when the price is going up. Selling stocks (in a bear market) to pay for your leaky roof is a bad strategy. You might not have control over when the roof has a hole.
But what if your stocks tripled in value before the crash cut their value in half?
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Re: Is an emergency fund just about market timing?

Post by randomguy » Mon Oct 08, 2018 9:33 am

willthrill81 wrote:
Sun Oct 07, 2018 10:26 pm

I can't imagine only having a week of food on hand. A month would be the barest minimum I could sleep well with.

See I wouldn't be able to sleep at night having to keep track of all that food and making sure it doesn't go bad.:)

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Re: Is an emergency fund just about market timing?

Post by willthrill81 » Mon Oct 08, 2018 9:36 am

randomguy wrote:
Mon Oct 08, 2018 9:33 am
willthrill81 wrote:
Sun Oct 07, 2018 10:26 pm

I can't imagine only having a week of food on hand. A month would be the barest minimum I could sleep well with.

See I wouldn't be able to sleep at night having to keep track of all that food and making sure it doesn't go bad.:)
That's why you should have bought shelf-stable food and a generator to keep your freezer full of frozen food running. :wink:

All of this goes to show how crazy we human beings are. One person can't sleep well with only a few days of food in the house, and another can't sleep well without a year of expenses in their checking account.
“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

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Re: Is an emergency fund just about market timing?

Post by watchnerd » Mon Oct 08, 2018 9:39 am

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Re: Is an emergency fund just about market timing?

Post by watchnerd » Mon Oct 08, 2018 9:41 am

"A Word on Junk Food...
Finally, know that it's okay to stock up on a little junk food. Did
you know that Cheetos and Pringles can get a fire going? The
content of much of the processed foods you buy has the perfect
combination of air and fats to make fire. Who knew that your
everyday food storage of junk foods would come in so handy in a
disaster?"
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Re: Is an emergency fund just about market timing?

Post by watchnerd » Mon Oct 08, 2018 9:51 am

Chief_Engineer wrote:
Mon Oct 08, 2018 8:09 am
I find this forum's endless arguing about emergency funds to be fascinating. I think it boils down to the fact that many on this forum are financially secure, and an emergency fund is not for them.
I'm not retired, but I do have a taxable account.

I keep 5% of my investment funds (as opposed to saving for vacation or new car funds) in CDs.

Is that an emergency fund?
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Re: Is an emergency fund just about market timing?

Post by UpsetRaptor » Mon Oct 08, 2018 12:01 pm

willthrill81 wrote:
Sun Oct 07, 2018 10:30 pm
sambb wrote:
Sun Oct 07, 2018 10:23 pm
emergency fund is some of the worst advice ive received here, defintely has hurt my returns
So what alternative do you practice?
Build up / Set aside a taxable investment account as your e-fund first, until it can function as your e-fund even in the case of a hypothetical 50% drop. Then use the taxable-as-emergency fund approach, where it's just part of your overall portfolio, and if you ever need to dip into it you just rebalance your AA afterwards:
https://www.bogleheads.org/wiki/Placing ... ed_account

Long term, this is going to generate higher returns than parking a bunch of money out of market in cash equivalents, and you'll still have enough to cover an emergency.

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Re: Is an emergency fund just about market timing?

Post by MathWizard » Mon Oct 08, 2018 5:13 pm

No. An EF is about staying out of a liquidity crunch.

It's also about being able to sleep at night.

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Re: Is an emergency fund just about market timing?

Post by watchnerd » Tue Oct 09, 2018 8:43 am

UpsetRaptor wrote:
Mon Oct 08, 2018 12:01 pm
willthrill81 wrote:
Sun Oct 07, 2018 10:30 pm
sambb wrote:
Sun Oct 07, 2018 10:23 pm
emergency fund is some of the worst advice ive received here, defintely has hurt my returns
So what alternative do you practice?
Build up / Set aside a taxable investment account as your e-fund first, until it can function as your e-fund even in the case of a hypothetical 50% drop. Then use the taxable-as-emergency fund approach, where it's just part of your overall portfolio, and if you ever need to dip into it you just rebalance your AA afterwards:
https://www.bogleheads.org/wiki/Placing ... ed_account

Long term, this is going to generate higher returns than parking a bunch of money out of market in cash equivalents, and you'll still have enough to cover an emergency.
An EF is part of my portfolio / asset allocation whether I hold it in a taxable brokerage account or elsewhere.

Why does holding it in a taxable brokerage account make it somehow superior to not?

I could hold a CD at Ally bank, or a brokered CD at Vanguard. What's the big difference?

(other than trading costs and mark to market)
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