How I learned to love my low yield emergency fund

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Topic Author
DesertMan
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How I learned to love my low yield emergency fund

Post by DesertMan » Fri Jun 26, 2020 10:31 pm

Lately many Bogleheads forum posters have been talking about how carrying an emergency fund annoys them in this age of near zero bank interest rates and the omnipresent FOMO urge to invest the money. Here is a personal story and a pep talk.

We just had a bathroom leak. Our house is barely 20 years old and just recently passed an inspection... so completely unexpected. We don't know the cost will be but I am thankful that I have the cash to cover it. This case is exactly why you need to have at least 6 months of expenses in cash. You just don't know what the price tag will be for the unexpected house or car repair, or (especially in the COVID age) how long it will take to find work if you lose your job. Having to sell investments at a loss or carry a balance on your credit cards because you didn't save the cash for your exploding toilet makes that low yield seem worth it, eh?

Now about that low rate. You can do something about it.
* If you have cash in reserve you can raise your insurance deductibles and lower your limits. The cash you don't send to the health/car/home/disability/life insurance folks because you have a cash stash is like tax free income to you. (And if you aren't comfortable doing this... that just shows you need a bigger emergency fund!)
* There ARE still decent yielding bank and credit union accounts. There are reward checking accounts with yields around 2% and savings accounts that pay 5% or 6% on up to $1000 or $500. Netspend, DCU, St. Mary's Bank, and many others offer such accounts. You might think that's not worth it but if you open several of them, you'll find you can sock away a month or two of expenses at a better yield than you'll get with a bond fund.
* If that's not enough, banks offer bonuses in the hundreds of dollars for opening accounts for a few months. These are like super CDs that yield 6% or more. You can use a couple months' worth of expenses in cash to chase (hint hint) these banks and get them to give you money.

Juggling multiple bank accounts may seem like a hassle, but it's a much better use of your time and nervous energy than trying to time the market with money you should have in readily available cash. You can use Ally Bank as a hub account to store all your ACH links to your other accounts (and Ally themselves have a decent savings account plus free Webroot anti-virus).

Let the FOMO go and learn to love your emergency fund. When your toilet blows up you'll be glad you did.

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peetsperk
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Re: How I learned to love my low yield emergency fund

Post by peetsperk » Fri Jun 26, 2020 11:56 pm

I think you make some good points Desertman. For many, I'm not sure there is a better example why one might need an emergency fund than what 40 million Americans have experienced in the last 90 days. And who knows what the next few months will bring. I'm not one who believes the job of an emergency fund is to earn a fair return. For us, it's there so we can sleep at night. Anything it earns to help somewhat offset inflation is a plus. In addition, raising insurance deductibles makes sense for the reason you mentioned, as well as many others.

TechFI
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Re: How I learned to love my low yield emergency fund

Post by TechFI » Sat Jun 27, 2020 2:11 am

I have 2 years emergency fund. I can sleep like a baby at night.

Also, I use the eFund to do various bank bonuses. So effective APY is usually much higher than even the best bank/CD rates out there.

TechFI
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Re: How I learned to love my low yield emergency fund

Post by TechFI » Sat Jun 27, 2020 2:14 am

Should also point out Murphy's Law.
- At one point I asked myself why did I need 2 *years* of eFund? Wasn't that overkill?
- I researched a little during the dot.com bust, and it was not uncommon to find people out of jobs for 1-2 years (hopefully if it happens to me I will bounce back better). And obviously working in a "bubbly" sector, I know the bubble can pop anytime and I have to be ready when it does.
- Then I thought about unemployment insurance and that's gives me quite a chunk (almost $3k/mth), so why bother? My expenses are under $3k/mth and I could end up not tapping my eFund.
- And now you read about people camping for weeks/days to file for unemployment insurance, some drivings for hundreds of miles across the state to reach some building, and others have been trying for months.
- Previously ironclad state/federal govt workers are getting cuts or furloughed, even tenure at university may not spare people from the onslaught to come.

When it goes wrong, everything go wrong.

kleiner
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Re: How I learned to love my low yield emergency fund

Post by kleiner » Sat Jun 27, 2020 8:25 am

TechFI wrote:
Sat Jun 27, 2020 2:11 am
I have 2 years emergency fund. I can sleep like a baby at night.

Also, I use the eFund to do various bank bonuses. So effective APY is usually much higher than even the best bank/CD rates out there.
I'm exactly the same - having several years of expenditures in cash helps me sleep better at night for sure.

2commaBH
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Re: How I learned to love my low yield emergency fund

Post by 2commaBH » Sat Jun 27, 2020 10:25 am

I understand the point of the post (which I agree with), but shouldn't insurance cover these huge out of pocket expenses? We had a similar situation earlier and were thrilled with how the home insurance company stepped up.

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whodidntante
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Re: How I learned to love my low yield emergency fund

Post by whodidntante » Sat Jun 27, 2020 10:32 am

I agree that chasing bonuses is a good reason to have some cash. Those deals are fantastic and risk free. But if you're sorta rich, the requirement is for an emergency plan, not an emergency fund. There is absolutely no reason to pay 18% interest on a credit card. So if that's the best you can think of, sure, keep a big pile of cash.

My sleep is fine. :beer

Grt2bOutdoors
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Re: How I learned to love my low yield emergency fund

Post by Grt2bOutdoors » Sat Jun 27, 2020 10:38 am

kleiner wrote:
Sat Jun 27, 2020 8:25 am
TechFI wrote:
Sat Jun 27, 2020 2:11 am
I have 2 years emergency fund. I can sleep like a baby at night.

Also, I use the eFund to do various bank bonuses. So effective APY is usually much higher than even the best bank/CD rates out there.
I'm exactly the same - having several years of expenditures in cash helps me sleep better at night for sure.
I recently found employment again after being out for over a year! That e-fund improved the quality of my sleep as opposed to some of my former colleagues who are still out of work through no fault of their own. Some thought they’d never lose employment.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

TimeTheMarket
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Re: How I learned to love my low yield emergency fund

Post by TimeTheMarket » Sat Jun 27, 2020 11:41 am

I get the security but an Efund for two years for me vs invested in stocks would be $1000/month lost sitting in a HYSA.
Username is not serious :)

fatcoffeedrinker
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Re: How I learned to love my low yield emergency fund

Post by fatcoffeedrinker » Sat Jun 27, 2020 12:05 pm

Our no cost HELOC covers two years of expenses. No first mortgage, so it's unlikely to get frozen since the max draw of $250k is only 23% LTV.

Also, we have taxable. Yes that has 100% stocks, but if we had to sell at a loss, we just sell bonds in tax deferred and buy back similar funds, but not identical to avoid wash sale.

So no EF.

TechFI
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Re: How I learned to love my low yield emergency fund

Post by TechFI » Sat Jun 27, 2020 1:03 pm

fatcoffeedrinker wrote:
Sat Jun 27, 2020 12:05 pm
Our no cost HELOC covers two years of expenses. No first mortgage, so it's unlikely to get frozen since the max draw of $250k is only 23% LTV.

Also, we have taxable. Yes that has 100% stocks, but if we had to sell at a loss, we just sell bonds in tax deferred and buy back similar funds, but not identical to avoid wash sale.

So no EF.
Murphy's Law. When you need HELOC, it will dry up. Also, there's an interest charge.

Tapping into retirement assets is also not a good idea. Just because it's in taxable and not your 401k doesn't make it "ok" for you to withdraw it.

fatcoffeedrinker
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Re: How I learned to love my low yield emergency fund

Post by fatcoffeedrinker » Sat Jun 27, 2020 1:08 pm

TechFI wrote:
Sat Jun 27, 2020 1:03 pm
fatcoffeedrinker wrote:
Sat Jun 27, 2020 12:05 pm
Our no cost HELOC covers two years of expenses. No first mortgage, so it's unlikely to get frozen since the max draw of $250k is only 23% LTV.

Also, we have taxable. Yes that has 100% stocks, but if we had to sell at a loss, we just sell bonds in tax deferred and buy back similar funds, but not identical to avoid wash sale.

So no EF.
Murphy's Law. When you need HELOC, it will dry up. Also, there's an interest charge.
It won't dry up on my LTV. And of course there is an interest charge -- but only when you use it. As opposed to the constant loss of return from an EF. And as I said, HELOC is not my only option.

Savermom
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Re: How I learned to love my low yield emergency fund

Post by Savermom » Sat Jun 27, 2020 1:15 pm

Oh wow, I am so sorry that happened to you and that it was so expensive. I am glad you had the money and did not have the extra stress of selling at a loss or trying to come up with the money another way. I agree that EFs are important. I do miss the days of decent money market and CD yields!

I hope you can get your home insurance to cover the amount over your deductible though!

SB1234
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Re: How I learned to love my low yield emergency fund

Post by SB1234 » Sat Jun 27, 2020 1:54 pm

whodidntante wrote:
Sat Jun 27, 2020 10:32 am
I agree that chasing bonuses is a good reason to have some cash. Those deals are fantastic and risk free. But if you're sorta rich, the requirement is for an emergency plan, not an emergency fund.
I am struggling a bit about what would such a plan looks like? Is there a place for a reliable way to raise required cash in such a plan?

SB1234
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Re: How I learned to love my low yield emergency fund

Post by SB1234 » Sat Jun 27, 2020 2:02 pm

fatcoffeedrinker wrote:
Sat Jun 27, 2020 12:05 pm
Our no cost HELOC covers two years of expenses. No first mortgage, so it's unlikely to get frozen since the max draw of $250k is only 23% LTV.

Also, we have taxable. Yes that has 100% stocks, but if we had to sell at a loss, we just sell bonds in tax deferred and buy back similar funds, but not identical to avoid wash sale.

So no EF.
What's the ratio of the implied EF vs portfolio value in taxable? E.g I'm thinking if I need X in EF, then I would need at least 2X in taxable if 100% stocks.

fatcoffeedrinker
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Re: How I learned to love my low yield emergency fund

Post by fatcoffeedrinker » Sat Jun 27, 2020 2:07 pm

SB1234 wrote:
Sat Jun 27, 2020 1:54 pm
whodidntante wrote:
Sat Jun 27, 2020 10:32 am
I agree that chasing bonuses is a good reason to have some cash. Those deals are fantastic and risk free. But if you're sorta rich, the requirement is for an emergency plan, not an emergency fund.
I am struggling a bit about what would such a plan looks like? Is there a place for a reliable way to raise required cash in such a plan?
If you have a large enough taxable account, even if it is 100% stocks, and a tax deferred account with enough quality bonds, just sell stocks from taxable when you need the funds. If you are selling at a loss, then sell bonds and buy stocks in tax deferred to get back to AA.

What is big enough for taxable? Probably 2-3 times larger than what your EF would otherwise be so it is still sufficient even after a large downturn.

7eight9
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Re: How I learned to love my low yield emergency fund

Post by 7eight9 » Sat Jun 27, 2020 2:08 pm

SB1234 wrote:
Sat Jun 27, 2020 1:54 pm
whodidntante wrote:
Sat Jun 27, 2020 10:32 am
I agree that chasing bonuses is a good reason to have some cash. Those deals are fantastic and risk free. But if you're sorta rich, the requirement is for an emergency plan, not an emergency fund.
I am struggling a bit about what would such a plan looks like? Is there a place for a reliable way to raise required cash in such a plan?
Example of Citibank bonus --- https://banking.citi.com/cbol/checking- ... 93E3307E8E

Terms:

First, open a new consumer regular or interest checking account between April 1, 2020 and June 30, 2020 in an eligible Account Package listed in the Chart below (“Eligible Checking Account”). Certain Cash Bonus offers also require opening a new Citi Savings Account (see Chart below) in the same account package as the new Eligible Checking Account (“Eligible Savings Account”). The Eligible Savings Account must be opened within 30 days of the checking account’s Account Opening Date.

Second, enroll in this offer at the same time as account opening pursuant to the instructions provided. Customer is automatically enrolled when applying online

Third, any owner of the eligible accounts must make at least the “Minimum Deposit” (see Chart below) in “New-to-Citibank Funds”, within 30 calendar days of the Account Opening Date of the checking account, into either the new Eligible Checking Account and/or the new Eligible Savings Account. Multiple deposits allowed.

“New-to-Citibank Funds” are 1) funds deposited from external accounts or payees other than Citibank N.A. 2) using domestic ACH transfer, Direct Deposit, checks drawn on banks other than Citibank N.A. or wire transfer. Cash deposits, Citi Global Transfers, international ACH transfers, and person-to-person transfer services such as Apple Pay, PayPal®, Venmo, and Zelle®, do not qualify as New-to-Citibank Funds.

Fourth, the Minimum Deposit (see Chart below) must be maintained for 60 consecutive calendar days from the date the Minimum Deposit is met (“Minimum Balance”). The Minimum Balance may be held entirely in one of the Eligible Accounts or across both of the Eligible Accounts.

You can take your money out any time. That said, you would lose the eligibility for the bonus if you didn't comply with the bolded terms above.
I guess it all could be much worse. | They could be warming up my hearse.

fatcoffeedrinker
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Re: How I learned to love my low yield emergency fund

Post by fatcoffeedrinker » Sat Jun 27, 2020 2:08 pm

SB1234 wrote:
Sat Jun 27, 2020 2:02 pm
fatcoffeedrinker wrote:
Sat Jun 27, 2020 12:05 pm
Our no cost HELOC covers two years of expenses. No first mortgage, so it's unlikely to get frozen since the max draw of $250k is only 23% LTV.

Also, we have taxable. Yes that has 100% stocks, but if we had to sell at a loss, we just sell bonds in tax deferred and buy back similar funds, but not identical to avoid wash sale.

So no EF.
What's the ratio of the implied EF vs portfolio value in taxable? E.g I'm thinking if I need X in EF, then I would need at least 2X in taxable if 100% stocks.
Yeah, 2-3 times for a safety margin.

SB1234
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Re: How I learned to love my low yield emergency fund

Post by SB1234 » Sat Jun 27, 2020 2:15 pm

fatcoffeedrinker wrote:
Sat Jun 27, 2020 2:08 pm
SB1234 wrote:
Sat Jun 27, 2020 2:02 pm
fatcoffeedrinker wrote:
Sat Jun 27, 2020 12:05 pm
Our no cost HELOC covers two years of expenses. No first mortgage, so it's unlikely to get frozen since the max draw of $250k is only 23% LTV.

Also, we have taxable. Yes that has 100% stocks, but if we had to sell at a loss, we just sell bonds in tax deferred and buy back similar funds, but not identical to avoid wash sale.

So no EF.
What's the ratio of the implied EF vs portfolio value in taxable? E.g I'm thinking if I need X in EF, then I would need at least 2X in taxable if 100% stocks.
Yeah, 2-3 times for a safety margin.
Makes sense. Thanks.

Grt2bOutdoors
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Re: How I learned to love my low yield emergency fund

Post by Grt2bOutdoors » Sat Jun 27, 2020 3:45 pm

fatcoffeedrinker wrote:
Sat Jun 27, 2020 1:08 pm
TechFI wrote:
Sat Jun 27, 2020 1:03 pm
fatcoffeedrinker wrote:
Sat Jun 27, 2020 12:05 pm
Our no cost HELOC covers two years of expenses. No first mortgage, so it's unlikely to get frozen since the max draw of $250k is only 23% LTV.

Also, we have taxable. Yes that has 100% stocks, but if we had to sell at a loss, we just sell bonds in tax deferred and buy back similar funds, but not identical to avoid wash sale.

So no EF.
Murphy's Law. When you need HELOC, it will dry up. Also, there's an interest charge.
It won't dry up on my LTV. And of course there is an interest charge -- but only when you use it. As opposed to the constant loss of return from an EF. And as I said, HELOC is not my only option.
Banks when they cut credit do not just look at LTV, the look at IF they want to have X percent of the loan book in HELOCs, when the answer is “no” and they see your account is not drawn, it will be zeroed our period. It’s not about LTV.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

hudson
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Re: How I learned to love my low yield emergency fund

Post by hudson » Sat Jun 27, 2020 4:18 pm

I never had an emergency fund until I started reading these emergency fund discussions.
I had decided to remain fully invested and just sell some holdings or use a credit card if I got in a jam.
Last summer, I came up short twice on cash. Neither was that big of a deal; I just had to scramble and sweat a little to fix everything.
Between these discussions and my summer heartburn, I decided to build up a moderate amount of "same business day cash".
A few days ago, a good deal came up on a vehicle that I "needed". I didn't need to scramble or sweat; I just did a same day transfer from Amex Bank's high yield savings account to my local checking account and wrote a check. Sweet!
Now, I'll slowly build up the fund again.

Bottom Line: It's worth it to me to have an emergency fund and not always be fully invested.

Explorer
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Re: How I learned to love my low yield emergency fund

Post by Explorer » Sat Jun 27, 2020 4:26 pm

I agree with the sentiment of OP - emergency fund needs to stay in FDIC/money market status.

But I also think using short-term or intermediate-term bond index funds with high credit quality (like BSV or BND) for a portion of EF or *additional* after-tax dollars that you are not comfortable investing in the stock market. This is not a recommendation, just a statement of what I do.

Topic Author
DesertMan
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Re: How I learned to love my low yield emergency fund

Post by DesertMan » Sat Jun 27, 2020 4:58 pm

TimeTheMarket wrote:
Sat Jun 27, 2020 11:41 am
I get the security but an Efund for two years for me vs invested in stocks would be $1000/month lost sitting in a HYSA.
But that assumes that you know what the market will do over a month. Anyone who could figure that out with any level of certainty on a consistent basis would be a millionaire in a couple months.

HawkeyePierce
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Re: How I learned to love my low yield emergency fund

Post by HawkeyePierce » Sat Jun 27, 2020 5:01 pm

I keep a year of living expenses in no-penalty CDs. I chase the occasional deposit bonus. The margin of safety is worth the opportunity cost for me.

Topic Author
DesertMan
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Re: How I learned to love my low yield emergency fund

Post by DesertMan » Sat Jun 27, 2020 5:03 pm

TechFI wrote:
Sat Jun 27, 2020 1:03 pm
fatcoffeedrinker wrote:
Sat Jun 27, 2020 12:05 pm
Our no cost HELOC covers two years of expenses. No first mortgage, so it's unlikely to get frozen since the max draw of $250k is only 23% LTV.

Also, we have taxable. Yes that has 100% stocks, but if we had to sell at a loss, we just sell bonds in tax deferred and buy back similar funds, but not identical to avoid wash sale.

So no EF.
Murphy's Law. When you need HELOC, it will dry up.
Banks are getting out of HELOC already. https://www.bankrate.com/mortgages/home ... ng-helocs/

And ditto for promotional balance transfers. CNBC reports they are drying up fast. https://www.cnbc.com/2020/06/27/credit- ... aults.html

Attention PenFed credit-card holders: there is currently a promotion now and if you need it you might want to do so ASAP. (And then start keeping a bigger E fund if needed...)

Don't rely on credit for emergencies!

fatcoffeedrinker
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Re: How I learned to love my low yield emergency fund

Post by fatcoffeedrinker » Sat Jun 27, 2020 5:09 pm

Grt2bOutdoors wrote:
Sat Jun 27, 2020 3:45 pm
fatcoffeedrinker wrote:
Sat Jun 27, 2020 1:08 pm
TechFI wrote:
Sat Jun 27, 2020 1:03 pm
fatcoffeedrinker wrote:
Sat Jun 27, 2020 12:05 pm
Our no cost HELOC covers two years of expenses. No first mortgage, so it's unlikely to get frozen since the max draw of $250k is only 23% LTV.

Also, we have taxable. Yes that has 100% stocks, but if we had to sell at a loss, we just sell bonds in tax deferred and buy back similar funds, but not identical to avoid wash sale.

So no EF.
Murphy's Law. When you need HELOC, it will dry up. Also, there's an interest charge.
It won't dry up on my LTV. And of course there is an interest charge -- but only when you use it. As opposed to the constant loss of return from an EF. And as I said, HELOC is not my only option.
Banks when they cut credit do not just look at LTV, the look at IF they want to have X percent of the loan book in HELOCs, when the answer is “no” and they see your account is not drawn, it will be zeroed our period. It’s not about LTV.
Maybe. But it was never frozen in 08-09, and I had a first mortgage back then. If they want to poison the well of their private bank members, they can do so at their own peril.

hudson
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Re: How I learned to love my low yield emergency fund

Post by hudson » Sat Jun 27, 2020 5:16 pm

DesertMan wrote:
Sat Jun 27, 2020 5:03 pm
Attention PenFed credit-card holders: there is currently a promotion now and if you need it you might want to do so ASAP.
DesertMan,

I didn't see anything except $20 off on Turbotax. More information if possible. Many thanks!

mikejuss
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Re: How I learned to love my low yield emergency fund

Post by mikejuss » Sat Jun 27, 2020 5:28 pm

I currently have a savings account at Marcus by Goldman Sachs, with a piddly interest rate of 1.05%. Are Netspend, DCU, and St. Mary's Bank the real deal? Is it relatively easy to add to and withdraw from their savings accounts? Are they actually offering interest of 5%-6%--or just advertising those numbers? I'm suspicious but open to having my mind changed.

HawkeyePierce
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Re: How I learned to love my low yield emergency fund

Post by HawkeyePierce » Sat Jun 27, 2020 5:33 pm

mikejuss wrote:
Sat Jun 27, 2020 5:28 pm
I currently have a savings account at Marcus by Goldman Sachs, with a piddly interest rate of 1.05%. Are Netspend, DCU, and St. Mary's Bank the real deal? Is it relatively easy to add to and withdraw from their savings accounts? Are they actually offering interest of 5%-6%--or just advertising those numbers? I'm suspicious but open to having my mind changed.
Those rates usually only apply to your first $1000 or so, beyond that the rates are practically zero.

Olemiss540
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Re: How I learned to love my low yield emergency fund

Post by Olemiss540 » Sat Jun 27, 2020 5:36 pm

TechFI wrote:
Sat Jun 27, 2020 1:03 pm
fatcoffeedrinker wrote:
Sat Jun 27, 2020 12:05 pm
Our no cost HELOC covers two years of expenses. No first mortgage, so it's unlikely to get frozen since the max draw of $250k is only 23% LTV.

Also, we have taxable. Yes that has 100% stocks, but if we had to sell at a loss, we just sell bonds in tax deferred and buy back similar funds, but not identical to avoid wash sale.

So no EF.
Murphy's Law. When you need HELOC, it will dry up. Also, there's an interest charge.

Tapping into retirement assets is also not a good idea. Just because it's in taxable and not your 401k doesn't make it "ok" for you to withdraw it.
Money is fungible and a taxable brokerage account is no different from a taxable bank account. There are no "retirement" accounts in my world, just a singular group of assets that are there to be maximized however I see fit. If I hold equities with my taxable EF and bonds in my 401k to minimize taxes, while able to exchange them with zero or minimal tax implication in times of emergency I have the same end result with higher expected returns since I wasnt bucketing my cash and thus (most likely) tilting my overall portfolio more conservative than planned (thus reducing my expected returns).
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

Topic Author
DesertMan
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Re: How I learned to love my low yield emergency fund

Post by DesertMan » Sat Jun 27, 2020 8:19 pm

hudson wrote:
Sat Jun 27, 2020 5:16 pm
DesertMan wrote:
Sat Jun 27, 2020 5:03 pm
Attention PenFed credit-card holders: there is currently a promotion now and if you need it you might want to do so ASAP.
DesertMan,

I didn't see anything except $20 off on Turbotax. More information if possible. Many thanks!
I got the PenFed offer by email two months or so ago. It did not appear to be targeted. If you had a PenFed credit card open a couple of months ago check your email for one with the subject line "Increase your Financial Freedom."

Failing that I think they are offering promos on new cards. Now may be the time to grab that.

khram
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Joined: Sat Dec 16, 2017 1:36 am

Re: How I learned to love my low yield emergency fund

Post by khram » Sat Jun 27, 2020 8:57 pm

DesertMan wrote:
Fri Jun 26, 2020 10:31 pm
We just had a bathroom leak. Our house is barely 20 years old and just recently passed an inspection... so completely unexpected. We don't know the cost will be but I am thankful that I have the cash to cover it. This case is exactly why you need to have at least 6 months of expenses in cash.
I am all for an EF, but the months here is the wrong metric. The 6-month number should cover you for unemployment situations. You should have enough for X months + $Y (fixed number). How many months of expenses is a toilet, or a car, or a health scare?

Topic Author
DesertMan
Posts: 229
Joined: Tue Dec 07, 2010 12:54 pm

Re: How I learned to love my low yield emergency fund

Post by DesertMan » Sat Jun 27, 2020 9:03 pm

mikejuss wrote:
Sat Jun 27, 2020 5:28 pm
I currently have a savings account at Marcus by Goldman Sachs, with a piddly interest rate of 1.05%. Are Netspend, DCU, and St. Mary's Bank the real deal? Is it relatively easy to add to and withdraw from their savings accounts? Are they actually offering interest of 5%-6%--or just advertising those numbers? I'm suspicious but open to having my mind changed.
I have the savings accounts at Netspend and St. Mary's. St. Mary's is a straightforward savings account though with only one free ACH withdrawal per cycle. Netspend is a little more complicated because they are prepaid cards with a savings account added on. To avoid any fees you have to go through an ACH setup process. Several popular websites like Financial Panther and Doctor of Credit have walkthroughs on how to do it.

Topic Author
DesertMan
Posts: 229
Joined: Tue Dec 07, 2010 12:54 pm

Re: How I learned to love my low yield emergency fund

Post by DesertMan » Sat Jun 27, 2020 9:06 pm

khram wrote:
Sat Jun 27, 2020 8:57 pm
DesertMan wrote:
Fri Jun 26, 2020 10:31 pm
We just had a bathroom leak. Our house is barely 20 years old and just recently passed an inspection... so completely unexpected. We don't know the cost will be but I am thankful that I have the cash to cover it. This case is exactly why you need to have at least 6 months of expenses in cash.
I am all for an EF, but the months here is the wrong metric. The 6-month number should cover you for unemployment situations. You should have enough for X months + $Y (fixed number). How many months of expenses is a toilet, or a car, or a health scare?
You don't know, so you plan for the worst situation, to wit having no income for 6+ months. The cause is irrelevant to planning because you can't predict the future. Let's say you have disability insurance that kicks in after 3 months. Great, but that does nothing if you get laid off. For the same reason you can't reduce your EF target by the amount of unemployment benefits you expect because you don't get those benefits if the emergency is something other than a layoff.

Just save the cash.

Edit-typo

Topic Author
DesertMan
Posts: 229
Joined: Tue Dec 07, 2010 12:54 pm

Re: How I learned to love my low yield emergency fund

Post by DesertMan » Sat Jun 27, 2020 9:34 pm

Olemiss540 wrote:
Sat Jun 27, 2020 5:36 pm
TechFI wrote:
Sat Jun 27, 2020 1:03 pm
fatcoffeedrinker wrote:
Sat Jun 27, 2020 12:05 pm
Our no cost HELOC covers two years of expenses. No first mortgage, so it's unlikely to get frozen since the max draw of $250k is only 23% LTV.

Also, we have taxable. Yes that has 100% stocks, but if we had to sell at a loss, we just sell bonds in tax deferred and buy back similar funds, but not identical to avoid wash sale.

So no EF.
Murphy's Law. When you need HELOC, it will dry up. Also, there's an interest charge.

Tapping into retirement assets is also not a good idea. Just because it's in taxable and not your 401k doesn't make it "ok" for you to withdraw it.
Money is fungible and a taxable brokerage account is no different from a taxable bank account. There are no "retirement" accounts in my world, just a singular group of assets that are there to be maximized however I see fit. If I hold equities with my taxable EF and bonds in my 401k to minimize taxes, while able to exchange them with zero or minimal tax implication in times of emergency I have the same end result with higher expected returns since I wasnt bucketing my cash and thus (most likely) tilting my overall portfolio more conservative than planned (thus reducing my expected returns).
Holding your emergency fund in a tax advantaged account is a good strategy if you are in a high tax bracket. The basic idea is to put the EF in a fixed income investment in tax advantaged space while holding stocks in taxable. When the emergency happens you sell the stocks and exchange the fixed income for stocks to offset the withdrawal. This works best if the EF is held in a traditional IRA (since fixed income is mostly taxed as ordinary income not capital gains).

It's also possible with 401k and other employer plans. Often the only decent options in employer plans are bond and stable value funds so this can make a mediocre employer plan actually useful. However:
* Fixed income funds in employer plans are often subject to hidden administrative fees. Further, the ERs on the funds are usually higher than what you would pay in a brokerage taxable account or IRA. After those are factored in you may not be getting much more return than a bank account.
* Stable value funds are often subject to rules and limits on exchanges and withdrawals. These WILL hurt you if you do not understand them.

khram
Posts: 60
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Re: How I learned to love my low yield emergency fund

Post by khram » Sat Jun 27, 2020 10:29 pm

DesertMan wrote:
Sat Jun 27, 2020 9:06 pm
khram wrote:
Sat Jun 27, 2020 8:57 pm
DesertMan wrote:
Fri Jun 26, 2020 10:31 pm
We just had a bathroom leak. Our house is barely 20 years old and just recently passed an inspection... so completely unexpected. We don't know the cost will be but I am thankful that I have the cash to cover it. This case is exactly why you need to have at least 6 months of expenses in cash.
I am all for an EF, but the months here is the wrong metric. The 6-month number should cover you for unemployment situations. You should have enough for X months + $Y (fixed number). How many months of expenses is a toilet, or a car, or a health scare?
You don't know, so you plan for the worst situation, to wit having no income for 6+ months. The cause is irrelevant to planning because you can't predict the future. Let's say you have disability insurance that kicks in after 3 months. Great, but that does nothing if you get laid off. For the same reason you can't reduce your EF target by the amount of unemployment benefits you expect because you don't get those benefits if the emergency is something other than a layoff.

Just save the cash.

Edit-typo
I am not advising not to have an EF, I am advocating for it. I am just saying one should hold 6 months expenses (or 3, 12, whatever), plus some amount of cash to handle certain emergencies. If you get laid off, get a surprise $3k dental bill (and lose your insurance since no job), have to spend $500 on car repairs all at once, then maybe that's 4-5 months left of actual EF. Hence my question about "how many months is a toilet?" It's just an awkward metric. Not all emergencies are unemployment.

If all of this happens in March 2020 when the stock market crashes, you won't want to sell your investments at a massive loss. I am not advocating for 100% cash either, come up with some number you're comfortable with, partially driven by monthly expenses, but not completely.

Nothing is perfect. If you get a $500k COVID hospital bill, that's not going to come out of the EF.

TechFI
Posts: 101
Joined: Fri Jun 05, 2020 12:07 am

Re: How I learned to love my low yield emergency fund

Post by TechFI » Sun Jun 28, 2020 12:01 am

Olemiss540 wrote:
Sat Jun 27, 2020 5:36 pm
TechFI wrote:
Sat Jun 27, 2020 1:03 pm
fatcoffeedrinker wrote:
Sat Jun 27, 2020 12:05 pm
Our no cost HELOC covers two years of expenses. No first mortgage, so it's unlikely to get frozen since the max draw of $250k is only 23% LTV.

Also, we have taxable. Yes that has 100% stocks, but if we had to sell at a loss, we just sell bonds in tax deferred and buy back similar funds, but not identical to avoid wash sale.

So no EF.
Murphy's Law. When you need HELOC, it will dry up. Also, there's an interest charge.

Tapping into retirement assets is also not a good idea. Just because it's in taxable and not your 401k doesn't make it "ok" for you to withdraw it.
Money is fungible and a taxable brokerage account is no different from a taxable bank account. There are no "retirement" accounts in my world, just a singular group of assets that are there to be maximized however I see fit. If I hold equities with my taxable EF and bonds in my 401k to minimize taxes, while able to exchange them with zero or minimal tax implication in times of emergency I have the same end result with higher expected returns since I wasnt bucketing my cash and thus (most likely) tilting my overall portfolio more conservative than planned (thus reducing my expected returns).
While you are technically correct, that kind of thinking will get one into trouble in practice.

What will happen is that you'll lose your job during a recession, be forced to liquidate a sizable chunk of your assets at the lowest time possible, and you'll not get a job back until the recession recovers, and so you've permanently liquidated at the worst possible time. This may happen more than once.

In other times, you'll be tempted to keep drawing on your portfolio for various frivolous reasons because there is no clear barrier with your retirement vs non-retirement assets. You'll make bad choices and ultimately end up with less money at retirement.

TechFI
Posts: 101
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Re: How I learned to love my low yield emergency fund

Post by TechFI » Sun Jun 28, 2020 12:05 am

khram wrote:
Sat Jun 27, 2020 10:29 pm
Nothing is perfect. If you get a $500k COVID hospital bill, that's not going to come out of the EF.
Actually for very high expenses that's what insurance is for.

eFund is to cover irregular but expected situations like getting laid off, or covering your OOP health insurance max for that year.

khram
Posts: 60
Joined: Sat Dec 16, 2017 1:36 am

Re: How I learned to love my low yield emergency fund

Post by khram » Sun Jun 28, 2020 12:55 am

EF is for a variety of things. It is not just an unemployment fund. I understand insurance is supposed to help with those things, but in practice, nothing is free in the US. Healthcare is an industry here, and it is the scariest and most uncertain aspect of how much to save for both an EF and for retirement. Plus, what happens if the bill comes right after you get laid off and lose your insurance.

Nevertheless, there are fixed expenses that come up that aren't just health insurance + monthly COL. For example, when your toilet goes kaputt.

SR7
Posts: 18
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Location: Down Under

Re: How I learned to love my low yield emergency fund

Post by SR7 » Sun Jun 28, 2020 7:11 am

I have a mortgage on my house, I try and make extra payments that slowly accumulate, I can then use the redraw facility to access these overpayment funds as required. This is my EF savings.

If I don’t need it, then it reduces the interest I pay on my loan, if I do need it then I can get access in less than 24 hours. Typical home loan interest rates here are about 3.5% so I assume that is what it is making (or saving) for me.
I studied Physics not Finance, so best to ignore anything I say about money.

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anon_investor
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Re: How I learned to love my low yield emergency fund

Post by anon_investor » Sun Jun 28, 2020 8:16 am

I started buying Series I US Savings Bonds (I Bonds) this year and count them as part of my fixed income and emergency fund. The rest of my emergency fund is in no penalty CDs. At some point when my I Bonds holdings are large enough I will maintain a smaller amount in no penalty CDs (but probably still at least 3 months of expenses).

Olemiss540
Posts: 1387
Joined: Fri Aug 18, 2017 8:46 pm

Re: How I learned to love my low yield emergency fund

Post by Olemiss540 » Sun Jun 28, 2020 10:16 am

TechFI wrote:
Sun Jun 28, 2020 12:01 am
Olemiss540 wrote:
Sat Jun 27, 2020 5:36 pm
TechFI wrote:
Sat Jun 27, 2020 1:03 pm
fatcoffeedrinker wrote:
Sat Jun 27, 2020 12:05 pm
Our no cost HELOC covers two years of expenses. No first mortgage, so it's unlikely to get frozen since the max draw of $250k is only 23% LTV.

Also, we have taxable. Yes that has 100% stocks, but if we had to sell at a loss, we just sell bonds in tax deferred and buy back similar funds, but not identical to avoid wash sale.

So no EF.
Murphy's Law. When you need HELOC, it will dry up. Also, there's an interest charge.

Tapping into retirement assets is also not a good idea. Just because it's in taxable and not your 401k doesn't make it "ok" for you to withdraw it.
Money is fungible and a taxable brokerage account is no different from a taxable bank account. There are no "retirement" accounts in my world, just a singular group of assets that are there to be maximized however I see fit. If I hold equities with my taxable EF and bonds in my 401k to minimize taxes, while able to exchange them with zero or minimal tax implication in times of emergency I have the same end result with higher expected returns since I wasnt bucketing my cash and thus (most likely) tilting my overall portfolio more conservative than planned (thus reducing my expected returns).
While you are technically correct, that kind of thinking will get one into trouble in practice.

What will happen is that you'll lose your job during a recession, be forced to liquidate a sizable chunk of your assets at the lowest time possible, and you'll not get a job back until the recession recovers, and so you've permanently liquidated at the worst possible time. This may happen more than once.

In other times, you'll be tempted to keep drawing on your portfolio for various frivolous reasons because there is no clear barrier with your retirement vs non-retirement assets. You'll make bad choices and ultimately end up with less money at retirement.
But you missed the part in my post about exchanging bonds held in my tax advantaged accounts for equities during downturns to ensure I am not ever selling low.

As to your second point, this would be true for anyone with a taxable account that didnt have the restraint to control their spending.

Setting cash aside in a bank and labeling it an emergency fund doesnt help spendthrifts from using it.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

thefrozentin
Posts: 8
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Re: How I learned to love my low yield emergency fund

Post by thefrozentin » Sun Jun 28, 2020 11:11 am

I need some advise from the gurus here. We have over 6 months worth of EF in a high yield savings account. After that, we have about 40k which we’d like to invest in a taxable account. We both are in mid to late 30s and use fidelity. Our plan is to take the first 20K and split between FUAMX and FGMNX. Invest the second 20k in some type of mutual fund(s) tracking the S&P. Does anyone see any major issues with this approach? TIA

TechFI
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Joined: Fri Jun 05, 2020 12:07 am

Re: How I learned to love my low yield emergency fund

Post by TechFI » Sun Jun 28, 2020 2:35 pm

Olemiss540 wrote:
Sun Jun 28, 2020 10:16 am
But you missed the part in my post about exchanging bonds held in my tax advantaged accounts for equities during downturns to ensure I am not ever selling low.

As to your second point, this would be true for anyone with a taxable account that didnt have the restraint to control their spending.

Setting cash aside in a bank and labeling it an emergency fund doesnt help spendthrifts from using it.
Ok, in theory I don't have an issue with the exchanging bonds (eFund) for stocks during a crash. However, in practice I would ask what happens if you run out of bonds? This could work if you are mid-career with a more conservative portfolio, but I have less than 2-years eFund worth of "bonds" right now.

Also, there are implementation challenges. This means that you have to hold bonds in 401k, which IMO is a waste of space. It's better to put higher growth assets in 401k to shelter more money. This also negates strategies like using i-Bonds/EE-bonds and TIAA Trad to hold your bonds. i-Bonds/EE-bonds will expand tax-advantaged space, and TIAA Trad bonds if you sell you won't get back the original good vintage. But if you're running 50/50 and have a glut of bonds then I would say, your approach make sense.

My method of partitioning money using eFund will not foolproof and will not help those 'gratification impaired' people is a psych hack that will benefit most people here. Of course I hold BH to a higher standard.

Olemiss540
Posts: 1387
Joined: Fri Aug 18, 2017 8:46 pm

Re: How I learned to love my low yield emergency fund

Post by Olemiss540 » Sun Jun 28, 2020 4:56 pm

TechFI wrote:
Sun Jun 28, 2020 2:35 pm
Olemiss540 wrote:
Sun Jun 28, 2020 10:16 am
But you missed the part in my post about exchanging bonds held in my tax advantaged accounts for equities during downturns to ensure I am not ever selling low.

As to your second point, this would be true for anyone with a taxable account that didnt have the restraint to control their spending.

Setting cash aside in a bank and labeling it an emergency fund doesnt help spendthrifts from using it.
Ok, in theory I don't have an issue with the exchanging bonds (eFund) for stocks during a crash. However, in practice I would ask what happens if you run out of bonds? This could work if you are mid-career with a more conservative portfolio, but I have less than 2-years eFund worth of "bonds" right now.

Also, there are implementation challenges. This means that you have to hold bonds in 401k, which IMO is a waste of space. It's better to put higher growth assets in 401k to shelter more money. This also negates strategies like using i-Bonds/EE-bonds and TIAA Trad to hold your bonds. i-Bonds/EE-bonds will expand tax-advantaged space, and TIAA Trad bonds if you sell you won't get back the original good vintage. But if you're running 50/50 and have a glut of bonds then I would say, your approach make sense.

My method of partitioning money using eFund will not foolproof and will not help those 'gratification impaired' people is a psych hack that will benefit most people here. Of course I hold BH to a higher standard.
You want higher growth assets in your AFTER tax buckets (roth, taxable) since they are expected to growth to a larger balance.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

Topic Author
DesertMan
Posts: 229
Joined: Tue Dec 07, 2010 12:54 pm

Re: How I learned to love my low yield emergency fund

Post by DesertMan » Sun Jun 28, 2020 5:03 pm

TechFI wrote:
Sun Jun 28, 2020 2:35 pm
Olemiss540 wrote:
Sun Jun 28, 2020 10:16 am
But you missed the part in my post about exchanging bonds held in my tax advantaged accounts for equities during downturns to ensure I am not ever selling low.

As to your second point, this would be true for anyone with a taxable account that didnt have the restraint to control their spending.

Setting cash aside in a bank and labeling it an emergency fund doesnt help spendthrifts from using it.
Ok, in theory I don't have an issue with the exchanging bonds (eFund) for stocks during a crash. However, in practice I would ask what happens if you run out of bonds? This could work if you are mid-career with a more conservative portfolio, but I have less than 2-years eFund worth of "bonds" right now.

Also, there are implementation challenges. This means that you have to hold bonds in 401k, which IMO is a waste of space. It's better to put higher growth assets in 401k to shelter more money. This also negates strategies like using i-Bonds/EE-bonds and TIAA Trad to hold your bonds. i-Bonds/EE-bonds will expand tax-advantaged space, and TIAA Trad bonds if you sell you won't get back the original good vintage. But if you're running 50/50 and have a glut of bonds then I would say, your approach make sense.

My method of partitioning money using eFund will not foolproof and will not help those 'gratification impaired' people is a psych hack that will benefit most people here. Of course I hold BH to a higher standard.
But the stocks would be taxed at lower capital gains rates but for your placing them in a tax deferred account... which turns everything coming out of the account into ordinary income which is taxed at higher rates.

Olemiss540 is correct. Put the stocks in Roth if you can. Otherwise they go in taxable.

shell921
Posts: 414
Joined: Fri Jul 06, 2018 5:13 pm

Re: How I learned to love my low yield emergency fund

Post by shell921 » Sun Jun 28, 2020 5:21 pm

Indeed - I DO love my emergency fund! In April I had $8,365 worth
of expenses to cover:

$2k- surprise dental bill
$450 - car -needed new tires
new garage door cables & springs - $1345
repainted wrought iron work refinished garage doors - $1K
new garbage disposal - $515
estimated taxes - $4k
brush clearance- $400

TechFI
Posts: 101
Joined: Fri Jun 05, 2020 12:07 am

Re: How I learned to love my low yield emergency fund

Post by TechFI » Sun Jun 28, 2020 6:51 pm

Olemiss540 wrote:
Sun Jun 28, 2020 4:56 pm
TechFI wrote:
Sun Jun 28, 2020 2:35 pm
Olemiss540 wrote:
Sun Jun 28, 2020 10:16 am
But you missed the part in my post about exchanging bonds held in my tax advantaged accounts for equities during downturns to ensure I am not ever selling low.

As to your second point, this would be true for anyone with a taxable account that didnt have the restraint to control their spending.

Setting cash aside in a bank and labeling it an emergency fund doesnt help spendthrifts from using it.
Ok, in theory I don't have an issue with the exchanging bonds (eFund) for stocks during a crash. However, in practice I would ask what happens if you run out of bonds? This could work if you are mid-career with a more conservative portfolio, but I have less than 2-years eFund worth of "bonds" right now.

Also, there are implementation challenges. This means that you have to hold bonds in 401k, which IMO is a waste of space. It's better to put higher growth assets in 401k to shelter more money. This also negates strategies like using i-Bonds/EE-bonds and TIAA Trad to hold your bonds. i-Bonds/EE-bonds will expand tax-advantaged space, and TIAA Trad bonds if you sell you won't get back the original good vintage. But if you're running 50/50 and have a glut of bonds then I would say, your approach make sense.

My method of partitioning money using eFund will not foolproof and will not help those 'gratification impaired' people is a psych hack that will benefit most people here. Of course I hold BH to a higher standard.
You want higher growth assets in your AFTER tax buckets (roth, taxable) since they are expected to growth to a larger balance.
Roth, yes. Taxable debatable. No creditor protection in 401k. There's also that perspective to consider you want most of your assets in 401k/IRA for that very reason.

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BrandonBogle
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Re: How I learned to love my low yield emergency fund

Post by BrandonBogle » Sun Jun 28, 2020 8:03 pm

DesertMan wrote:
Sat Jun 27, 2020 8:19 pm
hudson wrote:
Sat Jun 27, 2020 5:16 pm
DesertMan wrote:
Sat Jun 27, 2020 5:03 pm
Attention PenFed credit-card holders: there is currently a promotion now and if you need it you might want to do so ASAP.
DesertMan,

I didn't see anything except $20 off on Turbotax. More information if possible. Many thanks!
I got the PenFed offer by email two months or so ago. It did not appear to be targeted. If you had a PenFed credit card open a couple of months ago check your email for one with the subject line "Increase your Financial Freedom."

Failing that I think they are offering promos on new cards. Now may be the time to grab that.
Isn’t that a balance transfer with a 3% transfer fee and a promo rate of 0% for 12 months? The 3% transfer fee really hurts that offer vs. other credits cards that still occasionally offer me 1% transfer fees for around 12-15 months at 0%.
TechFI wrote:
Sun Jun 28, 2020 6:51 pm
Roth, yes. Taxable debatable. No creditor protection in 401k. There's also that perspective to consider you want most of your assets in 401k/IRA for that very reason.
I suspect what you typed and what you meant have a disconnect. You put “no creditor protection in 401k”, but then say you should indeed have it in 401k for protection? I keep most of my net worth in my 401k for the added bonus of asset protection (added bonus, as the main reason is I have good selections in my 401k)

I’m one of those folks who keeps my “big tier” emergency funds commingled/invested. My stable fund is my emergency funds/fixed income. I have plenty of stocks in taxable I can tap and I have tax-exempt muni bond fund in taxable too. All these are counted in my AA, but are there for use should the need arise.

TechFI
Posts: 101
Joined: Fri Jun 05, 2020 12:07 am

Re: How I learned to love my low yield emergency fund

Post by TechFI » Sun Jun 28, 2020 8:23 pm

BrandonBogle wrote:
Sun Jun 28, 2020 8:03 pm
TechFI wrote:
Sun Jun 28, 2020 6:51 pm
Roth, yes. Taxable debatable. No creditor protection in 401k. There's also that perspective to consider you want most of your assets in 401k/IRA for that very reason.
I suspect what you typed and what you meant have a disconnect. You put “no creditor protection in 401k”, but then say you should indeed have it in 401k for protection? I keep most of my net worth in my 401k for the added bonus of asset protection (added bonus, as the main reason is I have good selections in my 401k)

I’m one of those folks who keeps my “big tier” emergency funds commingled/invested. My stable fund is my emergency funds/fixed income. I have plenty of stocks in taxable I can tap and I have tax-exempt muni bond fund in taxable too. All these are counted in my AA, but are there for use should the need arise.
Yeah, sorry what I think and type don't sync up sometimes. You're right 401k for creditor protection.

I am aware of the co-mingling strategies of eFund with portfolio. To date the best ones seems to be:
- Keeping eFund in 401k SV fund, giving you higher yields than "outside".
- Tiering eFund and only keep 6mth in cash, and put the rest in a balanced fund.

First option, doesn't work for me because all my 401k bonds are in TIAA Trad and I would lose my 3% vintage. I will admit I may reconsider if I ever hold bonds in 401k. But for now, my bonds are going to i-Bonds and maybe EE-bonds.

Second option, I have considered. But for now I am convinced that keeping it as cash provide more liquid opportunities. With bank account bonuses (about $1500 per $50k this year) that's 3% returns or 4% if you consider the extra +1% from most high yield savings account

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