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Investing Emergency Fund?
Posted on 1/3/17 at 12:56 pm
Posted on 1/3/17 at 12:56 pm
I hear is bad practice to have money just sitting in a savings account not working for you, but you should always have an emergency fund. So I am wanting to invest my emergency fund (15K) in a low risk situation, but have it instantly accessible. My first thought is Blue Chip stocks. is this a good idea? bad idea? Tips from the Pros as I am in my late 20's and have only recently started investing.
6
Posted on 1/3/17 at 1:06 pm to Elusiveporpi
quote:
I hear is bad practice to have money just sitting in a savings account not working for you, but you should always have an emergency fund. So I am wanting to invest my emergency fund (15K) in a low risk situation, but have it instantly accessible. My first thought is Blue Chip stocks. is this a good idea? bad idea? Tips from the Pros as I am in my late 20's and have only recently started investing.
the issue with investing your emergency fund is that often a downturn in the stock market would necessitate needing your fund. Like in 2008 or 2001. when the stock market tanked and the job market shrank at the same time.
I personally keep about 10k in pure cash. It yields a very low percentage rate, but it would cover me for a few months if something were to happen.
you could do corporate bonds and get a higher rate, and they are less volatile. But with rates going up, you might take a principle hit.
This post was edited on 1/3/17 at 1:07 pm
Posted on 1/3/17 at 1:07 pm to Elusiveporpi
Not a pro, but in the same situation. Late 20's with about a ~20k emergency fund. I keep a 3k in normal savings and the rest in Barclays 1% interest savings. Luckily have not had to use it, but I believe it takes about 2-3 days to transfer if needed.
Posted on 1/3/17 at 1:10 pm to readysetgeaux
If it is a true emergency fund I would not recommending investing it.
Posted on 1/3/17 at 1:25 pm to Janky
You can set a sell-stop order with any investments, and follow it up as your investment increases. I honestly don't know why more people don't do this, it is super easy. But it does require staying on top of it.
I understand that a sell-stop can still amount to a significant loss if the equity drops significantly, but that chances of that are extremely slim and worth it for the risk of your return IMO.
I understand that a sell-stop can still amount to a significant loss if the equity drops significantly, but that chances of that are extremely slim and worth it for the risk of your return IMO.
Posted on 1/3/17 at 1:30 pm to baldona
quote:
You can set a sell-stop order with any investments,
Not any
quote:
I honestly don't know why more people don't do this, it is super easy.
Because a gap down could be painful for an emergency reserve.
Posted on 1/3/17 at 1:31 pm to Elusiveporpi
I'm in the same boat I have a 1 year "emergency" fund. Try to always keep 3 months of expenses no matter what, and then if we need a new roof, car down payment, A/C replacement, etc.. we pull from there.
I've been hesitant to invest this but I hate having that much "cash" sitting in a savings account. I've thought about investing some in the conservative Vanguard Wellington fund, but haven't pulled the trigger yet.
I've been hesitant to invest this but I hate having that much "cash" sitting in a savings account. I've thought about investing some in the conservative Vanguard Wellington fund, but haven't pulled the trigger yet.
Posted on 1/3/17 at 1:52 pm to Elusiveporpi
We see these threads from time to time, and I'm asked this a lot by my clients.
I like to remind them (and you) about that unwanted guest, Murphy, the guy behind Murphy's law.
There's a decent chance that when the emergency hits, the economy will be down as well. You don't want to fall short when that happens.
Leave the emergency fund in cash or money market funds. To met it's not worth the risk.
I like to remind them (and you) about that unwanted guest, Murphy, the guy behind Murphy's law.
There's a decent chance that when the emergency hits, the economy will be down as well. You don't want to fall short when that happens.
Leave the emergency fund in cash or money market funds. To met it's not worth the risk.
Posted on 1/3/17 at 1:55 pm to Janky
quote:
ot any
quote:
I honestly don't know why more people don't do this, it is super easy.
Because a gap down could be painful for an emergency reserve.
Touche on the not all investments have sell-stops. Not sure why I said that.
My personal thoughts about an emergency fund and investing is always that the risks of both the stock market crash of over 20% and you needing the emergency fund are very very low, unless you are a stock broker or something. Furthermore, if you invest the money and after 2-3 years get a 20% or great return now you are hedged even greater against a loss. Certainly there is moderate risk the first 2-4 years of investing the money, but after that its almost all gravy as any loss is still greater than you had originally if you had not invested it.
Posted on 1/3/17 at 2:01 pm to baldona
Let me also say that it would be pretty bad advice for a financial planner, accountant, etc. to recommend that you invest your "emergency" fund. I would 100% agree there. By pretty bad advice I mean as in I'd probably recommend firing them.
At the same time, on a less professional level I think it is foolish to look at it as a black and white situation.
At the same time, on a less professional level I think it is foolish to look at it as a black and white situation.
Posted on 1/3/17 at 2:55 pm to Elusiveporpi
I wouldn't consider an emergency fund as a potential income source like you would would regular cash. Don't look at not investing as a lost opportunity.
The purpose of the fund is to protect you. The "risk" should be how small are you willing to go with your emergency fund. What you have determined you "need" go savings or CD. I put a big chunk of my EM fund in a 2.25% CD a while back. I'll do more CDs when the rates start going up soon.
The purpose of the fund is to protect you. The "risk" should be how small are you willing to go with your emergency fund. What you have determined you "need" go savings or CD. I put a big chunk of my EM fund in a 2.25% CD a while back. I'll do more CDs when the rates start going up soon.
Posted on 1/4/17 at 12:33 pm to Elusiveporpi
quote:
So I am wanting to invest my emergency fund (15K) in a low risk situation, but have it instantly accessible. My first thought is Blue Chip stocks. is this a good idea? bad idea?
It is a bad idea.
Blue chip stocks aren't low risk for an emergency fund...they are low risk compared to small cap or penny stocks, but if the stock market crashes the blue chips are going to plummet along with everything else. To put this in perspective, go take a look at the 30 stocks that comprise the Dow Jones Industrial Average....those companies are as 'blue chip' as it gets, and when the market went to shite in 2008 the Dow went down over 50%. And since a market crash usually results in a lot of jobs being lost, that is about the worst possible time for your emergency fund to take a nosedive.
Just find as high an interest rate as you can on a good savings account or CD, stick your emergency fund in there and don't touch it unless you encounter an emergency. It's not an investment....it's an insurance policy.
This post was edited on 1/4/17 at 12:40 pm
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