Smarter approach to "emergency funds"?

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MoneyMarathon
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Re: Smarter approach to "emergency funds"?

Post by MoneyMarathon »

Jags4186 wrote: Thu Mar 26, 2020 7:50 am My $50k got me over the same time period earned me $16,144.72 in interest
At 43% marginal rates, that interest would be only $9k.

Hard for me to get excited about bank bonuses, between the work (which is real) and the taxes.
Jags4186
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Re: Smarter approach to "emergency funds"?

Post by Jags4186 »

MoneyMarathon wrote: Thu Mar 26, 2020 4:57 pm
Jags4186 wrote: Thu Mar 26, 2020 7:50 am My $50k got me over the same time period earned me $16,144.72 in interest
At 43% marginal rates, that interest would be only $9k.

Hard for me to get excited about bank bonuses, between the work (which is real) and the taxes.
If I were in a 43% marginal tax bracket I would care much less about the interest earnings of my emergency fund and worry much more about counting all the bucks I was making.
Starfish
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Re: Smarter approach to "emergency funds"?

Post by Starfish »

ChrisBenn wrote: Thu Mar 26, 2020 4:41 pm
Starfish wrote: Thu Mar 26, 2020 3:42 pm
ChrisBenn wrote: Thu Mar 26, 2020 9:14 am
Starfish wrote: Thu Mar 26, 2020 2:49 am
ChrisBenn wrote: Wed Mar 25, 2020 5:56 pm

If by AA you mean "allocation I have determined based on risk tolerance, investment horizon, etc" - then that will typically be slated to a retirement goal (at list that's the assumption I'm working with here). The risk tolerance/investment horizon for an EF are probably different.

So now you have to determine what your new target AA should be based on two factors - EF usage, and retirement. It's hard enough to do it based on one - blurring two almost opposing use cases is just going to blur the AA/risk tolerance estimate more.

And, ultimately, if you nailed it, the AA would effectively be the same as your overall (as measured AA) with an appropriate emergency fund + retirement taxable. It actually seems more likely to produce a correct outcome to estimate each independently. At that point averaging them together with a fund size weight gives you your new target AA - but you now should reset that each time you contribute (since the EF is more of a fixed and not percentage allocation).

Or you can just ignore all of that and keep it in two funds; that actually seems much simpler to me?

As mentioned before, if your taxable is so much greater than your emergency fund that the inclusion of the latter doesn't move the needle on desired AA then sure, roll it together (but honestly at that point it doesn't matter much what you do). But for people who aren't at that point the bucketing approach still seems much easier/simpler. (Unless you consider your risk tolerance/investment horizon the exact same for a EF vs. your retirement taxable)

I still don't understand why bother to add stocks to your EF and then inflate it, when you could use a an appropriate risk allocation and use the additional money to add to your main AA (retirement targeted).
What stops your from having a 3 portion AA (stocks, long term bonds and short term investments) and sell them accordingly when the need appears. If one asset is down sell the other... it goes in the direction of rebalancing.
How would that work if a persons taxable savings was 30k (with a 30 year investment horizon) and their ef was 30k?

You would have to adjust your overall AA to manage risk - and every time you contribute to your savings (with a longer investment horizon than the ef) you would have go recompute your target aa. If you bucketed the two funds this would happen implicitly.

Once your EF does't move the needle on your savings AA (when the latter is much larger) then that strat is fine if one prefers it - doesn't make a big difference either way at that point.
So the problem is the obsession over AA? AA is a guideline. It should change as your conditions change (and if market changes if you ask me).
Is it that hard to have an AA made of 30K cash and 70/30 for the rest? You fill the EF part and then keep contributing to the LT one.
Even the partition EF/LT is also mental accounting. There are 3 asset classes and all of them can be used in an emergency, not only the cash. If I were laid off 3 months ago I would have sold stocks because they were very appreciated instead of using the cash. Now I might use cash because stocks are down.
I think keeping the EF as a separate bucket (when it's not a trivial percentage of your retirement taxable assets) makes sense, no disagreement there. I think the 30k as cash, and a retirement horizon AA for the rest is great as a default/baseline.

So then we come to the proposition brought up by vinevize, using a conservative asset allocation for your EF (potentially with slight overfunding to account for volatility) - this could be considered a potential evolution of the the above. There are tradeoffs there, so it's not for everyone, but I think there are valid arguments for it (that were laid out in the op)

My only point of argument with the discussion here (and apologies if I misinterpreted your post) was the notion that it makes more sense to roll some or all of the EF into your retirement AA. For people with a 5 figure EF and 7 figure taxable retirement AA absolutely that's fine. But if you are in the early accumulation stage I believe it's just much simpler to bucket it. Consider a person who wanted a 20/80 AA for their EF (30k), and a 90/10 allocation for their retirement taxable AA (30k). So they start out with 6k equities / 24k bonds for the EF and 27k equities / 3k bonds for retirement. Or 33k/27k. Now their next paycheck comes in, what do they purchase to maintain their AA? As part of the calculations you have to back out the 20/80 (30k) EF portion first. Pretty trivial sure, but just seems pointless you you can keep it in two separate buckets to begin with?

I agree,not a big difference, but I wasn't arguing it was wrong, I was arguing that the bucketing approach wasn't wrong.
The bucketing approach is not wrong, it's just a matter of methodology and lack of clarity.
What is wrong is investing in LT assets (stocks) for unknown (short?) term purposes (EF). EF is not even a short term fund. Many people probably never or rarely use it.
They way I look at this is 3 classes of assets with different trade off between risk and expected returns.
When I need to sell, it could be tomorrow or 30 years from now, I sell what is convenient to sell to minimize the drawdown. If 2 LT assets are down I still have the cash.
When you start it is wiser (more conservative) to start from the least risky category (cash), as most people naturally do anyway.
socialforums2019
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Re: Smarter approach to "emergency funds"?

Post by socialforums2019 »

This has been an eye-opening thread for me.

I have 6 figures in cash sitting in a 1.7% high int savings account. A part of those 6 figures, is a 5 figure 6-mo emergency fund. With the feds dropping the interest rates, I anticipate the high int savings accounts to soon follow.

I feel as though I have a few options

1. Open 3-4 penalty free CDs @ 1.7% which will protect my interest for 7-12 months
2. Open a few CDs @ 1.85% which will protect my interest for 12 months, but the cash is now locked up

I am now considering this option where I will take 7 months of emergency funds and place it into VASIX and then the rest in option 1 or 2. I can always put a stop loss @ 10-15% drop to protect the rest of the funds.
mega317
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Re: Smarter approach to "emergency funds"?

Post by mega317 »

socialforums2019 wrote: Sun Mar 29, 2020 9:12 am 1. Open 3-4 penalty free CDs @ 1.7% which will protect my interest for 7-12 months
2. Open a few CDs @ 1.85% which will protect my interest for 12 months, but the cash is now locked up
This was a decision I was considering. At the amounts I'm working with I preferred the liquidity to 0.15%
I am now considering this option where I will take 7 months of emergency funds and place it into VASIX and then the rest in option 1 or 2. I can always put a stop loss @ 10-15% drop to protect the rest of the funds.
Yes I am a big fan of stocks in taxable, Placing cash needs in a tax-advantaged account, and just making the exchange as the taxable account gets too small for comfort.
https://www.bogleheads.org/forum/viewtopic.php?t=6212
Sandrino
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Re: Smarter approach to "emergency funds"?

Post by Sandrino »

I agree with OP and even have been following this strategy for a while now there is one aspect of the strategy I would love hear some opinions on.

Specifically, what is the cash out strategy when you actually need a portion of the money?

A while back we needed to use a portion of our emergency fund and we had to cash out a substantial portion of it. We have been making monthly contributions to build it back up - but I have been thinking that we probably should have cashed out the equities before touching the bond portion of the allocation in a fashion that would keep the maximum drown down risk of the EF AA close to whatever buffer you have after the withdrawal.

When we were invested at Betterment before coming over to Vanguard, their recommendation was a 40/60 portfolio with a 30% buffer using the same logic that it would cover you in the case of the worst seen drawdown of the asset allocation.

So perhaps the scale would look something like this:

0% buffer....... ?
10% buffer..... ?
20% buffer.....20/80
30% buffer......40/60

A less sophisticated method may be to cash out the equities before you cash out any bonds - but at what point do you cash it all out and end up back in cash to rebuild or to build it up to begin with.

An extension of the above table presumably could be used to answer the question "When do I no longer need a separate emergency fund?" I would think one reasonable way to answer that is when you have such a buffer available for emergencies that the maximum drawdown is at your normal AA.

I would love to hear some thoughts on this.
Lee_WSP
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Re: Smarter approach to "emergency funds"?

Post by Lee_WSP »

Sandrino wrote: Sun Mar 29, 2020 10:30 am
I would love to hear some thoughts on this.
If the withdrawal cannot be replenished rapidly, it seems that the correct move would be to liquidate it all to prevent further deterioration of the e fund.
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vineviz
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Re: Smarter approach to "emergency funds"?

Post by vineviz »

Sandrino wrote: Sun Mar 29, 2020 10:30 am I agree with OP and even have been following this strategy for a while now there is one aspect of the strategy I would love hear some opinions on.

Specifically, what is the cash out strategy when you actually need a portion of the money?
I doubt there is a "right" answer to this, but I'd hope you could make some estimate at the time you needed to make the withdrawal about both the size of the need and probability that the emergency would last more than two weeks or so.

Obviously if the size of the need is bigger than the cash buffer BUT likely a one-time event, you'd have little choice but to sell VASIX (or a pro-rata protein of stocks/bonds)

If the amount of cash needed was less than the one-month cash buffer AND was very likely to be a one-time need (at least over the short run) I'd probably just take the whole thing from the cash buffer and replenish it ASAP.

If the "emergency" had a decent chance of lasting longer than 30 days (e.g. unemployment, long-term illness, etc.) I'd probably drawdown the VASIX/equity portion pretty aggressively and sooner rather than later. In a situation like this you're facing a liquid crisis, so getting more liquidity as quickly as can be done prudently would be the solution I'd favor.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
gblack
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Re: Smarter approach to "emergency funds"?

Post by gblack »

Math-wise - as other commenters have pointed out - it is 6 or half dozen because you can always adjust your AA. The logic in the post was solid, but I believe an example of overthinking.

I keep in easily accessible savings account. Around 6 months depending on how I calculate budget.

One thing I noticed when the market went crazy the last couple weeks -- there was talk of "shutting down the stock market." Imagine needing emergency cash and being unable to access it via the stock market. In theory, the same thing could happen with a bank, but I think much more unlikely.

Anyhow, I'm more comfortable keeping it the old fashioned way -- the whole point of the emergency fund is insurance for things you cannot foresee, not to make a return.

Lastly, emergency fund or not, those with cash are going to be seeing a lot of opportunities to buy up stuff - stocks, real estate, businesses, etc in the aftermath of this virus.
Silence Dogood
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Re: Smarter approach to "emergency funds"?

Post by Silence Dogood »

Triple digit golfer wrote: Wed Mar 25, 2020 10:04 pm If it's so simple to just hold seven months instead of six, isn't it just as simple or simpler to add another month over every 135 months to keep up with inflation? For someone with $5k monthly expenses, it would require simply cutting expenses by less than $9 per week and always adding it to the fund. That seems much easier than starting with an extra month.
That's my thinking as well.

Personally, I don't want to take on any increased risk with my emergency fund.
MoneyMarathon wrote: Thu Mar 26, 2020 12:01 am The comparison would have someone being able to regularly withdraw from an emergency fund if it goes up too much beyond 7-8 months of expenses, which sounds a lot nicer than having an ongoing expense to fund it.

Or, more realistically, you wouldn't have to add as much to it in order to keep up with lifestyle creep, since it grew over time.
Well, of course that sounds a lot nicer... but aren't you forgetting risk? There is no guarantee that the extra risk will pay off.

To be clear, I don't think that it's an unreasonable amount of risk for someone to choose to take, but let's not pretend that it's guaranteed to work as you described.
SanjiWatsuki
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Re: Smarter approach to "emergency funds"?

Post by SanjiWatsuki »

One idea I had around emergency fund management involved mixing a lot of very low risk assets with a leveraged equities sprinkle tossed in. The basic idea is that leveraged ETFs limits your maximum equity losses better than a 20% stock allocation while also giving similar exposure. I was inspired by this paper on using leveraged ETFs to mitigate downside risk while still capturing upside.

The basic steps would be:
1. Put 3%-10% of a 3x Daily Leveraged equity ETF^1 into your portfolio, sliding scale depending on your propensity to take risk with your e-fund. A 5% holding is pretty reasonable. An example like UPRO seems reasonable in taxable due to its apparently 0.22% tax cost ratio on Fidelity's key stats page.
2. Place 2x the value of the the leveraged equity holding in long Treasuries -- 10% SPTL in this example that has 5% of UPRO.
3. Place the rest in the best extremely low risk liquid vehicle you have access into right now. The best option probably depends on the current rates at the time. Possibilities include:
* CDs
* Short-term Treasuries
* Short-term TIPS (some liquidity risk in a big downturn)
* Short-term AAA/AA municipal bond funds (some liquidity risk in a big downturn)
4. Re-balance yearly.

CDs are an interesting option because, despite being inefficient in a taxable account, the early withdrawal option makes it possible to handle steep unexpected interest rate increases and exchange some accrued interest to lock in a higher rate -- a situation that would hit the long-term Treasury part of this plan.

I think this strategy could get higher returns with lower drawdowns in the long run. It's a little more complex but it really just needs to be set up and re-balanced once a year. That extra re-balance step makes it less set it and forget it, though.

-------------------

All of the strategies discussed in this thread probably also pair nicely with the Fidelity CMA and brokerage options using the overdraft protection via margin. If you had an immediate need for liquidity and can't just put it on a credit card, you could blow straight into margin on your account for cash and then sell your emergency fund assets later. As long as you were only in debt for a short amount of time, the margin cost should be pretty minimal (if you borrowed $20k at 8.325%, you'd pay $4.63 in interest per day until you cleared out your balance).

^1 I think something like a higher % of WisdomTree 90/60 U.S. Balanced Fund (NTSX) would also be a suitable option to get the equity exposure. NTSX might be more optimal because I think they get better lending rates on their leveraged Treasury futures with a much lower expense ratio and they get favorable tax treatment on the Treasury portion.
m@ver1ck
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Re: Smarter approach to "emergency funds"?

Post by m@ver1ck »

HappyJack wrote: Wed Mar 25, 2020 8:38 pm One thought
1. Determine what you set as your EF - this is your “floor”
2. Put that amount in safe vehicles. Don’t stretch for return here. You want safety.
3. Determine your overall AA. Count your “floor” in the fixed income amount. You can then add to both equities and fixed income but always keep your “floor” established.
4. Your “floor” might grow as your family grows.
5. As taxable and tax deferred sides of your portfolio grow keep bonds and fixed income on tax deferred side and you can rebalance to fit your AA over there if you sell taxable equities on the taxable side.
This approach is what I also came to except for:
a) With bonds or CDs just giving low returns I'm fine with having them on the taxable side for simplicity.
b) not really sure how things willnolay out I'd I really need to tap.into the funds due to a real emergency.. order of withdrawal and order of finding things back..
tashnewbie
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Re: Smarter approach to "emergency funds"?

Post by tashnewbie »

afan wrote: Wed Mar 25, 2020 5:12 pm We hold bonds, including cash, as part of our asset allocation.

Cash in a bank account protects against a big drop in the markets. It also serves as money that is readily available in an EMERGENCY. Not "learned of a need for cash on Friday after the markets close, sell on Monday, wait till Wed or Thurs for the sale to settle and cash available." Cash in a bank account, or some other account that is IMMEDIATELY spendable, is for true emergencies.

It also is accessible even if there is so much disruption that placing a trade and liquidating assets is not the quick and trivial undertaking it is in normal times.

Our immediately available cash is less than 6 months expenses but the asset allocation makes this plus the usually highly liquid fixed income considerably more than that.

Although we could sell stock into a severely depressed market if necessary, we manage unexpected expenses from the cash and short term bond allocation.
Couldn't you just use a credit card when the markets are closed for trading? What emergencies require physical cash? Credit cards give at least 1-2 months of float.
ChrisBenn
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Re: Smarter approach to "emergency funds"?

Post by ChrisBenn »

SanjiWatsuki wrote: Thu May 21, 2020 12:51 am One idea I had around emergency fund management involved mixing a lot of very low risk assets with a leveraged equities sprinkle tossed in. The basic idea is that leveraged ETFs limits your maximum equity losses better than a 20% stock allocation while also giving similar exposure. I was inspired by this paper on using leveraged ETFs to mitigate downside risk while still capturing upside.

The basic steps would be:
1. Put 3%-10% of a 3x Daily Leveraged equity ETF^1 into your portfolio, sliding scale depending on your propensity to take risk with your e-fund. A 5% holding is pretty reasonable. An example like UPRO seems reasonable in taxable due to its apparently 0.22% tax cost ratio on Fidelity's key stats page.
2. Place 2x the value of the the leveraged equity holding in long Treasuries -- 10% SPTL in this example that has 5% of UPRO.
3. Place the rest in the best extremely low risk liquid vehicle you have access into right now. The best option probably depends on the current rates at the time. Possibilities include:
* CDs
* Short-term Treasuries
* Short-term TIPS (some liquidity risk in a big downturn)
* Short-term AAA/AA municipal bond funds (some liquidity risk in a big downturn)
4. Re-balance yearly.

CDs are an interesting option because, despite being inefficient in a taxable account, the early withdrawal option makes it possible to handle steep unexpected interest rate increases and exchange some accrued interest to lock in a higher rate -- a situation that would hit the long-term Treasury part of this plan.

I think this strategy could get higher returns with lower drawdowns in the long run. It's a little more complex but it really just needs to be set up and re-balanced once a year. That extra re-balance step makes it less set it and forget it, though.

-------------------

All of the strategies discussed in this thread probably also pair nicely with the Fidelity CMA and brokerage options using the overdraft protection via margin. If you had an immediate need for liquidity and can't just put it on a credit card, you could blow straight into margin on your account for cash and then sell your emergency fund assets later. As long as you were only in debt for a short amount of time, the margin cost should be pretty minimal (if you borrowed $20k at 8.325%, you'd pay $4.63 in interest per day until you cleared out your balance).

^1 I think something like a higher % of WisdomTree 90/60 U.S. Balanced Fund (NTSX) would also be a suitable option to get the equity exposure. NTSX might be more optimal because I think they get better lending rates on their leveraged Treasury futures with a much lower expense ratio and they get favorable tax treatment on the Treasury portion.
Your strategy is sort of what SWAN does (https://amplifyetfs.com/swan) -- 90% in us treasuries, 10% in deep itm spy leap calls. It reconstitutes every 6 months. It does have a .5% expense ratio.
SanjiWatsuki
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Re: Smarter approach to "emergency funds"?

Post by SanjiWatsuki »

ChrisBenn wrote: Thu May 21, 2020 12:29 pm Your strategy is sort of what SWAN does (https://amplifyetfs.com/swan) -- 90% in us treasuries, 10% in deep itm spy leap calls. It reconstitutes every 6 months. It does have a .5% expense ratio.
Yeah, SWAN is similar with similar quirks. Both the leveraged ETF approach and the SPY calls have a chance of dropping to almost 0 very quickly early in the cycle if the market tanks, turning the holding into basically straight bonds. SWAN'll carry more upside capture and more downside risk.

A couple of differences are the equity exposure on SWAN is higher but done in a smarter way, SWAN's expense ratio is higher, and SWAN's fixed income holdings are targeting duration to 10-year Treasuries. I think SWAN is more likely to throw off short-term capital gains, too -- it distributed 2.61% of its NAV as short-term capital gains in 2019. In contrast, UPRO seems to have never distributed a capital gain and the one year re-balancing will let you sell any UPRO profits at a long term capital gain.

I think the barbelled LETF approach can let you pick the most appropriate fixed income holdings for your e-fund and manage taxes a bit better.
bck63
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Re: Smarter approach to "emergency funds"?

Post by bck63 »

vineviz wrote: Wed Mar 25, 2020 10:19 am I've said previously that the emergency fund does NOT need to be entirely in cash instruments, just that the household have enough liquidity to persevere scenarios with a reasonable probability of occurring. There are various ways to accomplish this, and one that I think most people should consider as a smarter option is this:

Slightly overfund the emergency fund and invest it in a very conservative balanced fund (e.g. a fund that is 20% to 30% stocks) such as the Vanguard LifeStrategy Income Fund (VASIX).
This is exactly what I'm doing at Vanguard. At Fidelity, I'm using AOK, plus a little AGG to get me to 20%. Got sick of having cash sitting on the sidelines.
bck63
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Re: Smarter approach to "emergency funds"?

Post by bck63 »

willthrill81 wrote: Wed Mar 25, 2020 12:36 pm
vineviz wrote: Wed Mar 25, 2020 10:19 am Slightly overfund the emergency fund and invest it in a very conservative balanced fund (e.g. a fund that is 20% to 30% stocks) such as the Vanguard LifeStrategy Income Fund (VASIX).
I entirely agree and have made a similar recommendation myself before. Back when we still had an EF of some size (we no longer have a real need for one), we invested 2/3 of it in Wellesley Income fund and left the remainder in hard cash stored securely.
This makes perfect sense. I see no reason not to invest my emergency fund in 15% or so equities, to help keep a little ahead of inflation. A 50% market decline about result in about a 7.5% decline in my emergency fund. If I withdraw across a miss of stocks, short-term bonds, and cash (which is what I use), then I'm really withdrawing a very small amount from stock if I need it.
MathWizard
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Re: Smarter approach to "emergency funds"?

Post by MathWizard »

Vinewiz,

I quite agree. The idea of a completely "safe" EF of 6 or 12 months expenses seemed to miss the point that this may delay you in reaching Financial Independence. Until FI you are still at risk.

My approach has been to have short term cash flow funds for small lumpy or unexpected expenses. I don't put those in the category of emergency. This only has required about $5K base plus a smooth transition for expenses I know I will have , car replacement happens about every 4-5 years for one of the two cars. If I know I want to remodel a bathroom,I save up for it in a bank account.

I have a fairly secure position, so low odds of job loss. My expense replacement fund in case of job loss went into my normal AA. In about a decade, I built it up so that even a 50% loss would have left me with what I would have had using a bank account. I was at some what of a risk in that decade, but doing so while I was young allowed me to build up a decent portion of my portfolio which also acted as a second tier EF. It also allowed me to reach FI several years ahead of schedule.
Ferdinand2014
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Re: Smarter approach to "emergency funds"?

Post by Ferdinand2014 »

What happens if the markets close for an extended period? Is it possible to sell and extract cash from a mutual fund? ETF?
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willthrill81
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Re: Smarter approach to "emergency funds"?

Post by willthrill81 »

Ferdinand2014 wrote: Tue Jul 14, 2020 9:42 pm What happens if the markets close for an extended period? Is it possible to sell and extract cash from a mutual fund? ETF?
The longest that the NYSE has been closed since WW1 was after 9/11/2001, when it didn't reopen until 9/17/2001.

You might be able to trade after hours, but you would probably pay a premium as a seller to do so if it was because the main market was closed for an extended period of time.
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IowaFarmWife
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Re: Smarter approach to "emergency funds"?

Post by IowaFarmWife »

bck63 wrote: Sat Jul 11, 2020 12:00 pm
vineviz wrote: Wed Mar 25, 2020 10:19 am I've said previously that the emergency fund does NOT need to be entirely in cash instruments, just that the household have enough liquidity to persevere scenarios with a reasonable probability of occurring. There are various ways to accomplish this, and one that I think most people should consider as a smarter option is this:

Slightly overfund the emergency fund and invest it in a very conservative balanced fund (e.g. a fund that is 20% to 30% stocks) such as the Vanguard LifeStrategy Income Fund (VASIX).
This is exactly what I'm doing at Vanguard. At Fidelity, I'm using AOK, plus a little AGG to get me to 20%. Got sick of having cash sitting on the sidelines.
Do you AOK this in a taxable account? Would it be tax efficient outside of a tax advantaged account? Thanks. :)
“The quickest way to double your money is to fold it in half and put it in your back pocket.” —Will Rogers
bck63
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Re: Smarter approach to "emergency funds"?

Post by bck63 »

IowaFarmWife wrote: Tue Jul 14, 2020 10:08 pm
bck63 wrote: Sat Jul 11, 2020 12:00 pm
vineviz wrote: Wed Mar 25, 2020 10:19 am I've said previously that the emergency fund does NOT need to be entirely in cash instruments, just that the household have enough liquidity to persevere scenarios with a reasonable probability of occurring. There are various ways to accomplish this, and one that I think most people should consider as a smarter option is this:

Slightly overfund the emergency fund and invest it in a very conservative balanced fund (e.g. a fund that is 20% to 30% stocks) such as the Vanguard LifeStrategy Income Fund (VASIX).
This is exactly what I'm doing at Vanguard. At Fidelity, I'm using AOK, plus a little AGG to get me to 20%. Got sick of having cash sitting on the sidelines.
Do you AOK this in a taxable account? Would it be tax efficient outside of a tax advantaged account? Thanks. :)
Yes, in taxable. I keep my emergency fund in a taxable account. On that relatively small portion of my investments, I don't mind paying taxes. 2.44%, minus taxes (in my bracket), is much better than, say, the Vanguard Federal MMF yield or a high-yield savings account.

I don't let the tax tail wag the dog. :-)
IowaFarmWife
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Re: Smarter approach to "emergency funds"?

Post by IowaFarmWife »

bck63 wrote: Wed Jul 15, 2020 5:53 am
IowaFarmWife wrote: Tue Jul 14, 2020 10:08 pm
bck63 wrote: Sat Jul 11, 2020 12:00 pm
vineviz wrote: Wed Mar 25, 2020 10:19 am I've said previously that the emergency fund does NOT need to be entirely in cash instruments, just that the household have enough liquidity to persevere scenarios with a reasonable probability of occurring. There are various ways to accomplish this, and one that I think most people should consider as a smarter option is this:

Slightly overfund the emergency fund and invest it in a very conservative balanced fund (e.g. a fund that is 20% to 30% stocks) such as the Vanguard LifeStrategy Income Fund (VASIX).
This is exactly what I'm doing at Vanguard. At Fidelity, I'm using AOK, plus a little AGG to get me to 20%. Got sick of having cash sitting on the sidelines.
Do you AOK this in a taxable account? Would it be tax efficient outside of a tax advantaged account? Thanks. :)
Yes, in taxable. I keep my emergency fund in a taxable account. On that relatively small portion of my investments, I don't mind paying taxes. 2.44%, minus taxes (in my bracket), is much better than, say, the Vanguard Federal MMF yield or a high-yield savings account.

I don't let the tax tail wag the dog. :-)
Thank you. I figured it was in taxable, but I didn't want to assume it was without asking first. I've been looking for a fund like this to park a portion of my EF, and I think you have given me the fund I've been looking for. :sharebeer
“The quickest way to double your money is to fold it in half and put it in your back pocket.” —Will Rogers
bck63
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Re: Smarter approach to "emergency funds"?

Post by bck63 »

IowaFarmWife wrote: Wed Jul 15, 2020 8:10 am
bck63 wrote: Wed Jul 15, 2020 5:53 am
IowaFarmWife wrote: Tue Jul 14, 2020 10:08 pm
bck63 wrote: Sat Jul 11, 2020 12:00 pm
vineviz wrote: Wed Mar 25, 2020 10:19 am I've said previously that the emergency fund does NOT need to be entirely in cash instruments, just that the household have enough liquidity to persevere scenarios with a reasonable probability of occurring. There are various ways to accomplish this, and one that I think most people should consider as a smarter option is this:

Slightly overfund the emergency fund and invest it in a very conservative balanced fund (e.g. a fund that is 20% to 30% stocks) such as the Vanguard LifeStrategy Income Fund (VASIX).
This is exactly what I'm doing at Vanguard. At Fidelity, I'm using AOK, plus a little AGG to get me to 20%. Got sick of having cash sitting on the sidelines.
Do you AOK this in a taxable account? Would it be tax efficient outside of a tax advantaged account? Thanks. :)
Yes, in taxable. I keep my emergency fund in a taxable account. On that relatively small portion of my investments, I don't mind paying taxes. 2.44%, minus taxes (in my bracket), is much better than, say, the Vanguard Federal MMF yield or a high-yield savings account.

I don't let the tax tail wag the dog. :-)
Thank you. I figured it was in taxable, but I didn't want to assume it was without asking first. I've been looking for a fund like this to park a portion of my EF, and I think you have given me the fund I've been looking for. :sharebeer
:sharebeer
Maverick3320
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Re: Smarter approach to "emergency funds"?

Post by Maverick3320 »

I'm curious about this as well. If your emergency fund is a relatively small portion of your total portfolio, why not keep it invested in equities? For emergency funds, the two most important things in my mind are a "safe" amount and liquidity. I don't see any benefit in terms of liquidity for say, a CD over equities, or even a savings account. If things completely hit the fan and the stock market drops 50% tomorrow AND I lose my job, I would still have enough in the markets for six months expenses. In this case, is there a downside to keeping the emergency fund in equities?
Kevin K
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Re: Smarter approach to "emergency funds"?

Post by Kevin K »

The OP's claim that cash invariably loses money to inflation is incorrect.

And as others have said, this is a "bucket" strategy that's only necessary when your main or "real" portfolio doesn't include cash to begin with. Tyler over at Portfolio Charts has an excellent article that both corrects misunderstandings and shows how worthwhile it is to include cash:

https://portfoliocharts.com/2017/05/12/ ... -investor/

Quoting from the article:

There are three important takeaways...:

Cash is a dynamic asset and the return is not at all fixed
Cash correlates quite well to inflation
Cash does pretty well even in times of rising interest rates

If I were going to pursue a bucket strategy I agree that 100% cash wouldn't be a good choice, but rather than pay a .11% ER to own Vanguard's LifeStrategy Income Fund I'd "roll my own" using 80% VGIT and 20% VTI, cutting the ER by two-thirds and completely avoiding pointless exposure to corporate and international bonds and equities while (with 80% ITT's) having a big dose of downside protection that the Vanguard fund-of-funds lacks.
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Re: Smarter approach to "emergency funds"?

Post by Maverick3320 »

Kevin K wrote: Wed Jul 15, 2020 2:32 pm The OP's claim that cash invariably loses money to inflation is incorrect.

And as others have said, this is a "bucket" strategy that's only necessary when your main or "real" portfolio doesn't include cash to begin with. Tyler over at Portfolio Charts has an excellent article that both corrects misunderstandings and shows how worthwhile it is to include cash:

https://portfoliocharts.com/2017/05/12/ ... -investor/

Quoting from the article:

There are three important takeaways...:

Cash is a dynamic asset and the return is not at all fixed
Cash correlates quite well to inflation
Cash does pretty well even in times of rising interest rates

If I were going to pursue a bucket strategy I agree that 100% cash wouldn't be a good choice, but rather than pay a .11% ER to own Vanguard's LifeStrategy Income Fund I'd "roll my own" using 80% VGIT and 20% VTI, cutting the ER by two-thirds and completely avoiding pointless exposure to corporate and international bonds and equities while (with 80% ITT's) having a big dose of downside protection that the Vanguard fund-of-funds lacks.
Perhaps I'm reading the chart wrong, but if the red (cash CAGR < 0) seems to even out with the blue (cash CAGR > 0) with the vast majority of time being in the white (CAGR ~ 0)...doesn't that mean that cash, in real terms, isn't providing any type of return?
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Re: Smarter approach to "emergency funds"?

Post by willthrill81 »

Maverick3320 wrote: Thu Jul 16, 2020 12:18 pm
Kevin K wrote: Wed Jul 15, 2020 2:32 pm The OP's claim that cash invariably loses money to inflation is incorrect.

And as others have said, this is a "bucket" strategy that's only necessary when your main or "real" portfolio doesn't include cash to begin with. Tyler over at Portfolio Charts has an excellent article that both corrects misunderstandings and shows how worthwhile it is to include cash:

https://portfoliocharts.com/2017/05/12/ ... -investor/

Quoting from the article:

There are three important takeaways...:

Cash is a dynamic asset and the return is not at all fixed
Cash correlates quite well to inflation
Cash does pretty well even in times of rising interest rates

If I were going to pursue a bucket strategy I agree that 100% cash wouldn't be a good choice, but rather than pay a .11% ER to own Vanguard's LifeStrategy Income Fund I'd "roll my own" using 80% VGIT and 20% VTI, cutting the ER by two-thirds and completely avoiding pointless exposure to corporate and international bonds and equities while (with 80% ITT's) having a big dose of downside protection that the Vanguard fund-of-funds lacks.
Perhaps I'm reading the chart wrong, but if the red (cash CAGR < 0) seems to even out with the blue (cash CAGR > 0) with the vast majority of time being in the white (CAGR ~ 0)...doesn't that mean that cash, in real terms, isn't providing any type of return?
That chart is for real (i.e. inflation-adjusted) returns. Also, most investors will actually experience lower effective returns due to taxes.
“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: Smarter approach to "emergency funds"?

Post by Maverick3320 »

willthrill81 wrote: Thu Jul 16, 2020 4:07 pm
Maverick3320 wrote: Thu Jul 16, 2020 12:18 pm
Kevin K wrote: Wed Jul 15, 2020 2:32 pm The OP's claim that cash invariably loses money to inflation is incorrect.

And as others have said, this is a "bucket" strategy that's only necessary when your main or "real" portfolio doesn't include cash to begin with. Tyler over at Portfolio Charts has an excellent article that both corrects misunderstandings and shows how worthwhile it is to include cash:

https://portfoliocharts.com/2017/05/12/ ... -investor/

Quoting from the article:

There are three important takeaways...:

Cash is a dynamic asset and the return is not at all fixed
Cash correlates quite well to inflation
Cash does pretty well even in times of rising interest rates

If I were going to pursue a bucket strategy I agree that 100% cash wouldn't be a good choice, but rather than pay a .11% ER to own Vanguard's LifeStrategy Income Fund I'd "roll my own" using 80% VGIT and 20% VTI, cutting the ER by two-thirds and completely avoiding pointless exposure to corporate and international bonds and equities while (with 80% ITT's) having a big dose of downside protection that the Vanguard fund-of-funds lacks.
Perhaps I'm reading the chart wrong, but if the red (cash CAGR < 0) seems to even out with the blue (cash CAGR > 0) with the vast majority of time being in the white (CAGR ~ 0)...doesn't that mean that cash, in real terms, isn't providing any type of return?
That chart is for real (i.e. inflation-adjusted) returns. Also, most investors will actually experience lower effective returns due to taxes.
Yeah, that's what I mean. If the real returns on the chart show effectively zero...I'm not sure if I'm following OP's assertion correctly.
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Re: Smarter approach to "emergency funds"?

Post by caklim00 »

Highly considering selling out of my Treasury Futures ladder: viewtopic.php?t=304904
and taking the proceeds and just putting it into VASIX. I'm actually thinking that longer term the futures may be a drag on returns given how low current rates are. The futures have done well the past 6 months for me, but who knows how much longer that will run. At least with VASIX you don't have some of the interest rate drag since I have to hold cash for the futures positions. This move would reduce my bond exposure fairly significantly though. hmm...

I know this thread is about emergency funds, but NTSX is what led me down the path of rolling Treasury Futures.
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Re: Smarter approach to "emergency funds"?

Post by babystep »

vineviz wrote: Wed Mar 25, 2020 10:19 am Few personal finance topics are as confounding as the "emergency fund".
Slightly overfund the emergency fund and invest it in a very conservative balanced fund (e.g. a fund that is 20% to 30% stocks) such as the Vanguard LifeStrategy Income Fund (VASIX).
If the emergency fund is 50k for 6 months then put 100k in VTSAX in taxable and be done with it?
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Re: Smarter approach to "emergency funds"?

Post by balbrec2 »

KlangFool wrote: Wed Mar 25, 2020 10:59 am OP,

I would offer a counterpoint to your idea.

In my opinion, my cash/cash equivalent serves another purpose besides an emergency fund. It is a separate asset class by itself. It helps/protects me from short-term deflation.

Diversification is a good thing.

KlangFool
This idea would mean to me that short term TIPS would be an ideal emergency fund vehicle.
They offer safety and protection for inflation and deflation.
balbrec2
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Re: Smarter approach to "emergency funds"?

Post by balbrec2 »

rascott wrote: Wed Mar 25, 2020 11:38 am This seems like bucketing to me..... one bucket in a 20/80 AA.... and another bigger bucket in your "normal" AA. Why not just adjust the overall AA to match this?
For someone who's assets are all in a tax advantaged account, taking an extra large
withdrawal to cover an emergency, could trigger an unexpected tax event. I would rather just have the
six month emergency fund in short term TIPS outside of the IRA or 401k.
alluringreality
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Re: Smarter approach to "emergency funds"?

Post by alluringreality »

balbrec2 wrote: Sat Jul 18, 2020 1:48 pm This idea would mean to me that short term TIPS would be an ideal emergency fund vehicle.
They offer safety and protection for inflation and deflation.
If you're thinking about holding TIPS in taxable and are interested in deflation considerations, I Bonds might be worth looking at for some people. The main negatives with I Bonds are yearly purchase limits, they can't be sold in the first year, they have a 3 month penalty for selling in the first 5 years, and they have federal taxes since they can't be held in a Roth like TIPS. The main selling points are that they can be tax deferred, currently offer slightly better rates than TIPS, and their deflation considerations amount to 6 month periods.
https://seekingalpha.com/article/434196 ... n-ee-terms
https://www.treasurydirect.gov/indiv/re ... ibonds.htm
Targets: 15% I Bonds, 15% EE Bonds, 45% US Stock (Mid & Small Tilt), 25% Ex-US Stock (Small Tilt)
TexasBorn
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Re: Smarter approach to "emergency funds"?

Post by TexasBorn »

Blue456 wrote: Wed Mar 25, 2020 2:18 pm
vineviz wrote: Wed Mar 25, 2020 10:19 am
Even if you were INSANELY unlucky and invested at a market peak, an immediate 15% drop would still leave you with more than six months worth of expenses if you were again INSANELY unlucky enough to need the money right at the market bottom.
I did that January 2nd 2020. I place 50% of my emergency fund into Wellesley Income Fund. The other 50% in cash.
How do you feel about that decision now 4 months later?

I’m thinking about moving my 1 year’s worth of EF I’ve saved into this same approach...
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Re: Smarter approach to "emergency funds"?

Post by Blue456 »

TexasBorn wrote: Mon Jul 27, 2020 9:17 pm
Blue456 wrote: Wed Mar 25, 2020 2:18 pm
vineviz wrote: Wed Mar 25, 2020 10:19 am
Even if you were INSANELY unlucky and invested at a market peak, an immediate 15% drop would still leave you with more than six months worth of expenses if you were again INSANELY unlucky enough to need the money right at the market bottom.
I did that January 2nd 2020. I place 50% of my emergency fund into Wellesley Income Fund. The other 50% in cash.
How do you feel about that decision now 4 months later?

I’m thinking about moving my 1 year’s worth of EF I’ve saved into this same approach...
I felt like it was too complicated. Now I keep my EF in CDs and just count it as part of AA. The key point now is that those CDs will not be used for rebalancing.
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Re: Smarter approach to "emergency funds"?

Post by willthrill81 »

TexasBorn wrote: Mon Jul 27, 2020 9:17 pm
Blue456 wrote: Wed Mar 25, 2020 2:18 pm
vineviz wrote: Wed Mar 25, 2020 10:19 am
Even if you were INSANELY unlucky and invested at a market peak, an immediate 15% drop would still leave you with more than six months worth of expenses if you were again INSANELY unlucky enough to need the money right at the market bottom.
I did that January 2nd 2020. I place 50% of my emergency fund into Wellesley Income Fund. The other 50% in cash.
How do you feel about that decision now 4 months later?

I’m thinking about moving my 1 year’s worth of EF I’ve saved into this same approach...
Wellesley (VWINX) is up 2.77% YTD, definitely better than any high yield savings 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: Smarter approach to "emergency funds"?

Post by spdoublebass »

willthrill81 wrote: Mon Jul 27, 2020 9:28 pm
TexasBorn wrote: Mon Jul 27, 2020 9:17 pm
Blue456 wrote: Wed Mar 25, 2020 2:18 pm
vineviz wrote: Wed Mar 25, 2020 10:19 am
Even if you were INSANELY unlucky and invested at a market peak, an immediate 15% drop would still leave you with more than six months worth of expenses if you were again INSANELY unlucky enough to need the money right at the market bottom.
I did that January 2nd 2020. I place 50% of my emergency fund into Wellesley Income Fund. The other 50% in cash.
How do you feel about that decision now 4 months later?

I’m thinking about moving my 1 year’s worth of EF I’ve saved into this same approach...
Wellesley (VWINX) is up 2.77% YTD, definitely better than any high yield savings account.
I'm just curious, why 50% Wellesley/50% Cash (which puts you are lets say 18.5% stock overall) instead of 50% Balanced Fund/50% Cash, which would put you around 30%.

Is is just the simple fact that you do not want to be exposed to 30% stock and like closer to 20%?

Thanks.
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Re: Smarter approach to "emergency funds"?

Post by willthrill81 »

spdoublebass wrote: Mon Jul 27, 2020 10:59 pm
willthrill81 wrote: Mon Jul 27, 2020 9:28 pm
TexasBorn wrote: Mon Jul 27, 2020 9:17 pm
Blue456 wrote: Wed Mar 25, 2020 2:18 pm
vineviz wrote: Wed Mar 25, 2020 10:19 am
Even if you were INSANELY unlucky and invested at a market peak, an immediate 15% drop would still leave you with more than six months worth of expenses if you were again INSANELY unlucky enough to need the money right at the market bottom.
I did that January 2nd 2020. I place 50% of my emergency fund into Wellesley Income Fund. The other 50% in cash.
How do you feel about that decision now 4 months later?

I’m thinking about moving my 1 year’s worth of EF I’ve saved into this same approach...
Wellesley (VWINX) is up 2.77% YTD, definitely better than any high yield savings account.
I'm just curious, why 50% Wellesley/50% Cash (which puts you are lets say 18.5% stock overall) instead of 50% Balanced Fund/50% Cash, which would put you around 30%.

Is is just the simple fact that you do not want to be exposed to 30% stock and like closer to 20%?

Thanks.
Blue456 is the one who did it, but yours would seemingly be the only reasonable answer why someone would choose that approach.
“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: Smarter approach to "emergency funds"?

Post by JBTX »

We have an ample fund of cash. Call it mental accounting, bucket ING or whatever you like. Having close to a year in liquidity is comforting. I don't have to worry about it going up or down with market fluctuations. I find the argument for a bond heavy balanced fund less than compelling. In a stagflation scenario is could get hit pretty hard, in real terms. Every evaluates these options based on a 40 year history of declining interest rates. With bond rates near zero, they may actually be less than cash. So you are left with 20-30% stocks that could lose half of their value or more.

I think the OP months ago asserted a 20/80 life strategy fund would get 3.0% real. No idea how that math works with bonds at near zero.

Beyond cash reserve, we probably have 6-9 months in ibonds.
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Re: Smarter approach to "emergency funds"?

Post by willthrill81 »

JBTX wrote: Tue Jul 28, 2020 12:33 am I think the OP months ago asserted a 20/80 life strategy fund would get 3.0% real. No idea how that math works with bonds at near zero.
The OP didn't say that. He was merely looking at the backtested difference vs. a cash only EF and couched it as such.
“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: Smarter approach to "emergency funds"?

Post by 000 »

JBTX wrote: Tue Jul 28, 2020 12:33 am We have an ample fund of cash. Call it mental accounting, bucket ING or whatever you like. Having close to a year in liquidity is comforting. I don't have to worry about it going up or down with market fluctuations.
There is no replacement for cash, as March 2020 showed us all.
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Re: Smarter approach to "emergency funds"?

Post by JBTX »

willthrill81 wrote: Tue Jul 28, 2020 12:36 am
JBTX wrote: Tue Jul 28, 2020 12:33 am I think the OP months ago asserted a 20/80 life strategy fund would get 3.0% real. No idea how that math works with bonds at near zero.
The OP didn't say that. He was merely looking at the backtested difference vs. a cash only EF and couched it as such.
It's better than cash, for sure.

but I'd prefer a 3% real return to a 0.8% real return. Can't speak for anyone else.
I guess we interpret that differently.

And of what use is back testing bonds, when current rates are near zero? Back testing doesn't tell you anything. Sure back testing looks great when rates go from 20% to zero. But now we are at zero. The most relevant predictor of a bonds expected return is its yield.

When bond yields aren't any better than bank yields I'm not sure of the argument for conventional bonds in an emergency fund. Ibonds, or maybe even EE, makes more sense.
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Re: Smarter approach to "emergency funds"?

Post by spdoublebass »

vineviz wrote: Wed Mar 25, 2020 10:19 am
The concept itself if relatively simple: a household should have enough financial capital withstand unexpected shocks (either a period of unemployment/underemployment or a major unplanned expenses) without undue stress.

But boy, are there lots of details there in which the devil can hide. How much financial capital is "enough"? How should that capital be invested? How big are the "shocks"? When will they hit? How long will they last? How much stress is "undue"? And so on.
My DW and I are 30ish years from retirement with an overall AA of 95/5. We recently wanted to save for a vacation and we used a taxable account to buy the fund VTINX (Vanguard Target Retirement Income). I chose this because I didn't mind the 30% in stock and I liked to $1000 minimum purchase.

I know this fund could go down, but I don't care because that would only mean a delay in a future vacation.

I bring this up because it was my first time really using a taxable account and also a separate AA for a savings purpose.

My focus now has been on building an emergency fund. We previously have had a smaller one as I knocked out some smaller credit card debt we were carrying.

I know with smaller numbers the choices one makes have a smaller upside and downside. The argument could be made to use a savings account and forget about it, which is a valid point.

My plan is to continue buying I Bonds and to have a few months cash in a savings account. I would like to keep saving and over fund my EF to the point that one day, if it is not used I would then incorporate it into my overall AA. Until that day, I would like to think of it as separate because I like that label for mental accounting purposes.

Do you think it's ok to choose a balanced fund (such as VASIX) for the excess amount above the cash amount I want on hand with the intent that one day when it becomes large enough, to just consider it part of my portfolio. At which time I would probably exchange it for other funds I currently hold in my AA.
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Re: Smarter approach to "emergency funds"?

Post by rich126 »

000 wrote: Tue Jul 28, 2020 12:47 am
JBTX wrote: Tue Jul 28, 2020 12:33 am We have an ample fund of cash. Call it mental accounting, bucket ING or whatever you like. Having close to a year in liquidity is comforting. I don't have to worry about it going up or down with market fluctuations.
There is no replacement for cash, as March 2020 showed us all.
Yeah. When I saw this post earlier in the year, I decided to do something like this for a small amount of my money. I think I'm still down from my original cash amount. In my case I don't need the money anytime soon but you are better off with cash regardless if it is earning near 0% than investing it and finding out you don't have what you started with and you need it for an emergency.

Just because something works most or nearly all the time, doesn't mean you won't hit that 1% or whatever time where it doesn't work. One reason I'm not fond of lump sum investing. While it is true that provides better numbers in the long run, there is always a small chance it won't for you and I'd rather give up some gains in order to avoid the big loss. YMMV.
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Re: Smarter approach to "emergency funds"?

Post by mega317 »

rich126 wrote: Mon Oct 05, 2020 10:59 am Yeah. When I saw this post earlier in the year, I decided to do something like this for a small amount of my money. I think I'm still down from my original cash amount.
This doesn't make a lot of sense to me. The market is about where it was at the February peak and up over 30% from the date of the OP. How are you down if you moved cash to stocks?
https://www.bogleheads.org/forum/viewtopic.php?t=6212
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Re: Smarter approach to "emergency funds"?

Post by Blue456 »

whodidntante wrote: Wed Mar 25, 2020 11:29 am Safety can cost quite a lot over a lifetime.
But the ability to sleep well at night is priceless.
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Re: Smarter approach to "emergency funds"?

Post by rich126 »

mega317 wrote: Mon Oct 05, 2020 12:20 pm
rich126 wrote: Mon Oct 05, 2020 10:59 am Yeah. When I saw this post earlier in the year, I decided to do something like this for a small amount of my money. I think I'm still down from my original cash amount.
This doesn't make a lot of sense to me. The market is about where it was at the February peak and up over 30% from the date of the OP. How are you down if you moved cash to stocks?
I think technically I am back in the green. I literally bought it within 1 day prior to the drop. On Feb 18. I kind of blocked it from my mind since I didn't need the money and was in my Fidelity account which doesn't have much in it. It was opened when my new company used it for their 401K stuff and I wanted something to replace my prior accounts that kept getting bought by TD Ameritrade.

I'm probably up a couple of percent now. If I ignore an investment I'm less likely to trade it. So my TSP account is set and forget and so far the fidelity account is also. And yeah I probably should do that with all of my accounts.

But it was a wild ride and I'm not sure I'd recommend it, if it was a true emergency fund.
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Re: Smarter approach to "emergency funds"?

Post by mega317 »

rich126 wrote: Mon Oct 05, 2020 2:05 pm I literally bought it within 1 day prior to the drop. On Feb 18.
Ok that's not what you said before. But it's a good lesson.
https://www.bogleheads.org/forum/viewtopic.php?t=6212
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Re: Smarter approach to "emergency funds"?

Post by RJ5 »

Everyone has a different need for emergency cash. Some may literally need it to be cash, as in paper currency, within arms reach ready to go on any moment's notice. Think people who have been displaced due to natural disasters. In the last major hurricanes of years past, your credit cards were worthless without a working grid. Those who escaped harms way with cash were still able to transact for goods and services.

Others may want an emergency fund strictly for expenses so they would not have to sell anything from their portfolio and create a taxable event in the event of a job loss, or pull from their 401K and get penalties (Government cut everyone a break with the CARES Act, but for many this decision will haunt them in the future).

Others may treat their emergency fund both as an emergency fund and as a cash slush fund to buy things at the bottom.

Others may have separate emergency funds for their assets (ie rental properties, businesses, etc). I have separate repair funds for my rental properties which are there to cover emergency repairs, or the deductible of a major insurance claim.

Personally, we cannot tell one person how or what their emergency fund needs to be. I will say this though, if you are treating this as an emergency fund, don't let yield chasing drift you from what your original intent is.
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