Should I invest my emergency fund?

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sjwoo
Posts: 121
Joined: Mon Jan 20, 2014 11:41 am

Re: Should I invest my emergency fund?

Post by sjwoo » Sun Jun 28, 2020 5:10 pm

bligh wrote:
Sun Jun 28, 2020 12:40 pm
However, I reacted differently to watching my emergency fund balance dropping just as I saw the possibility of needing it go up sharply. In reality, I have enough in taxable investments and I Bonds and such that realistically I would have been well covered. So, this worry may or may not have been reality, but it was how I felt emotionally. My emergency fund was dropping significantly in value, at the exact moment I was looking to it to comfort me when the rest of my portfolio was tanking. I was unable to watch my emergency fund dropping in value, and decided to sell off the stocks completely to preserve the balance. Obviously, the balance today would have been higher had I not sold, which is why I recognized it as a behavioral issue. Luckily for me my emergency fund only makes up a small part of my portfolio so the overall impact on returns was negligible. I was happy to watch the market recover.
A brother (or sister) from another mother! This is exactly the way I felt during the March crunch. The psychological benefit of keeping an emergency fund should not be ignored. Seeing even ultra-short-term bonds dropping 5-10% in a matter of weeks and experiencing significant volatility is why I'll always keep two years worth of spending in cold hard cash. Between bank bonuses and "high" yield accounts, it's still possible to make about 2% off cash, so I'll take that.

Yes, I'm obviously not maximizing my capital, but having a steady EF keeps my worst urges in check when times are rough. The way I see it, the drag is akin to an expense ratio. Except the ER is mandated by my own self. :)

smitcat
Posts: 5940
Joined: Mon Nov 07, 2016 10:51 am

Re: Should I invest my emergency fund?

Post by smitcat » Sun Jun 28, 2020 6:03 pm

KlangFool wrote:
Sun Jun 28, 2020 2:41 pm
smitcat wrote:
Sun Jun 28, 2020 2:24 pm

" told us that many folks are unemployed in a recession. And, the unemployment period could last a very long time"
- I believe you posted that the rest of your family retired early like at 50 or so
- Has your wife become unemployed yet?
- have your kids become unemployed yet?
smitcat,

<<- I believe you posted that the rest of your family retired early like at 50 or so>>

It is not hard to do when you save 30+% of your gross income. It is not because they had never been unemployed and/or out of business.

<<- Has your wife become unemployed yet?>>

Starting this month. I would be unemployed next month.

<<- have your kids become unemployed yet?>>

They just started working.

KlangFool
I believe you are the only one who has been unemployed in your immediate circle over the years.

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1789
Posts: 1529
Joined: Fri Aug 16, 2019 3:31 pm

Re: Should I invest my emergency fund?

Post by 1789 » Sun Jun 28, 2020 6:29 pm

Dottie57 wrote:
Sat Jun 27, 2020 8:26 pm
climber2020 wrote:
Sat Mar 21, 2015 9:52 pm
I keep my emergency fund in a savings account that pays close to 0%. It won't grow, and I don't care. All I want is for the cash to be there if and when I lose my job so I don't have to sell my stock funds to pay rent. Each year that passes, my overall portfolio grows larger and the percentage of assets that makes up the emergency fund shrinks to a more insignificant level. If I need more growth/risk, I'll leave my emergency fund alone and simply increase my stock allocation.
+100
Absolutely
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

KlangFool
Posts: 16698
Joined: Sat Oct 11, 2008 12:35 pm

Re: Should I invest my emergency fund?

Post by KlangFool » Sun Jun 28, 2020 6:38 pm

smitcat wrote:
Sun Jun 28, 2020 6:03 pm
KlangFool wrote:
Sun Jun 28, 2020 2:41 pm
smitcat wrote:
Sun Jun 28, 2020 2:24 pm

" told us that many folks are unemployed in a recession. And, the unemployment period could last a very long time"
- I believe you posted that the rest of your family retired early like at 50 or so
- Has your wife become unemployed yet?
- have your kids become unemployed yet?
smitcat,

<<- I believe you posted that the rest of your family retired early like at 50 or so>>

It is not hard to do when you save 30+% of your gross income. It is not because they had never been unemployed and/or out of business.

<<- Has your wife become unemployed yet?>>

Starting this month. I would be unemployed next month.

<<- have your kids become unemployed yet?>>

They just started working.

KlangFool
I believe you are the only one who has been unemployed in your immediate circle over the years.
You are wrong.

KlangFool

smitcat
Posts: 5940
Joined: Mon Nov 07, 2016 10:51 am

Re: Should I invest my emergency fund?

Post by smitcat » Sun Jun 28, 2020 6:49 pm

KlangFool wrote:
Sun Jun 28, 2020 6:38 pm
smitcat wrote:
Sun Jun 28, 2020 6:03 pm
KlangFool wrote:
Sun Jun 28, 2020 2:41 pm
smitcat wrote:
Sun Jun 28, 2020 2:24 pm

" told us that many folks are unemployed in a recession. And, the unemployment period could last a very long time"
- I believe you posted that the rest of your family retired early like at 50 or so
- Has your wife become unemployed yet?
- have your kids become unemployed yet?
smitcat,

<<- I believe you posted that the rest of your family retired early like at 50 or so>>

It is not hard to do when you save 30+% of your gross income. It is not because they had never been unemployed and/or out of business.

<<- Has your wife become unemployed yet?>>

Starting this month. I would be unemployed next month.

<<- have your kids become unemployed yet?>>

They just started working.

KlangFool
I believe you are the only one who has been unemployed in your immediate circle over the years.
You are wrong.

KlangFool
Maybe , if that works better for you. I am nearly your age and have not lived in fear of losing a job even though we have been thru the same financial crisis over the years. When we lost our jobs we went out and got new ones that paid less for a time and were never on unemployment.
At those times we were not able to save for retirement but we also never really dipped into any retirement funds already existing. And if we had to the minor damage done to the retire funds would have been very small compared to keeping a large EF.
You have two kids who just got started working but they are not laid off - typically the first to go.(congratulations by the way!)
You have a wife that you never thought would/could get a job and she in not laid off.
You have family that retired early and they did not do it by accident.
You are retiring now and that is great !!!

minor

ImUrHuckleberry
Posts: 426
Joined: Sat Apr 15, 2017 7:44 am

Re: Should I invest my emergency fund?

Post by ImUrHuckleberry » Sun Jun 28, 2020 10:17 pm

Broken Man 1999 wrote:
Fri Jun 26, 2020 5:19 pm
firebirdparts wrote:
Thu Jun 25, 2020 9:13 pm

".....In my opinion, the chance you never have an emergency is quite high. I'm serious.

I would suggest two things:
1. You guess at these chances, and
2. You figure out what the backup plan is if you sell investments at a loss during an emergency. You might not need a backup plan.

Personally, I've never had an emergency (at all). I never had an emergency fund, per se, but I didn't know better. I never heard of people having such huge emergency funds until recently. So anyway you be the judge...."
I agree! In nearly 49 years of marriage, DW and I never have had an emergency. We also have never had an emergency fund.

Up thread there were a couple of people stating that their EF was just a very small amount compared to their overall investments. Well, I would say such an individual probably didn't need an EF at all.

Many things that cost $$$ are NOT emergencies, they should be more accurately classified as maintenance. Have a house needing a roof? Not an emergency. Car needs extensive repairs? Also, not an emergency. Child needs braces? Not an emergency.

When first starting out, an emergency fund could be useful. But once established in a career with a growing portfolio, seems unnecessary. And, in retirement, no need to worry about job loss.

I see our entire retirement portfolio as a source of funds to handle any expense; any expected, or any unexpected need for funds can be covered.

Having said all this, having an EF is a personal decision. If one takes comfort in having one, good for them.
As the lyrics in Garden Party state, "You see, ya can't please everyone, so ya got to please yourself."

Broken Man 1999
A large number of people have only tax sheltered retirement savings. I think these people (which include me at the moment) need an emergency fund. I had already had to wipe out a 401k once, not going to do it again.

CDub
Posts: 60
Joined: Thu Jan 18, 2018 8:27 am

Re: Should I invest my emergency fund?

Post by CDub » Mon Jun 29, 2020 12:46 pm

I understand Klangfool's arguments and they are probably helpful to have in a thread related to an emergency fund. Having cash on-hand can really help a lot of people with the 'sleep at night' factor. And yes, as he mentioned, I have not gone through a significant period of unemployment so investing the emergency fund is definitely a risk..

One of my reasons I tell myself to invest the emergency fund is that it actually improves my savings behavior. When I have had a cash emergency fund in the past - we find reasons to spend it. House renovations, travel, new cars, etc... Yes I know those are not emergencies. Maybe others don't have that issue.

This very well could be a cognitive bias - but I have just found that when the money is invested - I do not sell it for silly lifestyle-upgrade reasons like that. In the case of an emergency, I will sell it when needed (have not needed it ever though). Even if it's at a big loss.

KlangFool
Posts: 16698
Joined: Sat Oct 11, 2008 12:35 pm

Re: Should I invest my emergency fund?

Post by KlangFool » Mon Jun 29, 2020 12:59 pm

CDub wrote:
Mon Jun 29, 2020 12:46 pm
I understand Klangfool's arguments and they are probably helpful to have in a thread related to an emergency fund. Having cash on-hand can really help a lot of people with the 'sleep at night' factor. And yes, as he mentioned, I have not gone through a significant period of unemployment so investing the emergency fund is definitely a risk..

One of my reasons I tell myself to invest the emergency fund is that it actually improves my savings behavior. When I have had a cash emergency fund in the past - we find reasons to spend it. House renovations, travel, new cars, etc... Yes I know those are not emergencies. Maybe others don't have that issue.

This very well could be a cognitive bias - but I have just found that when the money is invested - I do not sell it for silly lifestyle-upgrade reasons like that. In the case of an emergency, I will sell it when needed (have not needed it ever though). Even if it's at a big loss.
CDub,

Put your emergency fund into a CD. It is not invested. If you withdraw it earlier, you lose the interest payment. It is a lot cheaper than losing your money in a 50% stock market crash.

KlangFool

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