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Move emergency savings to a safe balanced fund with higher returns?
Posted on 8/13/20 at 8:27 am
Posted on 8/13/20 at 8:27 am
I’m sure the answer here is “hell no” but what do y’all think about that? I’m currently earning 0.95% but would it be safe to move it all to a balanced mutual fund which has earned, say, 9-10% since inception? They’re the safest funds, right? I just would hate to have the bottom fall out and lose big. Am I dumb for thinking this?
10
Posted on 8/13/20 at 8:37 am to TDsngumbo
quote:
Move emergency savings to a safe balanced fund with higher returns?
No.
If you move an emergency fund into the market, you no longer actually have an emergency fund.
Posted on 8/13/20 at 8:44 am to TDsngumbo
I would say it depends on how easy it is to access. If you need 3-5 days to get the money, then it really doesnt help for Emergencies
Posted on 8/13/20 at 8:46 am to TDsngumbo
No. Stick it in a Prime Money Market Fund and leave it alone until you need it for an emergency. Even that takes 2'ish days to roll back to you.
Posted on 8/13/20 at 8:55 am to TDsngumbo
Like others above me, my answer is no do not do this. Conversely, if you want to take a hard look and evaluate the amount of money you have in your emergency fund, and determine that it is plenty enough, you could pull out a portion of it to put in the market. That’s absolutely based on your situation and risk tolerance though.
Posted on 8/13/20 at 8:58 am to TDsngumbo
Maybe. I have a boatload of unused credit--it is as large as my emergency fund. I can float any of those charges for 30 days, which is more than enough time to get my emergency funds out of a slower-to-access account.
Of course, this assumes you've got lots of available credit, and the discipline not to use it on anything.
Of course, this assumes you've got lots of available credit, and the discipline not to use it on anything.
Posted on 8/13/20 at 9:07 am to TDsngumbo
My thinking on an emergency fund continues to evolve.
An emergency fund is, as defined, a backstop that allows you to continue paying bills when faced with unforeseen circumstances. The simplest way of achieving this is putting some stash of funds off to the side in a 'no risk' account so that it is there for a rainy day. This is what most define as an emergency fund and for good reason.
The part that it forgotten is access to lines of credit that can also be leveraged. While they eventually need to be paid, they can provide a tremendous amount of liquidity.
In turn, credit can allow you to take on more risk on the savings to protect the principle from inflation. I transparently haven't found what I consider to be the 'right balance' but this line of thinking creates another dimension.
An emergency fund is, as defined, a backstop that allows you to continue paying bills when faced with unforeseen circumstances. The simplest way of achieving this is putting some stash of funds off to the side in a 'no risk' account so that it is there for a rainy day. This is what most define as an emergency fund and for good reason.
The part that it forgotten is access to lines of credit that can also be leveraged. While they eventually need to be paid, they can provide a tremendous amount of liquidity.
In turn, credit can allow you to take on more risk on the savings to protect the principle from inflation. I transparently haven't found what I consider to be the 'right balance' but this line of thinking creates another dimension.
This post was edited on 8/13/20 at 9:11 am
Posted on 8/13/20 at 9:37 am to lynxcat
I use credit and savings for emergency.
The problem with credit is that it can go away when the shite hits the fan.
Creditors arent dumb. You may use the credit as an emergency fund, but other people in a catastrophic economic climate use credit for survival before bankruptcy.
How much available credit got pinched back in 2008?
Do you remember that the wall street was predicting an elimination of trust in banks (which would have made debit/credit cards unusable for payment). That was their doomsday prediction as banks were closing and debts were forcibly assumed by larger banks who were also struggling.
The problem with credit is that it can go away when the shite hits the fan.
Creditors arent dumb. You may use the credit as an emergency fund, but other people in a catastrophic economic climate use credit for survival before bankruptcy.
How much available credit got pinched back in 2008?
Do you remember that the wall street was predicting an elimination of trust in banks (which would have made debit/credit cards unusable for payment). That was their doomsday prediction as banks were closing and debts were forcibly assumed by larger banks who were also struggling.
Posted on 8/13/20 at 9:45 am to TDsngumbo
When will you be needing this money?
If you could answer this, I could give you a better answer.
If you could answer this, I could give you a better answer.
Posted on 8/13/20 at 9:48 am to TDsngumbo
I think the simple thought process is to keep a small amount in a savings or money market that is easy to get to. Move most of your stash to something that earns more interest.
To me the old saying about having 6 months of your salary(or whatever it is) sitting in a traditional emergency account is just dumb.
To me the old saying about having 6 months of your salary(or whatever it is) sitting in a traditional emergency account is just dumb.
Posted on 8/13/20 at 10:31 am to notiger1997
Spending shock v Income shock Vanguard blog
quote:
The next step is to decide where to stash your money. Clients often ask which Vanguard fund is best for emergency savings. For the spending shock portion, there’s no question. Keep it in a money market fund or savings account. That way, it will be easy to tap and low-risk. When it comes to the 3–6 months of living expenses you’ll need for an income shock, it’s important to keep your money accessible, while also giving it a chance to grow. That means you should keep it in an account that won’t charge you penalties or place restrictions on withdrawals but will allow you to invest in assets that may generate a return. In a recent research paper, Break glass in case of emergency, we analyzed different account types and whether they’re appropriate for emergency savings. Here’s a quick glance of the best places to save for both types of emergencies:
Posted on 8/13/20 at 12:29 pm to TDsngumbo
emergencies tend to happen when the market is down.
Posted on 8/13/20 at 12:34 pm to TDsngumbo
Put it in a total market fund (fzrox) or bond fund (fxnax 6% average return since inception since 1990). Keep say 10K or so of it in bank account. I've never needed 10K at the drop of the hat so to me thats plenty. Your other option is keep in a bank account and lose 2% to inflation every year.
This post was edited on 8/13/20 at 12:41 pm
Posted on 8/13/20 at 1:12 pm to notsince98
quote:
emergencies tend to happen when the market is down.
Umm, no. Many expense emergencies, like a named hurricane blowing off your roof, happen quite independent of the markets. My named-storm hurricane deductible is a big fat chunk of cash, so I need to be prepared to fork it over. But in any given year, my chances of needing it are pretty low. I’m not leaving that cash in a paltry 0.9% account for years on end. I’ve got sufficient credit to put a new roof on my house if needed, while the funds are moved around.
Ditto for floods, health emergencies, family tragedies, etc.
Posted on 8/13/20 at 2:07 pm to hungryone
quote:
Umm, no. Many expense emergencies, like a named hurricane blowing off your roof, happen quite independent of the markets. My named-storm hurricane deductible is a big fat chunk of cash, so I need to be prepared to fork it over. But in any given year, my chances of needing it are pretty low. I’m not leaving that cash in a paltry 0.9% account for years on end. I’ve got sufficient credit to put a new roof on my house if needed, while the funds are moved around.
Ditto for floods, health emergencies, family tragedies, etc.
You seem to be listing things that are typically insured. A loss of income is typically the biggest issue people setup emergency funds for. People tend to lose jobs when the economy goes down.
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