Hi guys,
I was looking at emergency funds and had an interesting thought. I'm fairly young, so money invested now is pretty important, however I'm also self employed, so being financially stable is also pretty important. Previously I had a goal of a 12 month emergency fund, however I'm now starting to revise that.
I'm currently saving about 50% of my income per month, post tax. This is pretty regular, steady income. This means each month's savings is a month of emergency funding in case of job loss.
Here's the thought I had - the problem with investing your emergency funds in the market is that obviously if the market drops and then you lose your job or whatnot, you end up selling at precisely the wrong time.
What if you maintained a shorter or non-existent emergency fund, but as soon as the market drops more than 2-3% a month for 2 months in a row, start allocating your investment funds into an emergency fund. It's my belief that it's pretty rare to lose your job the moment the market starts turning south. And if you lost your job/had an emergency while the market was fine, you would immediately withdraw your emergency fund into cash.
Of course once an appropriate emergency fund has been secured, the money should then go straight back into the market. This may even assist with preventing you buying on the way down.
Thus the only way to be caught out would be to have a sudden large drop in the market the moment your job disappeared or an emergency cropped up.
What do you think? Too risky? Too complicated?
I was looking at emergency funds and had an interesting thought. I'm fairly young, so money invested now is pretty important, however I'm also self employed, so being financially stable is also pretty important. Previously I had a goal of a 12 month emergency fund, however I'm now starting to revise that.
I'm currently saving about 50% of my income per month, post tax. This is pretty regular, steady income. This means each month's savings is a month of emergency funding in case of job loss.
Here's the thought I had - the problem with investing your emergency funds in the market is that obviously if the market drops and then you lose your job or whatnot, you end up selling at precisely the wrong time.
What if you maintained a shorter or non-existent emergency fund, but as soon as the market drops more than 2-3% a month for 2 months in a row, start allocating your investment funds into an emergency fund. It's my belief that it's pretty rare to lose your job the moment the market starts turning south. And if you lost your job/had an emergency while the market was fine, you would immediately withdraw your emergency fund into cash.
Of course once an appropriate emergency fund has been secured, the money should then go straight back into the market. This may even assist with preventing you buying on the way down.
Thus the only way to be caught out would be to have a sudden large drop in the market the moment your job disappeared or an emergency cropped up.
What do you think? Too risky? Too complicated?