Yet another emergency fund question

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
bck63
Posts: 1148
Joined: Fri Sep 28, 2018 4:59 pm

Yet another emergency fund question

Post by bck63 » Mon Jun 29, 2020 7:48 pm

I have a taxable account that has approximately six years of expenses in it, at about a 35/65 AA. Part of the 65% is cash that is sitting in the Vanguard Federal Money Market Fund. It represents about 15% of my taxable investments. I consider it my "emergency fund." I am getting itchy with it just sitting there and wondering if I've gotten to the point that I don't need that cash and can just go ahead and invest it, due to the size of my taxable account.

Any thoughts would be appreciated.

breakfixit
Posts: 12
Joined: Thu Aug 14, 2014 6:48 pm

Re: Yet another emergency fund question

Post by breakfixit » Mon Jun 29, 2020 8:00 pm

15% of 6 years of expenses equals 10.8 months of expenses. That's a lot of cash, which inflation eats away at over time. I would invest some of it depending on how well it makes you sleep at night. But if I thought I was probably going to lose my job soon, I would hold it real tight. Obviously it depends on the circumstances of the person.

nix4me
Posts: 594
Joined: Sat Oct 13, 2018 9:32 am

Re: Yet another emergency fund question

Post by nix4me » Mon Jun 29, 2020 8:33 pm

i would buy some dips with it here and there. I got fed up the other day at the Federal MM Settlement Fund and bought some VTI when the 3% dip happened. Cash is going backwards right now. If you have quality funds or ETFs in your taxable, it only takes a day or 2 to get money out so still very liquid.

User avatar
grabiner
Advisory Board
Posts: 27120
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Yet another emergency fund question

Post by grabiner » Mon Jun 29, 2020 9:59 pm

Since this isn't money you need in a short-term emergency, it makes sense to put it in something earning slightly more. In a low tax bracket, you could invest it in CDs. In a higher bracket, you could invest in something like Vanguard Limited-Term Tax-Exempt, which can lose a few percent when rates rise.

If you decide the money isn't needed as part of your emergency fund at all, you can put it in whatever bond fund is appropriate for your investments, which might be something like Intermediate-Term Tax-Exempt or a fund for your state.
Wiki David Grabiner

babystep
Posts: 122
Joined: Tue Apr 09, 2019 9:44 am

Re: Yet another emergency fund question

Post by babystep » Tue Jun 30, 2020 12:56 am

bck63 wrote:
Mon Jun 29, 2020 7:48 pm
I have a taxable account that has approximately six years of expenses in it, at about a 35/65 AA. Part of the 65% is cash that is sitting in the Vanguard Federal Money Market Fund. It represents about 15% of my taxable investments. I consider it my "emergency fund." I am getting itchy with it just sitting there and wondering if I've gotten to the point that I don't need that cash and can just go ahead and invest it, due to the size of my taxable account.

Any thoughts would be appreciated.
15% of 72 months is 10.8 months. 50k-100k? Maybe a no-penalty CD for 11months? May generate before tax of 500-1000 per year.
Another option would be to decrease that to 3months and invest the 7.5 months according to 35/65?

rossington
Posts: 659
Joined: Fri Jun 07, 2019 2:00 am
Location: Florida

Re: Yet another emergency fund question

Post by rossington » Tue Jun 30, 2020 3:22 am

bck63 wrote:
Mon Jun 29, 2020 7:48 pm
I have a taxable account that has approximately six years of expenses in it, at about a 35/65 AA. Part of the 65% is cash that is sitting in the Vanguard Federal Money Market Fund. It represents about 15% of my taxable investments. I consider it my "emergency fund." I am getting itchy with it just sitting there and wondering if I've gotten to the point that I don't need that cash and can just go ahead and invest it, due to the size of my taxable account.

Any thoughts would be appreciated.
You have invested it, the question you are asking is how much risk should I take if I move it elsewhere.

If the cash is your emergency fund then what would make you more comfortable than that if you have a financial emergency? If you put the money in equities, bonds, cd's, etc. as opposed to cash and then the market dropped by 50%, and /or you lost your job, and /or medical or any infinite other unforeseen expenses hit you all at once which investment allocation other than the cash would you prefer? Which would make you most sleep well at night for the emergency that could emerge at any unexpected time?

It definitely depends on the size of that taxable account.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

User avatar
bhwabeck3533
Posts: 57
Joined: Thu Sep 21, 2017 6:25 am
Location: Baldwin County, AL

Re: Yet another emergency fund question

Post by bhwabeck3533 » Tue Jun 30, 2020 8:01 am

I'm compelled to reply for a couple reasons. One is the poster is bck63, and my name is Beck and I am age 64. The other is I have gone through a similar epiphany we respect to an "emergency fund" target, which I refer to as my safe money (VG VMMXX) within my traditional IRA. Before the recent COVID downturn in the market, I was OK with 2% (of $2MM) in safe money. The recent investment losses incurred caused my wife's anxieties to increase exponentially, which led me to increase my safe money to 8%-10% in my IRA. We have very little annuity income (waiting til age 70 for SS), so the "pot of gold" must sustain our lifestyle.

We are sleeping better these days, in more ways than one!

Topic Author
bck63
Posts: 1148
Joined: Fri Sep 28, 2018 4:59 pm

Re: Yet another emergency fund question

Post by bck63 » Tue Jun 30, 2020 6:34 pm

Thank you everyone for your responses.

yules
Posts: 67
Joined: Wed Nov 27, 2019 10:31 am

Re: Yet another emergency fund question

Post by yules » Tue Jun 30, 2020 6:59 pm

bck63 wrote:
Mon Jun 29, 2020 7:48 pm
I have a taxable account that has approximately six years of expenses in it, at about a 35/65 AA. Part of the 65% is cash that is sitting in the Vanguard Federal Money Market Fund. It represents about 15% of my taxable investments. I consider it my "emergency fund." I am getting itchy with it just sitting there and wondering if I've gotten to the point that I don't need that cash and can just go ahead and invest it, due to the size of my taxable account.

Any thoughts would be appreciated.
Bck63,

Think of it this way, So you have a 1 year emergency fund that you want to invest? That sounds too risky to me. Emergency funds should be liquid and safe. Now if you say that you only want a 6 months emergency fund, then go invest 7.5% of portfolio that is now in money market fund. But investing the entire 1 year emergency fund would be too much for me.

Yules

Topic Author
bck63
Posts: 1148
Joined: Fri Sep 28, 2018 4:59 pm

Re: Yet another emergency fund question

Post by bck63 » Tue Jun 30, 2020 7:52 pm

grabiner wrote:
Mon Jun 29, 2020 9:59 pm
Since this isn't money you need in a short-term emergency, it makes sense to put it in something earning slightly more. In a low tax bracket, you could invest it in CDs. In a higher bracket, you could invest in something like Vanguard Limited-Term Tax-Exempt, which can lose a few percent when rates rise.

If you decide the money isn't needed as part of your emergency fund at all, you can put it in whatever bond fund is appropriate for your investments, which might be something like Intermediate-Term Tax-Exempt or a fund for your state.
Thanks for this. I think it might just makes sense for me to invest it at my asset allocation. If there is an emergency, I can withdraw from whatever is overweighted, back to my AA. I'm not sure I need any cash at this point.

scrabbler1
Posts: 2499
Joined: Fri Nov 20, 2009 2:39 pm

Re: Yet another emergency fund question

Post by scrabbler1 » Tue Jun 30, 2020 10:41 pm

I despite the idea of having a large amount of my money earning nearly zilch. So, after a small cushion of surplus of money (about $700) above the minimum balance needed to avoid monthly account fees, my next layer, or tier, of "emergency" money is in an intermediate-term muni bond fund. It earns about 2%-2.5% annually and its NAV doesn't bounce around too much. I have rarely had to tap into this fund for any reason in the nearly 30 years I have been in it, overall about breaking even on net sales of its shares.

babystep
Posts: 122
Joined: Tue Apr 09, 2019 9:44 am

Re: Yet another emergency fund question

Post by babystep » Wed Jul 01, 2020 1:42 am

scrabbler1 wrote:
Tue Jun 30, 2020 10:41 pm
I despite the idea of having a large amount of my money earning nearly zilch. So, after a small cushion of surplus of money (about $700) above the minimum balance needed to avoid monthly account fees, my next layer, or tier, of "emergency" money is in an intermediate-term muni bond fund. It earns about 2%-2.5% annually and its NAV doesn't bounce around too much. I have rarely had to tap into this fund for any reason in the nearly 30 years I have been in it, overall about breaking even on net sales of its shares.
Which bond fund is that?

scrabbler1
Posts: 2499
Joined: Fri Nov 20, 2009 2:39 pm

Re: Yet another emergency fund question

Post by scrabbler1 » Wed Jul 01, 2020 11:49 am

babystep wrote:
Wed Jul 01, 2020 1:42 am
scrabbler1 wrote:
Tue Jun 30, 2020 10:41 pm
I despite the idea of having a large amount of my money earning nearly zilch. So, after a small cushion of surplus of money (about $700) above the minimum balance needed to avoid monthly account fees, my next layer, or tier, of "emergency" money is in an intermediate-term muni bond fund. It earns about 2%-2.5% annually and its NAV doesn't bounce around too much. I have rarely had to tap into this fund for any reason in the nearly 30 years I have been in it, overall about breaking even on net sales of its shares.
Which bond fund is that?
It's the Dreyfus-Mellon Intermediate-term Muni Income fund, DITEX. It also has checkwriting privileges, making the money more easily accessible.

Topic Author
bck63
Posts: 1148
Joined: Fri Sep 28, 2018 4:59 pm

Re: Yet another emergency fund question

Post by bck63 » Wed Jul 01, 2020 6:44 pm

scrabbler1 wrote:
Tue Jun 30, 2020 10:41 pm
I despite the idea of having a large amount of my money earning nearly zilch. So, after a small cushion of surplus of money (about $700) above the minimum balance needed to avoid monthly account fees, my next layer, or tier, of "emergency" money is in an intermediate-term muni bond fund. It earns about 2%-2.5% annually and its NAV doesn't bounce around too much. I have rarely had to tap into this fund for any reason in the nearly 30 years I have been in it, overall about breaking even on net sales of its shares.
In addition to the cash I have, I have at least two years of expenses in munis in my taxable account as well.

I pulled the trigger today and compromised. I put most (not all) of what I was considering my emergency fund into Vanguard LifeStrategy Income Fund (20/80). I'll consider it the conservative end of my portfolio and get at least some kind of return, hopefully.

teddytimtam
Posts: 118
Joined: Mon Jan 01, 2018 9:35 pm

Re: Yet another emergency fund question

Post by teddytimtam » Wed Jul 01, 2020 7:10 pm

Look at it fundamentally.

Investment (stock market, real estate, etc.) makes you money. Emergency fund [is an insurance] that protects your money in case of an "emergency." It's not supposed to make you money. Same reason we have home insurance, car insurance, life insurance. It's to protect our assets (home, car, family) during an unfortunate situation.

Post Reply