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Started By
Message
Best strategy for emergency fund savings?
Posted on 4/30/15 at 9:48 am
Posted on 4/30/15 at 9:48 am
My wife and I have finished saving a solid 4-6 month emergency fund (about $15,000). It's currently sitting in a savings account.
Any recommendations on where might be a better place to keep it while we do not need it? We want it to be fairly accessible, but would probably not need it immediately, as we have a pretty good cushion in our checking and regular savings.
Any recommendations on where might be a better place to keep it while we do not need it? We want it to be fairly accessible, but would probably not need it immediately, as we have a pretty good cushion in our checking and regular savings.
10
Posted on 4/30/15 at 9:52 am to UGATiger26
Find a high yield online savings account. I use Capital One 360, it has a 0.75% rate. However, there are other online accounts that can offer over 1%.
Posted on 4/30/15 at 10:02 am to UGATiger26
Money market account, possibly?
Posted on 4/30/15 at 10:09 am to UGATiger26
You already maxing a roth?
I would put it in there. It's called an emergency fund for a reason. Best scenario is you'll never touch it again.
If you're saving for a house or other purchase, I'd still consider it, but it's less advantageous.
I would put it in there. It's called an emergency fund for a reason. Best scenario is you'll never touch it again.
If you're saving for a house or other purchase, I'd still consider it, but it's less advantageous.
Posted on 4/30/15 at 10:12 am to UGATiger26
you could always put it in a roth.
Posted on 4/30/15 at 10:13 am to UGATiger26
LINK
I would just park it in one of the above options. It's not much, but is better than nothing IMO. I don't like the Roth IRA advice that I'm sure is about to be posted. Sure you can withdraw the principal, but you only get 60 days to replace it and then you've wasted that opportunity. In a true emergency I want access to the money that day too. Getting it out of a Roth would probably take at least a week or so. Not sure, never done it.
I would just park it in one of the above options. It's not much, but is better than nothing IMO. I don't like the Roth IRA advice that I'm sure is about to be posted. Sure you can withdraw the principal, but you only get 60 days to replace it and then you've wasted that opportunity. In a true emergency I want access to the money that day too. Getting it out of a Roth would probably take at least a week or so. Not sure, never done it.
Posted on 4/30/15 at 10:14 am to Hawkeye95
quote:
you could always put it in a roth.
Called it.
Posted on 4/30/15 at 10:20 am to TigerDeBaiter
I can probably counter point most any point you could make about not putting it into a roth
Posted on 4/30/15 at 10:27 am to Croacka
Just elect to go with a super conservative fund, or what? Last thing you would want is to need the money in a down market..
Posted on 4/30/15 at 10:29 am to LSUengineer12
Definitely, and you could always rebalance if you have sufficient growth
I assume everyone had a credit card, at least for emergencies, so same day liquidity should rarely be a concern.
I assume everyone had a credit card, at least for emergencies, so same day liquidity should rarely be a concern.
Posted on 4/30/15 at 10:39 am to TigerDeBaiter
quote:
Sure you can withdraw the principal, but you only get 60 days to replace it and then you've wasted that opportunity.
One exception to this is the fact that you can replace the same year contributions all the way to April 15.
And as for the mentality in general, about a wasted opportunity: it is only true if you would otherwise be maxing out your Roth even without a plan to putting your emergency fund into it, which doesn't apply to the vast majority of investors.
If you aren't maxxing out your Roth already, then the only opportunity wasted is that of tax free growth of capital.
As for withdrawal: it all depends on what you put it into and what the vendor offers. I can get my money in a single business day. Also, no one said you had to put a 100% of it in an investment. When you realistically should have at least 20k in a fund, and often times more, I personally can't think of an emergency that would demand that much within a week.
Also, it's probably wise to have a couple grand serving as a cash buffer in savings for more minor events that aren't true emergencies.
Posted on 4/30/15 at 10:40 am to TigerDeBaiter
quote:Just did this. To sell the stock I had took 3 business days to settle in my account. To transfer from Fidelity to Capital One took another 3 business days. A week is right.
Getting it out of a Roth would probably take at least a week or so. Not sure, never done it.
Posted on 4/30/15 at 10:44 am to Volvagia
quote:
And as for the mentality in general, about a wasted opportunity: it is only true if you would otherwise be maxing out your Roth even without a plan to putting your emergency fund into it, which doesn't apply to the vast majority of investors.
Right, and its an emergency. Putting it in a roth raises the bar for an emergency from oh well we would like to go to bermuda to oh i lost my job.
quote:
Also, it's probably wise to have a couple grand serving as a cash buffer in savings for more minor events that aren't true emergencies.
always.
Posted on 4/30/15 at 10:47 am to Volvagia
quote:
Also, it's probably wise to have a couple grand serving as a cash buffer in savings for more minor events that aren't true emergencies.
this
I keep $5k in a money market account for common emergencies like AC going out, car repairs, minor medical bills, etc
I'll use my roth if I ever have a serious emergency like losing my job or serious medical bills
This post was edited on 4/30/15 at 10:49 am
Posted on 4/30/15 at 10:49 am to Hawkeye95
if you would put into a roth and pull the monies out aren't you subject to penalties? my emergency fund is just in my savings account that the apr is so small its not worrying about. but if I have an emergency its there.
Posted on 4/30/15 at 10:50 am to Gorilla Ball
quote:
if you would put into a roth and pull the monies out aren't you subject to penalties?
you can take the principle out without penalties.
Posted on 4/30/15 at 10:51 am to LSUengineer12
To an extent.
It is my belief that you only want to be conservative initially. While I would never put all of my emergency fund in a super highly volatile asset or single sector (except MAYBE consumer staples), I see no problem with building towards a high stock exposure.
Why? What about the risk of taking money out in a downturn?
It is only a risk if you take a all of your emergency fund money, invest it at once, and the market goes down.
Remember, your control is a savings account which currently earns almost nothing, so ANYTHING you gain compared to that is lagniappe.
Let's say your emergency fund is in the S&P 500, and it earns 8.0% per year for 5 years. In year six, a massive down turn happens and you lost your job requiring you to pull cash out when the value of the market is down 40% from where it was.
YOU DID NOT LOSE MONEY! In fact, you probably made 5+% compared to having it in a savings account.
So you see, being conservative in an emergency fund is only really relevant in the first couple of years of the transition to it. Especially given the peanuts that savings accounts currently play.
It is my belief that you only want to be conservative initially. While I would never put all of my emergency fund in a super highly volatile asset or single sector (except MAYBE consumer staples), I see no problem with building towards a high stock exposure.
Why? What about the risk of taking money out in a downturn?
It is only a risk if you take a all of your emergency fund money, invest it at once, and the market goes down.
Remember, your control is a savings account which currently earns almost nothing, so ANYTHING you gain compared to that is lagniappe.
Let's say your emergency fund is in the S&P 500, and it earns 8.0% per year for 5 years. In year six, a massive down turn happens and you lost your job requiring you to pull cash out when the value of the market is down 40% from where it was.
YOU DID NOT LOSE MONEY! In fact, you probably made 5+% compared to having it in a savings account.
So you see, being conservative in an emergency fund is only really relevant in the first couple of years of the transition to it. Especially given the peanuts that savings accounts currently play.
Posted on 4/30/15 at 10:54 am to Volvagia
quote:
It is my belief that you only want to be conservative initially. While I would never put all of my emergency fund in a super highly volatile asset or single sector (except MAYBE consumer staples), I see no problem with building towards a high stock exposure.
Why? What about the risk of taking money out in a downturn?
It is only a risk if you take a all of your emergency fund money, invest it at once, and the market goes down.
Remember, your control is a savings account which currently earns almost nothing, so ANYTHING you gain compared to that is lagniappe.
Let's say your emergency fund is in the S&P 500, and it earns 8.0% per year for 5 years. In year six, a massive down turn happens and you lost your job requiring you to pull cash out when the value of the market is down 40% from where it was.
YOU DID NOT LOSE MONEY! In fact, you probably made 5+% compared to having it in a savings account.
So you see, being conservative in an emergency fund is only really relevant in the first couple of years of the transition to it. Especially given the peanuts that savings accounts currently play.
not to mention you could put in other types of assets (bonds) that are less volatile if this is a real concern but offer a greater yield than MM account.
Posted on 4/30/15 at 10:56 am to Hawkeye95
Remember when MMs paid 6% or whatever now unfathomable number?
Those were the days, I never got to enjoy that.
Those were the days, I never got to enjoy that.
This post was edited on 4/30/15 at 10:57 am
Posted on 4/30/15 at 10:56 am to Hawkeye95
I use to recommend Vanguard's STAR, but I've converted due to others here and recommend their Wellesley Income fund for emergency purposes.
60% bonds, 40% large cap value.
60% bonds, 40% large cap value.
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