Deploying your emergency fund to buy stocks? Think again.

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willthrill81
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Deploying your emergency fund to buy stocks? Think again.

Post by willthrill81 » Sun Mar 15, 2020 12:08 pm

I've recently seen several posters mention that they are contemplating (or have already) using their emergency funds to buy stocks due to the market downturn.

Though I am an aggressive investor, I think that this is a terrible idea.

No one knows how long the current downturn will last. But it's not just a stock downturn; the entire economy is slowing down. Many in the hospitality industry are already getting laid off, and many more are very likely to follow in that industry and others. No one knows how far reaching these layoffs will be nor how long it will take for the economy to recover. It could easily be a year or longer.

Your emergency fund should be there to help pay for your necessary expenses (e.g. food, mortgage, utilities) during times of crises, not as 'dry powder' to buy stocks that may continue to fall in value.
“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

Cash is King
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Re: Deploying your emergency fund to buy stocks? Think again.

Post by Cash is King » Sun Mar 15, 2020 12:12 pm

willthrill81 wrote:
Sun Mar 15, 2020 12:08 pm
I've recently seen several posters mention that they are contemplating (or have already) using their emergency funds to buy stocks due to the market downturn.

Though I am an aggressive investor, I think that this is a terrible idea.

No one knows how long the current downturn will last. But it's not just a stock downturn; the entire economy is slowing down. Many in the hospitality industry are already getting laid off, and many more are very likely to follow in that industry and others. No one knows how far reaching these layoffs will be nor how long it will take for the economy to recover. It could easily be a year or longer.

Your emergency fund should be there to help pay for your necessary expenses (e.g. food, mortgage, utilities) during times of crises, not as 'dry powder' to buy stocks that may continue to fall in value.
Agreed. Cash is King. :D

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by thx1138 » Sun Mar 15, 2020 12:14 pm

Absolutely. Using an EF to buy “bargain” stocks is recklessly turning the whole concept of an EF on its head. We don’t know how many secondary industries may be affected with job loss or income disruption. Heck one could have a totally unrelated health crisis too. If you suddenly unexpectedly need that EF and the markets have continued lower now you are forced to lock in losses.

No, no, no. Such a bad idea! Be content with rebalancing. Or if you are aggressive even “over balance”. But leave the EF alone!

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by Silence Dogood » Sun Mar 15, 2020 12:18 pm

Excellent post, willthrill81!

Can this thread be temporarily pinned?

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by mortfree » Sun Mar 15, 2020 12:22 pm

Completely agree with the title.

However, what is the advice for people who may have a pile of cash this is intended for emergencies but they refuse to call it an emergency fund? Can they invest that now?

Semantics but the most senior person on here just stated in another thread that he doesn’t have a separate emergency fund but first line of defense was a checking account (which very well may be more money than I have in my EF).

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by rerod » Sun Mar 15, 2020 12:22 pm

Thinking were at the bottom is also foolish imo.

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by willthrill81 » Sun Mar 15, 2020 12:28 pm

mortfree wrote:
Sun Mar 15, 2020 12:22 pm
Completely agree with the title.

However, what is the advice for people who may have a pile of cash this is intended for emergencies but they refuse to call it an emergency fund? Can they invest that now?

Semantics but the most senior person on here just stated in another thread that he doesn’t have a separate emergency fund but first line of defense was a checking account (which very well may be more money than I have in my EF).
Nobody needs an emergency fund per se. But almost everyone needs a certain amount of liquid, non-volatile assets. That may be from having 50% of their portfolio in bonds. It might be from having three months' of their expenses in a high-yield savings account. So regardless of what people call it, they very likely need some amount of liquid assets that aren't tied to stocks or other volatile investment instruments.
“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: Deploying your emergency fund to buy stocks? Think again.

Post by SimpleGift » Sun Mar 15, 2020 12:30 pm

willthrill81 wrote:
Sun Mar 15, 2020 12:08 pm
No one knows how far reaching these layoffs will be nor how long it will take for the economy to recover. It could easily be a year or longer.
Excellent post and advice, willthrill81. The unemployment impacts of a deep recession can last for quite a few years. After the 2008-09 Financial Crisis, the unemployment rate was still over 6% some 5 years after the recession (in red, chart below).
So not only should investors be holding onto to their emergency funds, but thinking about Plan B backups in case of a prolonged spell of unemployment in the years to come.
Last edited by SimpleGift on Sun Mar 15, 2020 1:11 pm, edited 1 time in total.

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by H-Town » Sun Mar 15, 2020 12:35 pm

willthrill81 wrote:
Sun Mar 15, 2020 12:08 pm
I've recently seen several posters mention that they are contemplating (or have already) using their emergency funds to buy stocks due to the market downturn.

Though I am an aggressive investor, I think that this is a terrible idea.

No one knows how long the current downturn will last. But it's not just a stock downturn; the entire economy is slowing down. Many in the hospitality industry are already getting laid off, and many more are very likely to follow in that industry and others. No one knows how far reaching these layoffs will be nor how long it will take for the economy to recover. It could easily be a year or longer.

Your emergency fund should be there to help pay for your necessary expenses (e.g. food, mortgage, utilities) during times of crises, not as 'dry powder' to buy stocks that may continue to fall in value.
100% agree. My cash reserve is untouched at the moment. Not just for my family. If my parents and my siblings need help during this time, I still have cash to help them.

It's easier said than done, but being patient is key here. It goes with TLH, Roth conversion, deploying cash reserve, etc.

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by theorist » Sun Mar 15, 2020 12:59 pm

Fully agreed.

First time ever the following happened to me: I was in a short (well-spaced!) line at the neighborhood Starbucks. A guy I vaguely recognize came in behind me and started talking about current events. He quickly turns to economics, and starts talking about how we are going into a period that will be worse than the Great Depression.

I don’t personally believe he is right, but I’ve never had the man on the street randomly engage me in market talk, let alone start describing how its all over for the US economy.

Keep your emergency funds intact: even if he’s wrong, as I believe, tough times are ahead for many of us.

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by watchnerd » Sun Mar 15, 2020 1:11 pm

It's a rookie move.

Don't be a rookie.
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Re: Deploying your emergency fund to buy stocks? Think again.

Post by watchnerd » Sun Mar 15, 2020 1:15 pm

mortfree wrote:
Sun Mar 15, 2020 12:22 pm

However, what is the advice for people who may have a pile of cash this is intended for emergencies but they refuse to call it an emergency fund? Can they invest that now?
We don't have a separate emergency fund, either.

We have 10 years of living expenses in fixed income / cash equivalents, as part of our securities portfolio, in taxable.

Our IPS says we're allowed to balance in and out of risky assets (e.g. long Treasuries to stocks, and vice versa).

But not from low risk assets (short TIPS, cash equivalents) into risky assets.

New money contributions will be made, while employed, per the usual plan.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by L82GAME » Sun Mar 15, 2020 1:17 pm

H-Town wrote:
Sun Mar 15, 2020 12:35 pm
willthrill81 wrote:
Sun Mar 15, 2020 12:08 pm
I've recently seen several posters mention that they are contemplating (or have already) using their emergency funds to buy stocks due to the market downturn.

Though I am an aggressive investor, I think that this is a terrible idea.

No one knows how long the current downturn will last. But it's not just a stock downturn; the entire economy is slowing down. Many in the hospitality industry are already getting laid off, and many more are very likely to follow in that industry and others. No one knows how far reaching these layoffs will be nor how long it will take for the economy to recover. It could easily be a year or longer.

Your emergency fund should be there to help pay for your necessary expenses (e.g. food, mortgage, utilities) during times of crises, not as 'dry powder' to buy stocks that may continue to fall in value.
100% agree. My cash reserve is untouched at the moment. Not just for my family. If my parents and my siblings need help during this time, I still have cash to help them.

It's easier said than done, but being patient is key here. It goes with TLH, Roth conversion, deploying cash reserve, etc.
+1. Agreed. Greed is an underlying motivation when we’re tempted to ignore our investment principles and veer from long range plans. Bogle said, “ Time is your friend; impulse is your enemy." Let’s take things one day at a time and keep everything in perspective, including why we established EFs to begin with, and how fortunate we are to be in a position to debate these ideas.

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by LadyGeek » Sun Mar 15, 2020 1:52 pm

Silence Dogood wrote:
Sun Mar 15, 2020 12:18 pm
Excellent post, willthrill81!

Can this thread be temporarily pinned?
I agree, this is a very important point that new investors should not overlook. This thread is now a 'sticky' at the top of the forum for 30 days.
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Re: Deploying your emergency fund to buy stocks? Think again.

Post by dbadalam » Sun Mar 15, 2020 1:54 pm

mortfree wrote:
Sun Mar 15, 2020 12:22 pm
Completely agree with the title.

However, what is the advice for people who may have a pile of cash this is intended for emergencies but they refuse to call it an emergency fund? Can they invest that now?

Semantics but the most senior person on here just stated in another thread that he doesn’t have a separate emergency fund but first line of defense was a checking account (which very well may be more money than I have in my EF).
I’m 49 with a 10 year emergency fund, and only 14% of net worth in stocks.
I’d like to at least do something with it.

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by TheTimeLord » Sun Mar 15, 2020 1:56 pm

willthrill81 wrote:
Sun Mar 15, 2020 12:08 pm
I've recently seen several posters mention that they are contemplating (or have already) using their emergency funds to buy stocks due to the market downturn.

Though I am an aggressive investor, I think that this is a terrible idea.

No one knows how long the current downturn will last. But it's not just a stock downturn; the entire economy is slowing down. Many in the hospitality industry are already getting laid off, and many more are very likely to follow in that industry and others. No one knows how far reaching these layoffs will be nor how long it will take for the economy to recover. It could easily be a year or longer.

Your emergency fund should be there to help pay for your necessary expenses (e.g. food, mortgage, utilities) during times of crises, not as 'dry powder' to buy stocks that may continue to fall in value.
So some people have FOMO in this market?
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Re: Deploying your emergency fund to buy stocks? Think again.

Post by willthrill81 » Sun Mar 15, 2020 1:59 pm

dbadalam wrote:
Sun Mar 15, 2020 1:54 pm
mortfree wrote:
Sun Mar 15, 2020 12:22 pm
Completely agree with the title.

However, what is the advice for people who may have a pile of cash this is intended for emergencies but they refuse to call it an emergency fund? Can they invest that now?

Semantics but the most senior person on here just stated in another thread that he doesn’t have a separate emergency fund but first line of defense was a checking account (which very well may be more money than I have in my EF).
I’m 49 with a 10 year emergency fund, and only 14% of net worth in stocks.
I’d like to at least do something with it.
I suggest that you take solace in the safety of that fund for a long while at least. How is it currently invested (e.g. high-yield savings account, money market, CDs)?
“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: Deploying your emergency fund to buy stocks? Think again.

Post by willthrill81 » Sun Mar 15, 2020 1:59 pm

TheTimeLord wrote:
Sun Mar 15, 2020 1:56 pm
So some people have FOMO in this market?
Apparently so.
“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: Deploying your emergency fund to buy stocks? Think again.

Post by Young Boglehead » Sun Mar 15, 2020 2:03 pm

Realizing that even with the huge downturn were still only where we were about a year ago also shows how silly the strategy is. It’s all anchoring bias. Anyone wanting to use up their EF should ask themselves why they didn’t feel a nagging urge to do it a year ago, or why they had an EF in the first place.

It would have been a better move to not have an EF in the first place - at least then you put that money in the market earlier, got stocks even cheaper, and did so during a time of economic prosperity where you were less likely to lose your job.

The whole point of having an EF is that although you’re missing out on the gains, at least in a downturn you won’t be caught with your pants down. Having an emergency fund throughout the good times, then chucking it in when the market is tanking and you finally might need it, is just the worst of both worlds.
Last edited by Young Boglehead on Sun Mar 15, 2020 2:06 pm, edited 1 time in total.

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by tdmp » Sun Mar 15, 2020 2:04 pm

"Bulls make money, Bears make money, and Pigs get slaughtered". Yes, this is a terrible idea. Emergency fund is for emergency. Some of the people I work with said they might even buy on margins: also terrible idea.

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by watchnerd » Sun Mar 15, 2020 2:06 pm

willthrill81 wrote:
Sun Mar 15, 2020 1:59 pm
TheTimeLord wrote:
Sun Mar 15, 2020 1:56 pm
So some people have FOMO in this market?
Apparently so.
I blame social media. That's a huge difference from 2008.

Not only is the barrage of information constant, but people are now trained like Pavlovian dogs to click and do something, to react quickly, and have short attention spans instead of stopping to ponder the next move.

Click 'Like' or "Don't Like" on the stock market today according to your emotion of the moment.
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Re: Deploying your emergency fund to buy stocks? Think again.

Post by anon_investor » Sun Mar 15, 2020 2:13 pm

Cash is King wrote:
Sun Mar 15, 2020 12:12 pm
willthrill81 wrote:
Sun Mar 15, 2020 12:08 pm
I've recently seen several posters mention that they are contemplating (or have already) using their emergency funds to buy stocks due to the market downturn.

Though I am an aggressive investor, I think that this is a terrible idea.

No one knows how long the current downturn will last. But it's not just a stock downturn; the entire economy is slowing down. Many in the hospitality industry are already getting laid off, and many more are very likely to follow in that industry and others. No one knows how far reaching these layoffs will be nor how long it will take for the economy to recover. It could easily be a year or longer.

Your emergency fund should be there to help pay for your necessary expenses (e.g. food, mortgage, utilities) during times of crises, not as 'dry powder' to buy stocks that may continue to fall in value.
Agreed. Cash is King. :D
It certainly was last week! :beer

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by mortfree » Sun Mar 15, 2020 2:22 pm

watchnerd wrote:
Sun Mar 15, 2020 1:15 pm
mortfree wrote:
Sun Mar 15, 2020 12:22 pm

However, what is the advice for people who may have a pile of cash this is intended for emergencies but they refuse to call it an emergency fund? Can they invest that now?
We don't have a separate emergency fund, either.

We have 10 years of living expenses in fixed income / cash equivalents, as part of our securities portfolio, in taxable.

Our IPS says we're allowed to balance in and out of risky assets (e.g. long Treasuries to stocks, and vice versa).

But not from low risk assets (short TIPS, cash equivalents) into risky assets.

New money contributions will be made, while employed, per the usual plan.
Thanks. “not from low risk assets...into risky assets” is an important restriction and easy way to protect my future self from myself.

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by willthrill81 » Sun Mar 15, 2020 2:45 pm

tdmp wrote:
Sun Mar 15, 2020 2:04 pm
Some of the people I work with said they might even buy on margins
:oops:
“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: Deploying your emergency fund to buy stocks? Think again.

Post by indian86 » Sun Mar 15, 2020 2:58 pm

Currently you should have at least 2 years living expenses in cash/treasuries. Call it whatever you want. Assume you will lose your job and it will take two years for the economy to snap back and you to find a job.

Most MM managers I read are protecting this economic earthquake to be anywhere from deep recession to collapse. Don't expect to be able to sell stocks or bonds for more than a fraction of their current prices over the next few years.

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by jdilla1107 » Sun Mar 15, 2020 3:03 pm

dbadalam wrote:
Sun Mar 15, 2020 1:54 pm
mortfree wrote:
Sun Mar 15, 2020 12:22 pm
Completely agree with the title.

However, what is the advice for people who may have a pile of cash this is intended for emergencies but they refuse to call it an emergency fund? Can they invest that now?

Semantics but the most senior person on here just stated in another thread that he doesn’t have a separate emergency fund but first line of defense was a checking account (which very well may be more money than I have in my EF).
I’m 49 with a 10 year emergency fund, and only 14% of net worth in stocks.
I’d like to at least do something with it.
This does not match the generally accepted definition of an emergency fund, defined here:

https://www.bogleheads.org/wiki/Emergency_fund

You just have a lot of cash.

I could say I'm 70/30 stocks/bonds or I could say that I'm 100% stocks with a 15 year emergency fund.

I personally think this thread is a strawman argument. Is anyone really advocating taking 3-12 months of their living expenses kept in liquid money and putting it into stocks?

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by watchnerd » Sun Mar 15, 2020 3:08 pm

jdilla1107 wrote:
Sun Mar 15, 2020 3:03 pm

I personally think this thread is a strawman argument. Is anyone really advocating taking 3-12 months of their living expenses kept in liquid money and putting it into stocks?
Yes, and more.

See the threads asking if now is the right time to get a HELOC to buy stocks.

So not only are people asking if they should use all their cash, they're asking if they should go into debt.
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Re: Deploying your emergency fund to buy stocks? Think again.

Post by Noobvestor » Sun Mar 15, 2020 3:12 pm

willthrill81 wrote:
Sun Mar 15, 2020 12:28 pm
mortfree wrote:
Sun Mar 15, 2020 12:22 pm
Completely agree with the title.

However, what is the advice for people who may have a pile of cash this is intended for emergencies but they refuse to call it an emergency fund? Can they invest that now?

Semantics but the most senior person on here just stated in another thread that he doesn’t have a separate emergency fund but first line of defense was a checking account (which very well may be more money than I have in my EF).
Nobody needs an emergency fund per se. But almost everyone needs a certain amount of liquid, non-volatile assets. That may be from having 50% of their portfolio in bonds. It might be from having three months' of their expenses in a high-yield savings account. So regardless of what people call it, they very likely need some amount of liquid assets that aren't tied to stocks or other volatile investment instruments.
+1

This endless talk of 'dry' powder' is infuriating. If it's long-term investment money, it's part of your portfolio allocation (whatever that may be). If it's short-term savings or an emergency fund, then keep it where it is. If your portfolio is big enough and has stable, liquid, safe assets as a major percentage, there's a case to be made that it's all of a kind, but regardless, everyone who can afford it should have a baseline of safe money.
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Re: Deploying your emergency fund to buy stocks? Think again.

Post by scorcher31 » Sun Mar 15, 2020 3:25 pm

I think it can be perfectly reasonable to shift emergency funds in some situations. Don't forget many bogleheads are high income physicians or 2 physician families whose jobs are extremely secure. I'm only a year out from having my mortgage payed off and have an overly plump emergency fund that I probably wouldn't even need when the mortgage is gone. I don't see the harm in shifting some in while stock indexes are low. I actually asked for input on regression to mean/buying on sale in the past but people acted like it would be crazy for any boglehead to consider.

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by HawkeyePierce » Sun Mar 15, 2020 3:29 pm

I have 8 months of living expenses sitting in a CD and that's exactly where it's going to stay unless I lose my job. I got my bonus last week and I'm adding it to that pile.

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by willthrill81 » Sun Mar 15, 2020 3:30 pm

scorcher31 wrote:
Sun Mar 15, 2020 3:25 pm
I think it can be perfectly reasonable to shift emergency funds in some situations. Don't forget many bogleheads are high income physicians or 2 physician families whose jobs are extremely secure. I'm only a year out from having my mortgage payed off and have an overly plump emergency fund that I probably wouldn't even need when the mortgage is gone. I don't see the harm in shifting some in while stock indexes are low. I actually asked for input on regression to mean/buying on sale in the past but people acted like it would be crazy for any boglehead to consider.
How big is your EF in relation to your monthly spending?
“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: Deploying your emergency fund to buy stocks? Think again.

Post by MindBogler » Sun Mar 15, 2020 3:35 pm

I think this is a great reminder. It is an even better wake up call to those who have been telling us how they don't need an emergency fund for x,y or z reason. There is no reason aside hubris or extreme wealth not to have an emergency fund IMO.

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by DB2 » Sun Mar 15, 2020 3:36 pm

Agreed 100%, Will.

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by lostdog » Sun Mar 15, 2020 3:37 pm

Thanks Willthrill,

We have a 6 month emergency fund in cash. Fortunately just the dividends from our taxable brokerage account will be able to pay for our rent.

Thanks for the reminder.
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Re: Deploying your emergency fund to buy stocks? Think again.

Post by watchnerd » Sun Mar 15, 2020 3:38 pm

scorcher31 wrote:
Sun Mar 15, 2020 3:25 pm
I think it can be perfectly reasonable to shift emergency funds in some situations. Don't forget many bogleheads are high income physicians or 2 physician families whose jobs are extremely secure. I'm only a year out from having my mortgage payed off and have an overly plump emergency fund that I probably wouldn't even need when the mortgage is gone. I don't see the harm in shifting some in while stock indexes are low. I actually asked for input on regression to mean/buying on sale in the past but people acted like it would be crazy for any boglehead to consider.
I think you'd have more right to be aggressive if you didn't have a mortgage, TBH.

You have low-hanging fruit that is a guaranteed win that hasn't even been plucked yet.

FWIW, we have no mortgage, no debt, and we still have boundaries on how much survival capital we deploy into stocks.

Anti-fragility in our personal finances is the basis upon which we take risk.
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Re: Deploying your emergency fund to buy stocks? Think again.

Post by dbadalam » Sun Mar 15, 2020 4:19 pm

willthrill81 wrote:
Sun Mar 15, 2020 1:59 pm
dbadalam wrote:
Sun Mar 15, 2020 1:54 pm
mortfree wrote:
Sun Mar 15, 2020 12:22 pm
Completely agree with the title.

However, what is the advice for people who may have a pile of cash this is intended for emergencies but they refuse to call it an emergency fund? Can they invest that now?

Semantics but the most senior person on here just stated in another thread that he doesn’t have a separate emergency fund but first line of defense was a checking account (which very well may be more money than I have in my EF).
I’m 49 with a 10 year emergency fund, and only 14% of net worth in stocks.
I’d like to at least do something with it.
I suggest that you take solace in the safety of that fund for a long while at least. How is it currently invested (e.g. high-yield savings account, money market, CDs)?
High-yield savings. I will hold off a little, I realize I can’t time the market. It also makes me a little sick that I haven’t done anything with it. It’s years of after tax savings because I’m so frugal. It represents 40% of my net worth, about 10 years of expenses. Add to that the fear of losing my job if things go south.

dbadalam
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Re: Deploying your emergency fund to buy stocks? Think again.

Post by dbadalam » Sun Mar 15, 2020 4:31 pm

jdilla1107 wrote:
Sun Mar 15, 2020 3:03 pm
dbadalam wrote:
Sun Mar 15, 2020 1:54 pm
mortfree wrote:
Sun Mar 15, 2020 12:22 pm
Completely agree with the title.

However, what is the advice for people who may have a pile of cash this is intended for emergencies but they refuse to call it an emergency fund? Can they invest that now?

Semantics but the most senior person on here just stated in another thread that he doesn’t have a separate emergency fund but first line of defense was a checking account (which very well may be more money than I have in my EF).
I’m 49 with a 10 year emergency fund, and only 14% of net worth in stocks.
I’d like to at least do something with it.
This does not match the generally accepted definition of an emergency fund, defined here:

https://www.bogleheads.org/wiki/Emergency_fund

You just have a lot of cash.

I could say I'm 70/30 stocks/bonds or I could say that I'm 100% stocks with a 15 year emergency fund.

I personally think this thread is a strawman argument. Is anyone really advocating taking 3-12 months of their living expenses kept in liquid money and putting it into stocks?
Thanks, so I got a ton of cash...with interest rates now at zero as of a few minutes ago. It’s a good problem to have, but wish I knew what to do with it.

jdilla1107
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Re: Deploying your emergency fund to buy stocks? Think again.

Post by jdilla1107 » Sun Mar 15, 2020 4:37 pm

dbadalam wrote:
Sun Mar 15, 2020 4:31 pm
jdilla1107 wrote:
Sun Mar 15, 2020 3:03 pm
dbadalam wrote:
Sun Mar 15, 2020 1:54 pm
mortfree wrote:
Sun Mar 15, 2020 12:22 pm
Completely agree with the title.

However, what is the advice for people who may have a pile of cash this is intended for emergencies but they refuse to call it an emergency fund? Can they invest that now?

Semantics but the most senior person on here just stated in another thread that he doesn’t have a separate emergency fund but first line of defense was a checking account (which very well may be more money than I have in my EF).
I’m 49 with a 10 year emergency fund, and only 14% of net worth in stocks.
I’d like to at least do something with it.
This does not match the generally accepted definition of an emergency fund, defined here:

https://www.bogleheads.org/wiki/Emergency_fund

You just have a lot of cash.

I could say I'm 70/30 stocks/bonds or I could say that I'm 100% stocks with a 15 year emergency fund.

I personally think this thread is a strawman argument. Is anyone really advocating taking 3-12 months of their living expenses kept in liquid money and putting it into stocks?
Thanks, so I got a ton of cash...with interest rates now at zero as of a few minutes ago. It’s a good problem to have, but wish I knew what to do with it.
You should come up with an investment plan for the next 20 years and stick to it.

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by Rosencrantz1 » Sun Mar 15, 2020 7:59 pm

scorcher31 wrote:
Sun Mar 15, 2020 3:25 pm
I think it can be perfectly reasonable to shift emergency funds in some situations. Don't forget many bogleheads are high income physicians or 2 physician families whose jobs are extremely secure. I'm only a year out from having my mortgage payed off and have an overly plump emergency fund that I probably wouldn't even need when the mortgage is gone. I don't see the harm in shifting some in while stock indexes are low. I actually asked for input on regression to mean/buying on sale in the past but people acted like it would be crazy for any boglehead to consider.
I have to agree. The fact is I have about $9K/month coming in (secure COLA pensions) in retirement and our expenses are about 3-4K/month (no debt). I also have a 3+ year 'emergency fund' outside of our low 7 figure retirement portfolio (IRAs and Roths). I'm sure there will be members here yelling "that's not an EF - it's a cash allocation!". That's all well and good - BUT, I think of it as our EF.... and, I'm seriously thinking about dropping half of it into the market in the coming weeks.... just thinking about what the trigger might be for me (DOW 19000 sounds good). :beer

Of course, I agree with Will in that, generally speaking, it's wise not to use one's EF to buy stocks. My point being I think, like scorcher31, that there are some exceptions.

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by willthrill81 » Sun Mar 15, 2020 9:14 pm

Rosencrantz1 wrote:
Sun Mar 15, 2020 7:59 pm
Of course, I agree with Will in that, generally speaking, it's wise not to use one's EF to buy stocks. My point being I think, like scorcher31, that there are some exceptions.
Both of you have extremely well-funded 'EFs', if we can indeed call 3+ years of expenses an EF. :wink: In that case, that does change matters.
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Re: Deploying your emergency fund to buy stocks? Think again.

Post by RubyTuesday » Sun Mar 15, 2020 9:26 pm

Great thread Will. While everyone’s definition of EF is different, it would be ill-advised to place any EF in the market regardless of your thoughts on market movements.

This is by definition an emergency (the US president and most if not all governors have declared such). You very well may need these funds.

As an early retiree whose DW just joined me in retirement, I’m happy to have reasonable amount in CDs, bonds, savings bonds and TIPs funds. I may rebalance with some of the TIPs/Bonds if market continues to decline, but won’t use CDs or I bonds for anything other than emergencies/expenses to avoid selling depressed equities.
“Doing nothing is better than being busy doing nothing.” – Lao Tzu

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by pascalwager » Mon Mar 16, 2020 3:58 am

I have about $16k in the Vg Treasury MMF, but otherwise my EF is embedded inside my two portfolios (riskless and risky)--or at least I hope it is. Someone above said that both stocks and bonds would get hammered, and the bonds part has me worried.
Retired, pension, no SS | 55/45 | <1% cash | 20% rebalancing band

vipertom1970
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Re: Deploying your emergency fund to buy stocks? Think again.

Post by vipertom1970 » Mon Mar 16, 2020 10:10 am

Excellent post sir!

My ER and no debt is my best hedge against down market. Everything else goes to 100% equities.
Last edited by vipertom1970 on Mon Mar 16, 2020 10:20 am, edited 1 time in total.

SEAworld9
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Re: Deploying your emergency fund to buy stocks? Think again.

Post by SEAworld9 » Mon Mar 16, 2020 10:12 am

great post. always enjoy your contributions will.

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by dboeger1 » Mon Mar 16, 2020 10:30 am

LadyGeek wrote:
Sun Mar 15, 2020 1:52 pm
Silence Dogood wrote:
Sun Mar 15, 2020 12:18 pm
Excellent post, willthrill81!

Can this thread be temporarily pinned?
I agree, this is a very important point that new investors should not overlook. This thread is now a 'sticky' at the top of the forum for 30 days.
Thank you! I was going to suggest the same, as someone who just made this very mistake recently. For the most part, I've been a good Boglehead for the past 7 years or so since I started investing at the beginning of my career. I "knew" not to time the markets, but I don't know if it really hit home until this crash. I would occasionally try to time dips, and over the recent years, I got quite lucky doing it. This time, when the markets were down 10%, I thought, "Wow, what a buying opportunity!" So I put most of my emergency fund into the market. A couple of weeks later, here we are.

That alone would've been fine. It was the fact that I was hit with an unexpected tax bill at the same time that my rent and credit card payments were being automatically withdrawn from my bank account, and I suddenly found myself with not enough to cover my bills. I had to immediately borrow money from my father so the IRS wouldn't try to pull from an empty bank account.

Thankfully, my wife was due a big annual bonus in her upcoming paycheck, and so we were able to recover fairly quickly. But we're still in the process of building it back up to a level where I'll be comfortable going into a possible recession, and meanwhile I'm seeing much better buying opportunities than the one I took pass me by.

Yes, the main lesson is not to time markets, but I think the sort of sub-lesson, and the reason I didn't quite put it into practice religiously, is that the market operates on many different time scales, and I can't wrap my head around all of them. Even if I can manage to successfully buy some dips and eek out some extra gains in the short term, the truth is a major crash might wipe out years of gains anyway. And then I might buy into that dip, it could come back up for a year and seem like everything's back to normal, and then crash even further. In other words, there's always a potential trend or event on a different scale than you're trying to time based on when the money comes in that there's no sense in trying to figure out. And even when you do realize that, perhaps an even worse reaction than timing the markets is just to sit it out (well, I guess that's just another form of timing).

From now on, I really don't even plan to look at markets before buying. Just buy when I have excess beyond my emergency fund. That emergency fund is there to protect me, and I have no clue what the markets are going to do tomorrow. Hopefully this little story of my past 2 weeks or so in the market helps remind people why timing the markets is a fool's game.

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by Peculiar_Investor » Mon Mar 16, 2020 10:54 am

An equally important point about emergency funds. When times are good and interest rates are low is has been common for people to underestimate the importance of having a separate and dedicated emergency fund that ensures one guarantees return of capital at the time it might be needed most,
Bogleheads wiki wrote:Emergency funds should be placed in a highly liquid, easy to access, low risk vehicle with guarantee on the capital.
  • Checking account
  • Money market fund
  • (High Yield) (insured) savings account.
  • Reward checking account [RCA] : somewhat higher return, if one is willing to put in the effort to set-up.
It might be useful to keep some real cash around for those emergencies where one does not have access to bank accounts.
That's part of the psychology of a bear market where all assumptions are stress tested.
Normal people… believe that if it ain’t broke, don’t fix it. Engineers believe that if it ain’t broke, it doesn’t have enough features yet. – Scott Adams

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by Dottie57 » Mon Mar 16, 2020 11:10 am

Thanks willthrill81. Great post and reminder. Emergency funds are meant for financial emergencies.

Hoping for better days.

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by cashboy » Mon Mar 16, 2020 11:31 am

willthrill81 wrote:
Sun Mar 15, 2020 12:08 pm
I've recently seen several posters mention that they are contemplating (or have already) using their emergency funds to buy stocks due to the market downturn.

Though I am an aggressive investor, I think that this is a terrible idea.

No one knows how long the current downturn will last. But it's not just a stock downturn; the entire economy is slowing down. Many in the hospitality industry are already getting laid off, and many more are very likely to follow in that industry and others. No one knows how far reaching these layoffs will be nor how long it will take for the economy to recover. It could easily be a year or longer.

Your emergency fund should be there to help pay for your necessary expenses (e.g. food, mortgage, utilities) during times of crises, not as 'dry powder' to buy stocks that may continue to fall in value.
:thumbsup
Three-Fund Portfolio: FSPSX - FXAIX - FXNAX (with slight tilt of CDs - CASH - Canned Beans - Rice - Bottled Water)

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Re: Deploying your emergency fund to buy stocks? Think again.

Post by pascalwager » Mon Mar 16, 2020 12:29 pm

willthrill81 wrote:
Sun Mar 15, 2020 9:14 pm
Rosencrantz1 wrote:
Sun Mar 15, 2020 7:59 pm
Of course, I agree with Will in that, generally speaking, it's wise not to use one's EF to buy stocks. My point being I think, like scorcher31, that there are some exceptions.
Both of you have extremely well-funded 'EFs', if we can indeed call 3+ years of expenses an EF. :wink: In that case, that does change matters.
Three-years cash would be more of a retiree's cash bucket sized to cover living expenses during a bear market when one wants to avoid selling stocks or depreciated bonds during rate increases.
Retired, pension, no SS | 55/45 | <1% cash | 20% rebalancing band

rich126
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Re: Deploying your emergency fund to buy stocks? Think again.

Post by rich126 » Mon Mar 16, 2020 2:15 pm

Totally agree. And for those that say "but the jobs are secure", I'd say and what if they get sick from the virus or some other medical emergency hits them where their income is temporarily or permanently impacted?

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