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re: Best strategy for emergency fund savings?
Posted on 4/30/15 at 10:59 am to Teddy Ruxpin
Posted on 4/30/15 at 10:59 am to Teddy Ruxpin
quote:
Remember when MMs paid 6% or whatever now unfathomable number?
Those were the days, I never got to enjoy that.
most I ever saw was like 4%.
2
Posted on 4/30/15 at 11:00 am to Teddy Ruxpin
I've never really understood why Average Joe kept on using typical cash savings at about the same rate as before when you lost the ability to save it at a rate below inflation (outside of a few exception periods when inflation dipped REALLY low/went negative).
Posted on 4/30/15 at 11:09 am to Volvagia
If you are investing in anything more conservative than your retirement goals require strictly because you are using part of your Roth as an emergency fund, you are wasting money. Not to mention not being able to replace the withdrawals should you have to use it.
If you can afford to fully fund your Roth you are better off, all things considered, to use a taxable or bank savings account.
If you are just starting out, maybe there is a sound reason for it. I don't like it and don't advise anyone to do it because you get in the habit of withdrawing from an account meant for retirement. Some can handle that discipline, but plenty can't. Raiding retirement accounts is only for an Armageddon scenario.
If you can afford to fully fund your Roth you are better off, all things considered, to use a taxable or bank savings account.
If you are just starting out, maybe there is a sound reason for it. I don't like it and don't advise anyone to do it because you get in the habit of withdrawing from an account meant for retirement. Some can handle that discipline, but plenty can't. Raiding retirement accounts is only for an Armageddon scenario.
Posted on 4/30/15 at 11:15 am to Sigma
Again, only if you were putting that money in your Roth FOR RETIREMENT and just calling it your emergency fund.
I have never recommended doing that.
If I clean out my Roth, it won't severely damage my ability to retire at a near typical age, because I'm also putting in ~20% in a 401k/Roth 401k on top of my personal Roth holdings.
I DONT consider my Roth to be part of my core retirement planning. I just use it as a tax shield for assets, regardless of labels. If I never have to touch it, cool, I'll have the choice to retire before 50.
I have never recommended doing that.
If I clean out my Roth, it won't severely damage my ability to retire at a near typical age, because I'm also putting in ~20% in a 401k/Roth 401k on top of my personal Roth holdings.
I DONT consider my Roth to be part of my core retirement planning. I just use it as a tax shield for assets, regardless of labels. If I never have to touch it, cool, I'll have the choice to retire before 50.
This post was edited on 4/30/15 at 11:16 am
Posted on 4/30/15 at 11:22 am to Sigma
quote:
don't advise anyone to do it because you get in the habit of withdrawing from an account meant for retirement.
if its really for emergencies, then this shouldn't be a problem. Now, if your emergency includes a vacation or something like that then yes I agree with you.
Posted on 4/30/15 at 1:10 pm to Volvagia
quote:
Wellesley Income fund for emergency purposes. 60% bonds, 40% large cap value.
I've used Wellesley in the past and been happy. Performance is great but I'm getting the itch to move away from active management to LifeStrategy Conservative.
Posted on 4/30/15 at 1:41 pm to Volvagia
quote:
but I've converted due to others here and recommend their Wellesley Income fund for emergency purposes.
60% bonds, 40% large cap value.
With a possible interest rate hike this summer, what kind of hit are bonds looking to take?
Posted on 4/30/15 at 2:02 pm to weskarl
What type of bonds? The impact is determined by the duration.
Bonds aren't suddenly a good conservative investment anymore because of the rising interest rate environment.
And you have to keep in mind that an interest rate increases affects the yields of the bonds in a positive way.
Bonds aren't suddenly a good conservative investment anymore because of the rising interest rate environment.
And you have to keep in mind that an interest rate increases affects the yields of the bonds in a positive way.
Posted on 4/30/15 at 2:12 pm to Volvagia
Let's say VBMFX:
and the 65% of VWINX:
and the 65% of VWINX:
This post was edited on 4/30/15 at 2:13 pm
Posted on 4/30/15 at 4:44 pm to Croacka
quote:
by Croacka
I can probably counter point most any point you could make about not putting it into a roth
Well, I've made my points already. What are the counters?
Posted on 4/30/15 at 5:02 pm to Hawkeye95
quote:
most I ever saw was like 4%.
4% sounds unfathomable now doesn't it?
The Vanguard MM:
5.35% since 1975; counting the last decade of suck.
10 Year: 1.58%
5 Year: .03%
It gets worse from there
This post was edited on 4/30/15 at 5:05 pm
Posted on 4/30/15 at 5:07 pm 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.
The comment is directed towards people who haven't already maxed out their Roth. They would have wasted that opportunity already. No one ever suggested to someone who already fully funds his Roth to start just calling that his emergency fund and use a taxable account for retirement.
quote:
In a true emergency I want access to the money that day too.
Why? Do you not have a credit card? Please tell me a couple of situations where you would absolutely require $10k in cash, in your hand, in less than 24 hours.
quote:
Getting it out of a Roth would probably take at least a week or so.
Probably so. But any major expenses that I would have in that week would go on my credit card and be paid off the next month anyway.
The idea of an emergency fund isn't saying you shouldn't have an extra $1k or $2k in your checking account for some quick cash when an unexpected expense arises. An emergency fund is for when something very bad happens... ie a major accident or losing your job or something where expenses are inevitable and income is lost and/or delayed.
Posted on 4/30/15 at 5:18 pm to Shadowlink
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.
Just because you put it in a Roth doesn't mean you have to put it in stocks. Some banks offer Roth IRA money market accounts, which should yield as good or better rates than your typical savings account.
That being said, you may want to just sock it away in a traditional money market account or an online money market account, then put all of your new savings into a Roth IRA with a longer term horizon.
Posted on 4/30/15 at 5:44 pm to kennypowers816
quote:
The comment is directed towards people who haven't already maxed out their Roth. They would have wasted that opportunity already. No one ever suggested to someone who already fully funds his Roth to start just calling that his emergency fund and use a taxable account for retirement.
Agreed. And I think emergency fund should be priority #1 personally. Get there, then fund your Roth. It's just not a good habit to mix these goals up IMO, I never want to withdraw contributions. I get your logic that it's still wasted if it's never funded to begin with, but I just wouldn't reccomend the strategy.
Of course I have a credit card. And I'd likely use it for any emergency and then pay it off just to get the points like I do for 99% of all purchases, but there's something to be said of having truly liquid same day cash as well. Again, just my opinion.
Posted on 4/30/15 at 6:58 pm to weskarl
About 5.6% for every 1% increase in interest rates for the total bond fund, and 6.4% for the Wellesley.
However, if you hold assets for at least 7.8 years for VBMFX and 9.4 years* for the Wellesley, then the losses due to interest rate don't really apply to you.
***The calculation is based on pure bonds. The fact that this fund is mixed with stocks and is rebalancing with the two portions means that effectively this duration of sensitivity is much less, but less able to be calculated.
However, if you hold assets for at least 7.8 years for VBMFX and 9.4 years* for the Wellesley, then the losses due to interest rate don't really apply to you.
***The calculation is based on pure bonds. The fact that this fund is mixed with stocks and is rebalancing with the two portions means that effectively this duration of sensitivity is much less, but less able to be calculated.
Posted on 5/1/15 at 9:06 am to TigerDeBaiter
quote:
I get your logic that it's still wasted if it's never funded to begin with, but I just wouldn't reccomend the strategy.
Why would you not recommend it?
quote:
And I think emergency fund should be priority #1 personally. Get there, then fund your Roth.
They are not mutually exclusive.
quote:
It's just not a good habit to mix these goals up IMO, I never want to withdraw contributions.
So its better to waste the opportunity to contribute so that you can avoid the risk of withdrawing?
quote:
there's something to be said of having truly liquid same day cash as well
Like what?
You said you wanted someone to respond to your points so why can't you respond with some logical answers? I'd love to know what you need the cash so fast for.
Overall, my point is that you should take every advantage you can and make your money work for you (even if that just means putting it in a tax advantaged account). If you're going to have money sitting in a savings account instead of a Roth just because you can get to it quicker, you might as well have a safe full of Benjamins at your house.
Posted on 5/8/15 at 7:39 pm to UGATiger26
GE Capital, Capital One, Ally and American Express (among others) all have online savings accounts hovering around 1%, if that's what you looking for.
I've used American Express, GE Capital and Capital One in the past - I got around $300 in total bonus cash by opening two Capital One 360 accounts (savings and checking). All are safe places to stash cash at above (savings account) rates. In fact, once I determined that the transfers could be completed in less than 72 hours, I began using the Capital One savings account as a cash sweep account linked to my trading account. Why get .01% from the brokerage, when I can get rich off that whopping .75%?! They may still be running the bonus rewards offer for opening an account. I'm not sure. And the customer service at both Capital One and American Express are excellent - GE Capital is more so-so, IMO.
I've used American Express, GE Capital and Capital One in the past - I got around $300 in total bonus cash by opening two Capital One 360 accounts (savings and checking). All are safe places to stash cash at above (savings account) rates. In fact, once I determined that the transfers could be completed in less than 72 hours, I began using the Capital One savings account as a cash sweep account linked to my trading account. Why get .01% from the brokerage, when I can get rich off that whopping .75%?! They may still be running the bonus rewards offer for opening an account. I'm not sure. And the customer service at both Capital One and American Express are excellent - GE Capital is more so-so, IMO.
This post was edited on 5/8/15 at 7:41 pm
Posted on 5/8/15 at 8:17 pm to Croacka
Do not put your emergency fund into a Roth. There are fees and volatility so you could go down in value as a passive investor. Just put it somewhere liquid. If you want to find a checking acct that earns 1% go for it and you can make $150/year.
I have heard the pentagon federal credit union has the best rates, but I honestly haven't shopped it. Congrats on the emergency fund.
I have heard the pentagon federal credit union has the best rates, but I honestly haven't shopped it. Congrats on the emergency fund.
Posted on 5/8/15 at 10:00 pm to Hawkeye95
quote:
most I ever saw was like 4%.
same here. that was back in late 90's if i recall. Then went down to 2% and now down to nothing basically.
Posted on 5/9/15 at 9:53 am to Volvagia
quote:
I've converted due to others here and recommend their Wellesley Income fund for emergency purposes.
That is how I initially grew my Roth/emergency fund. Once I hit 10k, I started funding a more aggressive fund.
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