Deploying your emergency fund to buy stocks? Think again.

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
Topic Author
willthrill81
Posts: 17390
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

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

Post by willthrill81 » Tue Mar 17, 2020 11:58 pm

Unladen_Swallow wrote:
Tue Mar 17, 2020 11:56 pm
willthrill81 wrote:
Sun Mar 15, 2020 12:08 pm
I've recently seen several posters mention that they are contemplating (or have already) using their emergency funds to buy stocks due to the market downturn.

Though I am an aggressive investor, I think that this is a terrible idea.
This couldn't be highlighted enough. Well done! :beer

When there is a downturn is exactly when you might need your EF to survive a job loss.
Sadly, job losses are in the very near future for many.
“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

Unladen_Swallow
Posts: 762
Joined: Tue Dec 10, 2019 6:12 pm

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

Post by Unladen_Swallow » Wed Mar 18, 2020 12:17 am

willthrill81 wrote:
Tue Mar 17, 2020 11:58 pm
Unladen_Swallow wrote:
Tue Mar 17, 2020 11:56 pm
willthrill81 wrote:
Sun Mar 15, 2020 12:08 pm
I've recently seen several posters mention that they are contemplating (or have already) using their emergency funds to buy stocks due to the market downturn.

Though I am an aggressive investor, I think that this is a terrible idea.
This couldn't be highlighted enough. Well done! :beer

When there is a downturn is exactly when you might need your EF to survive a job loss.

Sadly, job losses are in the very near future for many.
Agree. I have seen posts about deploying EF to buy stocks on sale. Short sighted, and an unfortunate decision.

Sometimes our lessons are only learnt the hard way. I feel like a fuddy duddy warning people.
"I think it's much more interesting to live not knowing than to have answers which might be wrong." - Richard Feynman

ValuationsMatter
Posts: 125
Joined: Mon Mar 09, 2020 2:12 am

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

Post by ValuationsMatter » Wed Mar 18, 2020 1:21 am

Some believe it won't happen to them, just like some believe COVID19 won't. That complacent mentality leads people to take unnecessary risks.

User avatar
F150HD
Posts: 2858
Joined: Fri Sep 18, 2015 7:49 pm

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

Post by F150HD » Wed Mar 18, 2020 7:51 am

SimpleGift wrote:
Sun Mar 15, 2020 12:30 pm
willthrill81 wrote:
Sun Mar 15, 2020 12:08 pm
No one knows how far reaching these layoffs will be nor how long it will take for the economy to recover. It could easily be a year or longer.
Excellent post and advice, willthrill81. The unemployment impacts of a deep recession can last for quite a few years. After the 2008-09 Financial Crisis, the unemployment rate was still over 6% some 5 years after the recession (in red, chart below).
So not only should investors be holding onto to their emergency funds, but thinking about Plan B backups in case of a prolonged spell of unemployment in the years to come.
I am seeing the 'unemployment' figures on the news (we all have) but many jobs - like hospitality- will reappear once lockdowns on malls, bars, restaurants are lifted. Granted some of them businesses could go under as a result of this, but where I'm at there is a constant supply of new restaurants/brewpubs/bars opening weekly anyway so they'd be quickly replaced and those jobs returned to the economy. This won't hold for every industry, but for hospitality it should?

User avatar
Peculiar_Investor
Posts: 1508
Joined: Thu Oct 20, 2011 12:23 am
Location: Staying home - Calgary, AB
Contact:

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

Post by Peculiar_Investor » Wed Mar 18, 2020 8:08 am

watchnerd wrote:
Sun Mar 15, 2020 3:08 pm
See the threads asking if now is the right time to get a HELOC to buy stocks.
Those people should also be reading Beware of HELOC freezes. to understand that just when you think that your HELOC could be the source of emergency funds, the funds might not be available. Quoting one of the posts on that topic:
smitcat wrote:
Wed Mar 18, 2020 7:31 am
We had a HELOC in place as part of our emergency plans long before 2008. In 2009 when we considered utilizing the HELOC we were denied as one of us had lost our jobs. Right as we could have used it ...it became unavailable.
Normal people… believe that if it ain’t broke, don’t fix it. Engineers believe that if it ain’t broke, it doesn’t have enough features yet. – Scott Adams

finite_difference
Posts: 1661
Joined: Thu Jul 09, 2015 7:00 pm

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

Post by finite_difference » Wed Mar 18, 2020 8:12 am

F150HD wrote:
Wed Mar 18, 2020 7:51 am
SimpleGift wrote:
Sun Mar 15, 2020 12:30 pm
willthrill81 wrote:
Sun Mar 15, 2020 12:08 pm
No one knows how far reaching these layoffs will be nor how long it will take for the economy to recover. It could easily be a year or longer.
Excellent post and advice, willthrill81. The unemployment impacts of a deep recession can last for quite a few years. After the 2008-09 Financial Crisis, the unemployment rate was still over 6% some 5 years after the recession (in red, chart below).
So not only should investors be holding onto to their emergency funds, but thinking about Plan B backups in case of a prolonged spell of unemployment in the years to come.
I am seeing the 'unemployment' figures on the news (we all have) but many jobs - like hospitality- will reappear once lockdowns on malls, bars, restaurants are lifted. Granted some of them businesses could go under as a result of this, but where I'm at there is a constant supply of new restaurants/brewpubs/bars opening weekly anyway so they'd be quickly replaced and those jobs returned to the economy. This won't hold for every industry, but for hospitality it should?
Yes but if it turns into a recession and people lose their jobs, then they have less money to go out and eat. Companies may be reluctant in other industries to go back to 100% employment immediately after layoffs. If nobody except restaurant workers lose their jobs yes it should bounce back quickly.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

louiethelilac
Posts: 86
Joined: Tue Aug 11, 2015 6:47 pm

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

Post by louiethelilac » Wed Mar 18, 2020 8:17 am

EF is by definition for emergencies. I think this is a potential emergency (like 2008 was). So yes using using an EF now to deploy to a risky asset seems counter-intuitive. Of more concern might be for me is how my EF is now deployed, which is over 50% in the Vang. Intermediate Municipal bond fund. In retrospect I think I should have parked it all in CDs or a short term treasury fund. Will keep that in mind for the next emergency.

justsomeguy2018
Posts: 701
Joined: Wed Oct 03, 2018 8:11 pm

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

Post by justsomeguy2018 » Wed Mar 18, 2020 11:02 am

Good thread, this is something I've been struggling with. On the one hand I have a fairly large cash position, precisely bc I did not want to be in a situation where I had to sell stocks at a loss in case of a major recession/depression. On the other hand I intentionally built up that large cash position partly to be able to buy in on these types of downturns bc I missed out om many years of being in the market due to risk aversion.

I am sitting on around $160k cash, which is probably about 22 months of expenses if we both lost our jobs at same time and lived more frugally. If we went to a 1-income household we would probably have about a -$1000 monthly cash flow shortage (wife and I earn about the same amount, so that helps cushion a blow to 1 of us).

My thinking was I would be willing to put about $15k (spread out over time in increasing amounts as it declines) into this market.

Is this being reckless?

I know it is possible we have a severe prolonged downturn from all this but i am hopeful that if the virus ever gets under control governments will do all they can to ger the velocity of money moving again.

guyinlaw
Posts: 514
Joined: Wed Jul 03, 2019 9:54 am

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

Post by guyinlaw » Wed Mar 18, 2020 1:13 pm

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

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

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

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

Moderators make this a sticky for a few months!

guyinlaw
Posts: 514
Joined: Wed Jul 03, 2019 9:54 am

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

Post by guyinlaw » Wed Mar 18, 2020 1:18 pm

SimpleGift wrote:
Sun Mar 15, 2020 12:30 pm
willthrill81 wrote:
Sun Mar 15, 2020 12:08 pm
No one knows how far reaching these layoffs will be nor how long it will take for the economy to recover. It could easily be a year or longer.
Excellent post and advice, willthrill81. The unemployment impacts of a deep recession can last for quite a few years. After the 2008-09 Financial Crisis, the unemployment rate was still over 6% some 5 years after the recession (in red, chart below).
So not only should investors be holding onto to their emergency funds, but thinking about Plan B backups in case of a prolonged spell of unemployment in the years to come.
Don't discount the 1920s. Hopefully we will recover much quicker.. Hopefully.

Image

rossington
Posts: 555
Joined: Fri Jun 07, 2019 2:00 am
Location: Florida

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

Post by rossington » Wed Mar 18, 2020 1:38 pm

justsomeguy2018 wrote:
Wed Mar 18, 2020 11:02 am
Good thread, this is something I've been struggling with. On the one hand I have a fairly large cash position, precisely bc I did not want to be in a situation where I had to sell stocks at a loss in case of a major recession/depression. On the other hand I intentionally built up that large cash position partly to be able to buy in on these types of downturns bc I missed out om many years of being in the market due to risk aversion.

I am sitting on around $160k cash, which is probably about 22 months of expenses if we both lost our jobs at same time and lived more frugally. If we went to a 1-income household we would probably have about a -$1000 monthly cash flow shortage (wife and I earn about the same amount, so that helps cushion a blow to 1 of us).

My thinking was I would be willing to put about $15k (spread out over time in increasing amounts as it declines) into this market.

Is this being reckless?

I know it is possible we have a severe prolonged downturn from all this but i am hopeful that if the virus ever gets under control governments will do all they can to ger the velocity of money moving again.
It is only reckless if you can't afford to possibly lose that 15k. If you can SWAN with that possibility then it is not reckless.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

User avatar
Topic Author
willthrill81
Posts: 17390
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

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

Post by willthrill81 » Wed Mar 18, 2020 1:49 pm

F150HD wrote:
Wed Mar 18, 2020 7:51 am
SimpleGift wrote:
Sun Mar 15, 2020 12:30 pm
willthrill81 wrote:
Sun Mar 15, 2020 12:08 pm
No one knows how far reaching these layoffs will be nor how long it will take for the economy to recover. It could easily be a year or longer.
Excellent post and advice, willthrill81. The unemployment impacts of a deep recession can last for quite a few years. After the 2008-09 Financial Crisis, the unemployment rate was still over 6% some 5 years after the recession (in red, chart below).
So not only should investors be holding onto to their emergency funds, but thinking about Plan B backups in case of a prolonged spell of unemployment in the years to come.
I am seeing the 'unemployment' figures on the news (we all have) but many jobs - like hospitality- will reappear once lockdowns on malls, bars, restaurants are lifted. Granted some of them businesses could go under as a result of this, but where I'm at there is a constant supply of new restaurants/brewpubs/bars opening weekly anyway so they'd be quickly replaced and those jobs returned to the economy. This won't hold for every industry, but for hospitality it should?
Restaurants may recover fairly well, but it will take a while before people feel confident enough to travel again.
“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

Stereofun
Posts: 7
Joined: Thu Feb 21, 2019 3:26 pm

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

Post by Stereofun » Wed Mar 18, 2020 2:12 pm

justsomeguy2018 wrote:
Wed Mar 18, 2020 11:02 am
Good thread, this is something I've been struggling with. On the one hand I have a fairly large cash position, precisely bc I did not want to be in a situation where I had to sell stocks at a loss in case of a major recession/depression. On the other hand I intentionally built up that large cash position partly to be able to buy in on these types of downturns bc I missed out om many years of being in the market due to risk aversion.

I am sitting on around $160k cash, which is probably about 22 months of expenses if we both lost our jobs at same time and lived more frugally. If we went to a 1-income household we would probably have about a -$1000 monthly cash flow shortage (wife and I earn about the same amount, so that helps cushion a blow to 1 of us).

My thinking was I would be willing to put about $15k (spread out over time in increasing amounts as it declines) into this market.

Is this being reckless?

I know it is possible we have a severe prolonged downturn from all this but i am hopeful that if the virus ever gets under control governments will do all they can to ger the velocity of money moving again.
No - that is not reckless because you can afford it and have thought it through. What is reckless are when people empty out EF's and go the HELOC or other borrowing measures. I am in a like situation - currently 80K sitting locked and loaded in a settlement fund. My Emergency fund is untouched. I am going to cash average between now and until the end of 2nd quarter, June - but only on 35% and lower on the indexes. We started in a bubble, so stocks wont get cheap before we get into the minus 35-50% territory. I think we will see a bit more panic as virus cases will continue to rise for a couple of weeks. When that peaks the market will settle, maybe even bounce a bit - but lock downs or very restrictive measures will still be needed to fully break the curve. While panic subsides, economic realities are manifesting with stories of bankruptcies and unemployment - now the stock market will deflate a bit lower until the virus is fully under control and some optimism kicks in as people and business are returning to normal.

No one can get that timing right - but you can build a case and stick to your guns as you cash average, then adjust or halt your averaging depending on how reality matches you base case. In the long run this will be like any other buying opportunity, even if the full recovery will take longer.

User avatar
Random Musings
Posts: 5650
Joined: Thu Feb 22, 2007 4:24 pm
Location: Pennsylvania

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

Post by Random Musings » Wed Mar 18, 2020 3:06 pm

An EF is exactly for emergencies. Everyone should have that as part of their written investment plan.

RM
I figure the odds be fifty-fifty I just might have something to say. FZ

HettyGreenIsMyHero
Posts: 16
Joined: Tue Mar 10, 2020 4:00 pm

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

Post by HettyGreenIsMyHero » Wed Mar 18, 2020 4:01 pm

scorcher31 wrote:
Sun Mar 15, 2020 3:25 pm
I think it can be perfectly reasonable to shift emergency funds in some situations. Don't forget many bogleheads are high income physicians or 2 physician families whose jobs are extremely secure. I'm only a year out from having my mortgage payed off and have an overly plump emergency fund that I probably wouldn't even need when the mortgage is gone. I don't see the harm in shifting some in while stock indexes are low. I actually asked for input on regression to mean/buying on sale in the past but people acted like it would be crazy for any boglehead to consider.
We don't have an "emergency fund" just a savings account that our end of year expenses (property tax, insurance, association fees etc) goes in. Any extra money gets invested as often as possible until it hurts a bit. Spouse pension more than covers expenses and job income gets invested. On track to invest $100k this year. No desire to hold a bunch of cash, multiple ways to come up with $ for a true emergency including suspending investing temporarily. No debt of any kind,
ages 49 & 41. Being too conservative/holding years of expenses in cash would diminish our returns over the long run.

Young Boglehead
Posts: 17
Joined: Wed Jan 02, 2019 5:11 pm

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

Post by Young Boglehead » Wed Mar 18, 2020 4:41 pm

iamlucky13 wrote:
Tue Mar 17, 2020 4:29 pm
Young Boglehead wrote:
Sun Mar 15, 2020 2:03 pm
Realizing that even with the huge downturn were still only where we were about a year ago also shows how silly the strategy is. It’s all anchoring bias. Anyone wanting to use up their EF should ask themselves why they didn’t feel a nagging urge to do it a year ago, or why they had an EF in the first place.
I did have a nagging urge a year ago, but have been buried in various work and life related distractions and have not had a chance to re-assess how much cash I should have.

A while back, I added to my IPS a planned amount of cash and bonds to keep in taxable, each measured against monthly expenses. I was comfortable keeping the cash a little high in the short term, but I never followed up to implement a recurring investment strategy outside of my tax-advantaged accounts.

So that inaction has led me to currently be rather overweight on cash. The drop is a reminder that I haven't taken action on that, and now is a good time to start.

So in my case, it's not actually an emergency fund. It's getting my IPS back on course.
If you really wanted to have less of an EF and put it in the market but hadn't gotten around to it, it's better to do it now than a few months ago, and if you still have an EF after doing this there's far worse things you could do in our current situation. However, I feel like whenever we want to buy/sell stocks/bonds in excess in times of duress or jubilation we need to ask ourselves whether we're not just justifying market timing.

HeelaMonster
Posts: 136
Joined: Sat Aug 10, 2019 11:46 am

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

Post by HeelaMonster » Wed Mar 18, 2020 5:12 pm

Stereofun wrote:
Wed Mar 18, 2020 2:12 pm
No - that is not reckless because you can afford it and have thought it through. What is reckless are when people empty out EF's and go the HELOC or other borrowing measures. I am in a like situation - currently 80K sitting locked and loaded in a settlement fund. My Emergency fund is untouched. I am going to cash average between now and until the end of 2nd quarter, June - but only on 35% and lower on the indexes. We started in a bubble, so stocks wont get cheap before we get into the minus 35-50% territory. I think we will see a bit more panic as virus cases will continue to rise for a couple of weeks. When that peaks the market will settle, maybe even bounce a bit - but lock downs or very restrictive measures will still be needed to fully break the curve. While panic subsides, economic realities are manifesting with stories of bankruptcies and unemployment - now the stock market will deflate a bit lower until the virus is fully under control and some optimism kicks in as people and business are returning to normal.

No one can get that timing right - but you can build a case and stick to your guns as you cash average, then adjust or halt your averaging depending on how reality matches you base case. In the long run this will be like any other buying opportunity, even if the full recovery will take longer.
I am in similar situation, and planning similar approach. But would you mind defining "CASH AVERAGE?" I just haven't heard that term before... assume something along the lines of dollar cost averaging, or....?

fatFIRE
Posts: 83
Joined: Sat Feb 15, 2020 10:44 pm

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

Post by fatFIRE » Wed Mar 18, 2020 7:21 pm

I agree. You get doubly whammy because you get laid off, then have to liquidate your portfolio potentially at a LOSS.

That's why I have a separate emergency fund and a separate cash reserve for opportunistic rebalancing. The downside of this approach is that I hold too much cash. So my 90/10 portfolio is probably more like a 80/20 one...

peskypesky
Posts: 189
Joined: Fri Mar 08, 2013 8:56 pm

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

Post by peskypesky » Wed Mar 18, 2020 8:59 pm

I went the opposite way. I sold stocks to build up my emergency fund. I had enough in my EF to cover 6 months. But I wanted 2 years of coverage. I am very pessimistic about this pandemic and the global economy.

User avatar
watchnerd
Posts: 5565
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

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

Post by watchnerd » Wed Mar 18, 2020 9:04 pm

peskypesky wrote:
Wed Mar 18, 2020 8:59 pm
I went the opposite way. I sold stocks to build up my emergency fund. I had enough in my EF to cover 6 months. But I wanted 2 years of coverage. I am very pessimistic about this pandemic and the global economy.
We built up the "EF" to 3-4 years when stocks were high.

All new monies are now 100% stocks because our EF is fat enough.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

peskypesky
Posts: 189
Joined: Fri Mar 08, 2013 8:56 pm

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

Post by peskypesky » Wed Mar 18, 2020 10:22 pm

watchnerd wrote:
Wed Mar 18, 2020 9:04 pm
peskypesky wrote:
Wed Mar 18, 2020 8:59 pm
I went the opposite way. I sold stocks to build up my emergency fund. I had enough in my EF to cover 6 months. But I wanted 2 years of coverage. I am very pessimistic about this pandemic and the global economy.
We built up the "EF" to 3-4 years when stocks were high.

All new monies are now 100% stocks because our EF is fat enough.
smart

JD2775
Posts: 479
Joined: Thu Jul 09, 2015 10:47 pm

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

Post by JD2775 » Thu Mar 19, 2020 11:06 am

This is a good post/reminder, thank you Will.

I'll admit I have been tempted to dig into my ~14-month EF to add some extra (not planned auto-invested) VTSAX in taxable but I have refrained. If anything I think I will bump up my EF even more.

Stereofun
Posts: 7
Joined: Thu Feb 21, 2019 3:26 pm

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

Post by Stereofun » Thu Mar 19, 2020 12:23 pm

HeelaMonster wrote:
Wed Mar 18, 2020 5:12 pm
Stereofun wrote:
Wed Mar 18, 2020 2:12 pm
I am in similar situation, and planning similar approach. But would you mind defining "CASH AVERAGE?" I just haven't heard that term before... assume something along the lines of dollar cost averaging, or....?
Sorry, my bad - dollar cost averaging.

zvez
Posts: 145
Joined: Fri Oct 05, 2012 5:29 pm

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

Post by zvez » Fri Mar 20, 2020 8:25 am

I find it amazing that anyone would consider using the emergency fund to buy equities ANYTIME. It's very much like the people when the market is high using credit cards to buy stock.

Independent George
Posts: 679
Joined: Wed Feb 17, 2016 12:13 pm
Location: Chicago, IL, USA

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

Post by Independent George » Fri Mar 20, 2020 11:49 am

I have to admit - I've been sorely tempted to do exactly what the title says. The more people panic, the more I want to buy.

Fortunately, good sense overrode my instincts (which are just as wrong as the people dumping stocks). Instead, I rebalanced my Roth IRA, and have been sleeping happily ever since.

mrwalken
Posts: 175
Joined: Sat Oct 08, 2011 5:51 pm

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

Post by mrwalken » Sat Mar 21, 2020 2:29 pm

zvez wrote:
Fri Mar 20, 2020 8:25 am
I find it amazing that anyone would consider using the emergency fund to buy equities ANYTIME. It's very much like the people when the market is high using credit cards to buy stock.
To me its an indicator of people allocating too much of their portfolio to stocks. If you have 100% stocks right now, you feel bad and are trying to find some way to buy the discount to feel less bad. A better approach is just to start at an allocation that preserves the ability to buy stocks as they become cheaper.

elliott1234
Posts: 38
Joined: Wed Dec 24, 2014 7:43 pm

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

Post by elliott1234 » Sat Mar 21, 2020 5:44 pm

Thanks for this thread... I had a new shiny job lined up to start Monday and now it is all up in the air. A week ago I was thinking about how I would raid my emergency fund if the market dropped lower. Turns out having a big pile of cash is very comforting.

mas00
Posts: 17
Joined: Fri Jan 10, 2020 10:39 am

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

Post by mas00 » Sun Mar 22, 2020 10:13 am

I think the bigger assessment is what exactly is needed for an EF now? No one knows how long this will last nor impact unemployment
rates, services, and job sectors that provide value. Small businesses are going down, those who have jobs are NOT secure, and
those who have lost jobs are not going to be able to obtain the same jobs back at a quicker rate.

If we keep going we are looking at hyperinflation which means yours and MINE EF will not be worth what it once was. So how much
is needed in this moment for an EF. It all depends on individuals situations, debt, mortgages etc.

I have some liquid for an EF, but I also have some that was set aside to which I'm putting my my brokerage account. I will start buying
low soon, this is a historical moment where poor people never recover, what is left of the middle class will become poor or those
who are lucky and smart in the upper middle can make generational changes to their wealth.

Stay safe everyone, I've lost in my mutual funds, and ETF's, but I'm not selling. Just busying restoring my 1960's vw bug thinking of better times. :)

squirm
Posts: 2538
Joined: Sat Mar 19, 2011 11:53 am

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

Post by squirm » Sun Mar 22, 2020 2:37 pm

zvez wrote:
Fri Mar 20, 2020 8:25 am
I find it amazing that anyone would consider using the emergency fund to buy equities ANYTIME. It's very much like the people when the market is high using credit cards to buy stock.
Sometimes they have used the cash out refi's to purchase the stock market.

Generally when you're playing on the edge of the cliff, sooner or later you'll fall off the cliff. I remember back in the 2000 bear, some investors were throwing what they had left into the business to business stocks, because they were "cheap" and will skyrocket once everything is great again,well, the stocks eventually went belly up.

Bear markets will find new investors to take from. Nothing new.

User avatar
whodidntante
Posts: 7623
Joined: Thu Jan 21, 2016 11:11 pm
Location: outside the echo chamber

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

Post by whodidntante » Sun Mar 22, 2020 2:42 pm

MindBogler wrote:
Mon Mar 16, 2020 9:21 pm
millennialmillions wrote:
Mon Mar 16, 2020 9:15 pm
MindBogler wrote:
Mon Mar 16, 2020 8:59 pm
An emergency fund should be in liquid form: cash, short term treasurys, CDs, etc. It doesn't belong in stocks. The last thing you want to do is be forced to sell your stocks to eat when they are down 50%. The problem is that people get greedy trying to sit on a quarter and squish out a nickel.
Why does it need to be in liquid cash form? You mention not wanting to sell when stocks are down 50%. But with the market going up on average, wouldn't you rather take that potential decline to earn more on average? And aren't CDs the worst of both worlds with low liquidity and poor average returns?

I'm not convinced why I need more than 2 months' expenses in cash with such a large buffer in my portfolio.
It needs to be in liquid form so that it is actually available when a crisis strikes. Many people thought their HELOCs would be available for liquidity in 2009 and we know how that story turned out. I would say the bigger your portfolio the weaker the argument becomes, mathematically, for not holding a liquid emergency fund. It is cheap insurance.

If you're absolutely dependent on a HELOC or another form of credit as an emergency fund, you can take the draw now. Worst case is you pay some interest that you didn't need to.

limeyx
Posts: 293
Joined: Wed Sep 07, 2016 5:34 pm

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

Post by limeyx » Sun Mar 22, 2020 3:04 pm

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

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

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

Your emergency fund should be there to help pay for your necessary expenses (e.g. food, mortgage, utilities) during times of crises, not as 'dry powder' to buy stocks that may continue to fall in value.
Agreed. Cash is King. :D
100%

HawkeyePierce
Posts: 1058
Joined: Tue Mar 05, 2019 10:29 pm
Location: Colorado

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

Post by HawkeyePierce » Sun Mar 22, 2020 3:15 pm

mas00 wrote:
Sun Mar 22, 2020 10:13 am
I think the bigger assessment is what exactly is needed for an EF now? No one knows how long this will last nor impact unemployment
rates, services, and job sectors that provide value. Small businesses are going down, those who have jobs are NOT secure, and
those who have lost jobs are not going to be able to obtain the same jobs back at a quicker rate.

If we keep going we are looking at hyperinflation which means yours and MINE EF will not be worth what it once was. So how much
is needed in this moment for an EF. It all depends on individuals situations, debt, mortgages etc.

I have some liquid for an EF, but I also have some that was set aside to which I'm putting my my brokerage account. I will start buying
low soon, this is a historical moment where poor people never recover, what is left of the middle class will become poor or those
who are lucky and smart in the upper middle can make generational changes to their wealth.

Stay safe everyone, I've lost in my mutual funds, and ETF's, but I'm not selling. Just busying restoring my 1960's vw bug thinking of better times. :)
We're most likely facing deflation, not inflation. The economy is contracting due to a demand shock.

settlement12
Posts: 20
Joined: Sun Mar 08, 2020 8:04 pm

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

Post by settlement12 » Mon Mar 23, 2020 5:48 am

It depends on your situation. I'm a single male, 29, almost 100% stocks, no kids, secure job (doctor), no mortgage. It makes perfect sense for me to deploy my emergency fund (if I had one).

Pinotage
Posts: 339
Joined: Sat Nov 12, 2011 6:02 am
Location: Springfield

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

Post by Pinotage » Mon Mar 23, 2020 6:56 am

Haven’t read the whole thread, so this has likely been said before. Probably much more eloquently than I can put it.

Agree with Will on this one.

Having an emergency fund allows you to take more risk.

Depleting your emergency fund does the opposite.

ETA - watchnerd is my new hero, and precisely the more eloquent poster I was picturing.

User avatar
Harry Livermore
Posts: 230
Joined: Thu Apr 04, 2019 5:32 am

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

Post by Harry Livermore » Mon Mar 23, 2020 7:15 am

Not only am I NOT using my EF to buy anything, I am holding on to my sweep account at Etrade for the time being... and this is exactly the moment I had planned to start deploying those funds. I'm surprised at my "flinching"...
As I said in another thread, because of the nature of this correction, but more importantly, the nature of this crisis, I am happy to have a EF and suspect we will use much of it up during the year.
Self-employed, small business owner, in a trade that 100% requires everyone to be on-site, now completely shut down. Zero dollars coming in. Leases, rent, insurance, all flowing out of the business. I am not eligible for unemployment insurance, though I have contributed to it for the past 30 years. Wife and I make too much on paper to receive one of those shiny new checks Congress will be sending out soon. The only household income for the foreseeable future are wife's teacher paychecks (34%-ish HH income typically) and rental income from our SFH. I assume the vacation rental will go to zero this year.
Having known our situation ahead of time, I have always kept a rather large EF. I assumed I might be disabled at some point, and need $$$ during the 90-day elimination period on my policy. Or some sort of serious downturn in my business or the economy, necessitating a slow, steady drawdown of the EF until retirement. Or a short-term "emergency" like needing a new roof or boiler.
But now, surveying the next 6 months, and the draconian measures being enforced by the state and federal government, it really does feel like the perfect storm. I am surprised by my behavior, but I really am reluctant to back up the truck and buy. I really think I might want the money in the sweep a year from now. Of course, we have a HELOC, and there is a nice chunk in VTSAX in taxable (still a large gain!) but the whole point is to not cause permanent damage if we can help it.
Luckily, I have cash in the business as well. New investment and equipment will be zero this year. Congress could make the value of such investment 5x tax deductible and I still wouldn't be buying anything. Sitting tight.
Cheers

User avatar
Topic Author
willthrill81
Posts: 17390
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

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

Post by willthrill81 » Mon Mar 23, 2020 9:53 am

Harry Livermore wrote:
Mon Mar 23, 2020 7:15 am
Not only am I NOT using my EF to buy anything, I am holding on to my sweep account at Etrade for the time being... and this is exactly the moment I had planned to start deploying those funds. I'm surprised at my "flinching"...
As I said in another thread, because of the nature of this correction, but more importantly, the nature of this crisis, I am happy to have a EF and suspect we will use much of it up during the year.
Self-employed, small business owner, in a trade that 100% requires everyone to be on-site, now completely shut down. Zero dollars coming in. Leases, rent, insurance, all flowing out of the business. I am not eligible for unemployment insurance, though I have contributed to it for the past 30 years. Wife and I make too much on paper to receive one of those shiny new checks Congress will be sending out soon. The only household income for the foreseeable future are wife's teacher paychecks (34%-ish HH income typically) and rental income from our SFH. I assume the vacation rental will go to zero this year.
Having known our situation ahead of time, I have always kept a rather large EF. I assumed I might be disabled at some point, and need $$$ during the 90-day elimination period on my policy. Or some sort of serious downturn in my business or the economy, necessitating a slow, steady drawdown of the EF until retirement. Or a short-term "emergency" like needing a new roof or boiler.
But now, surveying the next 6 months, and the draconian measures being enforced by the state and federal government, it really does feel like the perfect storm. I am surprised by my behavior, but I really am reluctant to back up the truck and buy. I really think I might want the money in the sweep a year from now. Of course, we have a HELOC, and there is a nice chunk in VTSAX in taxable (still a large gain!) but the whole point is to not cause permanent damage if we can help it.
Luckily, I have cash in the business as well. New investment and equipment will be zero this year. Congress could make the value of such investment 5x tax deductible and I still wouldn't be buying anything. Sitting tight.
Cheers
We're in a fairly secure situation right now, especially now that our mortgage is paid off and a small auto loan will be paid off later this week (100% debt free!). Yet we'll be holding off on almost all discretionary spending until all of this shakes out. I can't help but think of the millions of others who'll be doing the same and the cumulative impact on the economy.

Cash is king, and cash flow is the queen.
“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

User avatar
Harry Livermore
Posts: 230
Joined: Thu Apr 04, 2019 5:32 am

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

Post by Harry Livermore » Mon Mar 23, 2020 10:00 am

willthrill81 wrote:
Mon Mar 23, 2020 9:53 am

Cash is king, and cash flow is the queen.
Couldn't agree more.
Cheers

flyingaway
Posts: 2638
Joined: Fri Jan 17, 2014 10:19 am

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

Post by flyingaway » Mon Mar 23, 2020 10:48 am

willthrill81 wrote:
Mon Mar 23, 2020 9:53 am

We're in a fairly secure situation right now, especially now that our mortgage is paid off and a small auto loan will be paid off later this week (100% debt free!). Yet we'll be holding off on almost all discretionary spending until all of this shakes out. I can't help but think of the millions of others who'll be doing the same and the cumulative impact on the economy.

Cash is king, and cash flow is the queen.
There is no place for discretionary spending at this time, even if I want to spend some money.

No travel, no casino, no restaurant. It is a good time to save money if you have a job.

Patzer
Posts: 202
Joined: Wed Jun 10, 2015 10:56 am

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

Post by Patzer » Tue Mar 24, 2020 12:49 pm

My emergency fund is 12 months expenses.
I put 40% of my fund in a gold ETF yesterday. The remainder is in money market funds.
What are your thoughts on gold as a partial store of an emergency fund?
Last edited by Patzer on Tue Mar 24, 2020 12:51 pm, edited 1 time in total.

User avatar
Topic Author
willthrill81
Posts: 17390
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

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

Post by willthrill81 » Tue Mar 24, 2020 12:55 pm

Patzer wrote:
Tue Mar 24, 2020 12:49 pm
My emergency fund is 12 months expenses.
I put 40% of my fund in a gold ETF yesterday. The remainder is in money market funds.
What are your thoughts on gold as a partial store of an emergency fund?
The problem with gold is that it's historically no less volatile than stocks. Consequently, I would never recommend it for any part of an emergency fund.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Patzer
Posts: 202
Joined: Wed Jun 10, 2015 10:56 am

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

Post by Patzer » Tue Mar 24, 2020 1:21 pm

willthrill81 wrote:
Tue Mar 24, 2020 12:55 pm
Patzer wrote:
Tue Mar 24, 2020 12:49 pm
My emergency fund is 12 months expenses.
I put 40% of my fund in a gold ETF yesterday. The remainder is in money market funds.
What are your thoughts on gold as a partial store of an emergency fund?
The problem with gold is that it's historically no less volatile than stocks. Consequently, I would never recommend it for any part of an emergency fund.
Does that history of volatility apply to downturns though? (Serious question, not being rhetorical.)
I held gold from Oct 2008-Aug 2010 and that seemed to do well, but my experience with gold is limited to that.
The FED's action yesterday sparked me to move into gold again, and I didn't want to use my portfolio for that, so I thought Emergency fund cash might be a safe idea.

User avatar
Topic Author
willthrill81
Posts: 17390
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

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

Post by willthrill81 » Tue Mar 24, 2020 1:35 pm

Patzer wrote:
Tue Mar 24, 2020 1:21 pm
willthrill81 wrote:
Tue Mar 24, 2020 12:55 pm
Patzer wrote:
Tue Mar 24, 2020 12:49 pm
My emergency fund is 12 months expenses.
I put 40% of my fund in a gold ETF yesterday. The remainder is in money market funds.
What are your thoughts on gold as a partial store of an emergency fund?
The problem with gold is that it's historically no less volatile than stocks. Consequently, I would never recommend it for any part of an emergency fund.
Does that history of volatility apply to downturns though? (Serious question, not being rhetorical.)
I held gold from Oct 2008-Aug 2010 and that seemed to do well, but my experience with gold is limited to that.
The FED's action yesterday sparked me to move into gold again, and I didn't want to use my portfolio for that, so I thought Emergency fund cash might be a safe idea.
Using monthly data, which undershoots volatility compared to daily data, from Portfolio Visualizer, from October, 2008, to August, 2010, the standard deviation for gold was 23.07%, which is very high. By comparison, over the same period, U.S. stocks had a standard deviation of 24.98%.

I'm not knocking gold as a potentially valuable piece of a total portfolio, but I would certainly not recommend that such a volatile asset be part of one's emergency fund.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Patzer
Posts: 202
Joined: Wed Jun 10, 2015 10:56 am

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

Post by Patzer » Tue Mar 24, 2020 1:46 pm

willthrill81 wrote:
Tue Mar 24, 2020 1:35 pm
Patzer wrote:
Tue Mar 24, 2020 1:21 pm
willthrill81 wrote:
Tue Mar 24, 2020 12:55 pm
Patzer wrote:
Tue Mar 24, 2020 12:49 pm
My emergency fund is 12 months expenses.
I put 40% of my fund in a gold ETF yesterday. The remainder is in money market funds.
What are your thoughts on gold as a partial store of an emergency fund?
The problem with gold is that it's historically no less volatile than stocks. Consequently, I would never recommend it for any part of an emergency fund.
Does that history of volatility apply to downturns though? (Serious question, not being rhetorical.)
I held gold from Oct 2008-Aug 2010 and that seemed to do well, but my experience with gold is limited to that.
The FED's action yesterday sparked me to move into gold again, and I didn't want to use my portfolio for that, so I thought Emergency fund cash might be a safe idea.
Using monthly data, which undershoots volatility compared to daily data, from Portfolio Visualizer, from October, 2008, to August, 2010, the standard deviation for gold was 23.07%, which is very high. By comparison, over the same period, U.S. stocks had a standard deviation of 24.98%.

I'm not knocking gold as a potentially valuable piece of a total portfolio, but I would certainly not recommend that such a volatile asset be part of one's emergency fund.
Guess, I will move this bucket of gold from my emergency fund over to my portfolio, and some cash from my portfolio into my emergency fund.
Thanks for your thoughts.

guitarguy
Posts: 1816
Joined: Mon Dec 20, 2010 4:10 pm

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

Post by guitarguy » Tue Mar 24, 2020 1:47 pm

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

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

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

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

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

New money contributions will be made, while employed, per the usual plan.
Stupid question...but since there are no stupid questions...

Do you have this just in like a mm fund? Or a bond fund?

I'm thinking about moving some cash from a high interest online savings acct into a taxable brokerage acct just for the simple fact that I'm getting dinged on the interest income at a rather high rate right now...thinking I could avoid this if I just stick it in a brokerage account and reinvest the dividends.

But not sure what fund is wise...I'd use Vanguard.

:sharebeer

User avatar
watchnerd
Posts: 5565
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

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

Post by watchnerd » Tue Mar 24, 2020 1:53 pm

guitarguy wrote:
Tue Mar 24, 2020 1:47 pm

Stupid question...but since there are no stupid questions...

Do you have this just in like a mm fund? Or a bond fund?

I'm thinking about moving some cash from a high interest online savings acct into a taxable brokerage acct just for the simple fact that I'm getting dinged on the interest income at a rather high rate right now...thinking I could avoid this if I just stick it in a brokerage account and reinvest the dividends.

But not sure what fund is wise...I'd use Vanguard.

:sharebeer
Years 1-3.5: HYS, CDs + Treasury MMs
Years 3.5 - 6: Short TIPs
Years 7-10: long Treasuries
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

User avatar
ankonaman
Posts: 86
Joined: Thu Feb 26, 2015 6:25 pm

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

Post by ankonaman » Wed Mar 25, 2020 5:24 am

I built up a 32% cash position while stocks were high flying. Just did not like the exuberance in the market. Many times I found myself second guessing that strategy as the market moved higher but held off. Currently dipping my toe in here and there buying some nice dividend paying stocks at ridiculous valuations. Still have a 30% cash position and looking for bargains. :sharebeer

Highfeehater
Posts: 42
Joined: Fri Aug 10, 2018 10:18 pm

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

Post by Highfeehater » Thu Mar 26, 2020 10:26 am

Thanks, Will, and everyone who has chimed in. Being a recently converted Boglehead, so to speak, this thread has helped keep my eye on the goal and stick to our IP. I'm newly retired (1 1/2 yr), DW semi-retired making about $20k/yr teaching holistic nurses (4 wks/yr). We have about 3-4 yrs EF (potential down pymt for relocation in near future), no debt, and not collecting SS for 3 and 4 more years when each turns 70. EF is mostly in VG MM and some in local credit union. Thinking of taking some from MM and buying some CDs that would stay part of EF. Any thoughts?

Also wondering how soon one should rebalance again. At this rate, a 5% deviation in one's AA can happen quickly. Is it considered the optimal move to rebalance at every 5% deviation during such volatile times?

User avatar
sergeant
Posts: 1439
Joined: Tue Dec 04, 2007 11:13 pm
Location: The Golden State

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

Post by sergeant » Fri Mar 27, 2020 1:58 pm

Highfeehater wrote:
Thu Mar 26, 2020 10:26 am
Thanks, Will, and everyone who has chimed in. Being a recently converted Boglehead, so to speak, this thread has helped keep my eye on the goal and stick to our IP. I'm newly retired (1 1/2 yr), DW semi-retired making about $20k/yr teaching holistic nurses (4 wks/yr). We have about 3-4 yrs EF (potential down pymt for relocation in near future), no debt, and not collecting SS for 3 and 4 more years when each turns 70. EF is mostly in VG MM and some in local credit union. Thinking of taking some from MM and buying some CDs that would stay part of EF. Any thoughts?

Also wondering how soon one should rebalance again. At this rate, a 5% deviation in one's AA can happen quickly. Is it considered the optimal move to rebalance at every 5% deviation during such volatile times?
Are you sure your SS claiming strategy is optimal. I'm no expert as I don't qualify to receive it but I've rarely seen both in a couple wait until 70. Again, I could be wrong as I'm far from being an expert.
Lincoln 3 EOW! AA 40/60.

User avatar
Topic Author
willthrill81
Posts: 17390
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

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

Post by willthrill81 » Fri Mar 27, 2020 10:53 pm

Highfeehater wrote:
Thu Mar 26, 2020 10:26 am
Thanks, Will, and everyone who has chimed in. Being a recently converted Boglehead, so to speak, this thread has helped keep my eye on the goal and stick to our IP. I'm newly retired (1 1/2 yr), DW semi-retired making about $20k/yr teaching holistic nurses (4 wks/yr). We have about 3-4 yrs EF (potential down pymt for relocation in near future), no debt, and not collecting SS for 3 and 4 more years when each turns 70. EF is mostly in VG MM and some in local credit union. Thinking of taking some from MM and buying some CDs that would stay part of EF. Any thoughts?

Also wondering how soon one should rebalance again. At this rate, a 5% deviation in one's AA can happen quickly. Is it considered the optimal move to rebalance at every 5% deviation during such volatile times?
Moving some funds from a MM to a CD is perfectly reasonable, especially since the CD rate is probably higher.

Historically, rebalancing more frequently than one per year has not had significant long-term effects, so I wouldn't bother. I suppose that if you wanted to be a just a little bit 'timey' that you could rebalance on a day when stocks are down.
“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

Valuethinker
Posts: 39633
Joined: Fri May 11, 2007 11:07 am

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

Post by Valuethinker » Sat Mar 28, 2020 12:17 pm

theorist wrote:
Sun Mar 15, 2020 12:59 pm
Fully agreed.

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

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

Keep your emergency funds intact: even if he’s wrong, as I believe, tough times are ahead for many of us.
"when you find an elevator operator recommending stocks... sell"

that, oddly, made me feel a bit more bullish about things.

I am a pessimist re the epidemiology of this. It's out, and although the world's most populous country is on top of the infection (apparently) there are nearly 8 billion people on this planet and none of their governments (almost) is able to exercise an equivalent level of social control over so much of the population. We are just not Singapore.

Many of those 8 billion don't have clean water to wash their hands in. So far, there's not a lot of evidence of permanent resistance conveyed to this coronavirus by infection*. So it isn't just a matter of the epidemic "running through" the population.

Thus I think even if we manage to get it under control in our countries, and we hit peak infection in the next 2-3 months, it's still going to be "out there". There will be periodic panics and lock downs at least into 2021 if not for a lot longer (depending on the efficacy of anti-virals and progress on vaccines). Think of Hong Kong - had apparently beaten the virus, opened up, then had to lock down again.

(Of course if an immediate test becomes widely available that will make things a lot easier - easier to detect and lock down infected individuals. But any solution has to be essentially global, because the virus has shown it can move countries very easily).

That's not good news for consumer and business confidence, and therefore the outlook for the economy.

So far, the pattern developing is one of a very short, sharp recession. Recovery will follow, and may be quite dramatic, if the virus appears to be under control. And if financial problems that are thrown up by the recession are contained - no Lehman Brothers or US mortgage collapse in other words.

* the flu analogy may be wrong, in other words. More like the common cold, a fellow group of coronaviruses. However the reported incidents of reinfection are apparently questioned. So there's still hope on this front.

Post Reply