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re: Emergency Fund
Posted on 3/19/14 at 2:38 pm to Teddy Ruxpin
Posted on 3/19/14 at 2:38 pm to Teddy Ruxpin
quote:
ETA: If I do this, I might have to move some stuff around for tax efficiency. Doesn't look like the popular options of STAR, Wellesley or Wellington look particularly efficient, but maybe I'm a dumby.
I use Wellesley in a taxable account. Not a lot of downside risk, but the punch of 1/3 stocks and a 2-3% yield. Suits my risk tolerance and I refuse to think of the Roth as an emergency fund.
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Posted on 3/19/14 at 3:01 pm to Lsut81
I guess I was aware of the SIPC - just not the specifics.
In any event - that doesn't necessarily protect in case of a global financial meltdown and freezing of brokerage transactions.
For that matter, FDIC, a government corporation, can't protect from dozens of bank failures.
In each case, they appear to protect invididuals against a single brokerage/bank failure.
I still believe that banks will be liquid longer - if only for a few hours - based on the cash on hand.
I also predict they come back up faster, in a crisis - I stand by my analysis - and maybe I should have argued for banks beyond the somewhat specious FDIC protection.
In any event - that doesn't necessarily protect in case of a global financial meltdown and freezing of brokerage transactions.
For that matter, FDIC, a government corporation, can't protect from dozens of bank failures.
In each case, they appear to protect invididuals against a single brokerage/bank failure.
I still believe that banks will be liquid longer - if only for a few hours - based on the cash on hand.
I also predict they come back up faster, in a crisis - I stand by my analysis - and maybe I should have argued for banks beyond the somewhat specious FDIC protection.
Posted on 3/19/14 at 10:24 pm to reb13
quote:
I do not understand the need for a savings account, what expense cannot be put on a credit card while you unwind your brokerage account? It takes what, 5 days max to get the money?
This was my strategy for a long time, I kept all cash "working" for me and had a 20k personal line of credit I could tap at any time. Then 2008 came along and the bank cancelled my LOC, a week before I received notice that I was being laid off. It was amazing how fast I went from what I thought was being perfectly set up to the brink of having to liquidate holdings right at the bottom. I got through it, barely, without having to take any big losses. But there were a couple months there where I did any and all odd jobs I could scratch together to cover the bills. Then I found an even better job and have lived happily ever after, but since that experience I keep a fully funded emergency fund in a savings account that only a complete and systemic collapse would destroy. Likely over-kill, but I promised myself I'd never again be at the mercy of someone/something else in an emergency.
Posted on 3/20/14 at 11:53 am to GrantTheFan
I understand where you are coming from.
But my rationale is simply that as long as it can spend 5 years + in there, even if I have to withdraw in a down turn the account has still made money for me. So the imaginary losses don't really matter to me. The money I put in is still there.
As long as you can get that you don't ever lose anything.
Remember, the point of putting it in an investment account is to earn money if NOTHING ever happens and it isn't needed. As long as you can pull out what you put it, you didn't incur any losses, no matter where the market is at. Period.
If you invest as part of your emergency fund it is very important that it be by itself, and not just a part of a larger pot.
But my rationale is simply that as long as it can spend 5 years + in there, even if I have to withdraw in a down turn the account has still made money for me. So the imaginary losses don't really matter to me. The money I put in is still there.
As long as you can get that you don't ever lose anything.
Remember, the point of putting it in an investment account is to earn money if NOTHING ever happens and it isn't needed. As long as you can pull out what you put it, you didn't incur any losses, no matter where the market is at. Period.
If you invest as part of your emergency fund it is very important that it be by itself, and not just a part of a larger pot.
This post was edited on 3/20/14 at 12:39 pm
Posted on 3/20/14 at 12:06 pm to Volvagia
quote:
If you invest as part of your emergency fund it is very important that it be by itself, and not just a part of a larger pot.
Great point. Doesn't seem to get brought up in these discussions much.
This post was edited on 3/20/14 at 12:07 pm
Posted on 3/20/14 at 1:00 pm to GoCrazyAuburn
My concern with this line of thinking is not whether or not you will have access to the funds, it is what the fund balance will be.
An emergency fund is a pot of money that can be tapped in an emergency. It doesn't do a tremendous amount of good - the way I look at it - to have it subject to the risk of the market.
So, if you were going to invest your emergency fund, I would reccomend a very safe plain vanilla investment - something not likely to have large swings in value. Of course, something like that won't have much of a payout. Plus, you would want to find an account/investment with little or no fees and charges.
An emergency fund is a pot of money that can be tapped in an emergency. It doesn't do a tremendous amount of good - the way I look at it - to have it subject to the risk of the market.
So, if you were going to invest your emergency fund, I would reccomend a very safe plain vanilla investment - something not likely to have large swings in value. Of course, something like that won't have much of a payout. Plus, you would want to find an account/investment with little or no fees and charges.
Posted on 3/20/14 at 1:30 pm to GoCrazyAuburn
quote:
Great point. Doesn't seem to get brought up in these discussions much.
Doesn't seem like that big a deal. You can just separate it out by buying into a different fund than the rest of your holdings. A holding that I imagine has a healthy bond allocation for stability.
For example, if you retirement accounts are all Index ETFs (VTI, VWO, VEA, VXUS, VSS, etc), you can "mix" your emergency fund in there with STAR, Wellesley or whatever else people like.
This post was edited on 3/20/14 at 1:32 pm
Posted on 3/20/14 at 1:47 pm to Teddy Ruxpin
Well right, that's what I meant.
Not that it's in it's own account, but that it's in it's own fund where 100% of the money is intended for emergency expenses.
Not that it's in it's own account, but that it's in it's own fund where 100% of the money is intended for emergency expenses.
Posted on 3/20/14 at 1:52 pm to Volvagia
There are several short term bond funds that would work. That Lord Abbett fund is a good one but you have to pay a load, Prudential has one. Leaders Capital has a really good one, but they have high minimums.
This post was edited on 3/20/14 at 1:53 pm
Posted on 3/20/14 at 1:59 pm to Volvagia
quote:
Well right, that's what I meant.
Not that it's in it's own account, but that it's in it's own fund where 100% of the money is intended for emergency expenses.
Ya, I might have read that other guy's post wrong.
In any event, I'm slowly doing this with my emergency funds instead of them just sitting in the money market portion of my ROTH.
At some point, I'll have to evaluate what is happening in my ROTH vis a vis a potential taxable account/traditional IRA, as we will be within about 10 grand of the income limits once we are married.
I have to see what kind of problems that may cause for me if I make my ROTH purely emergency fund with some bonds in there for tax advantages, while the index ETFs are moved to a taxable account once I build enough wealth to have to make that kind of move.
If any body has a thought about this, I'd appreciate it.
This post was edited on 3/20/14 at 2:00 pm
Posted on 3/20/14 at 3:36 pm to Teddy Ruxpin
quote:
Ya, I might have read that other guy's post wrong.
Yea, where I was going was that the ones here inquiring about using a Roth as an EF, may not think to allocate that portion accordingly. They may just be thinking keep the Roth invested as is.
Always good to be more specific about it.
Posted on 3/20/14 at 6:28 pm to GoCrazyAuburn
What about using a Universal Life policy? I have a policy about ten years old with some cash in it right now. Would that make a good place to put some money as opposed to a savings account?
Posted on 3/20/14 at 7:39 pm to Teddy Ruxpin
quote:
(I already max my 401k match and ROTH for both the fiancee and myself). Right now I have 10k in a "high yield" online savings account.
Where would you put house down payment savings? Looking to buy before 2017, most likely late 2015 or in 2016.
First off, do you max the 401, or just contribute enough to get the maximum match?
Second, rates are still very good, I'd be pulling whatever strings I could to go ahead and get the house earlier even if you have to pay PMI for a little while. Run the numbers first, of course.
Posted on 3/20/14 at 7:44 pm to GrantTheFan
quote:
I kept all cash "working" for me and had a 20k personal line of credit I could tap at any time. Then 2008 came along and the bank cancelled my LOC, a week before I received notice that I was being laid off. It was amazing how fast I went from what I thought was being perfectly set up to the brink of having to liquidate holdings right at the bottom.
But how much more did you have though by not having had to "set aside" anything? For example, if you put $1000 in a Roth and $4000 in a savings account when you could have put the full amount in the Roth, the latter is still the better choice even if you lose your job, etc.
Posted on 3/21/14 at 12:09 am to foshizzle
I do up to 401k match, so I know I have more room there to take advantage of tax sheltering but wasn't sure if the issues with earning money on down payment money would necessitate not being able to use it at this time (401k penalty).
In any event I think my time horizon is Too limited to invest that money because I do want to purchase soon to take advantage of rates.
In any event I think my time horizon is Too limited to invest that money because I do want to purchase soon to take advantage of rates.
This post was edited on 3/21/14 at 12:25 am
Posted on 3/21/14 at 12:28 am to BurlesonCountyAg
For an emergency fund? I'd not suggest that. I'm not a huge fan of universal life as it is, but if you have the cash value already built up, yes it could serve as an okay emergency fund i guess.
I just have a lot of issues with the structure of many universal life policies.
I just have a lot of issues with the structure of many universal life policies.
This post was edited on 3/21/14 at 12:28 am
Posted on 3/22/14 at 7:23 pm to Teddy Ruxpin
quote:
In any event I think my time horizon is Too limited to invest that money because I do want to purchase soon to take advantage of rates.
If you're looking to buy a place where you will stay a while (or at least own a long time) that's certainly something to consider.
I was fortunate enough to refinance my place last year for 30 years at 3.25%. A hell of a great deal but of course that means I'm not selling for 30 years.
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