Safe Place for Emergency Fund

audreyh1 said:
Opportunity cost, huh? If someone convinces themselves that every last dollar they have invested must be in the absolute top yielding or fastest growing asset, we know they are setting themselves up for a wild ride. Most people don’t choose to do that. So once you back off from maximizing long term return overriding every other consideration, you can’t sweat the opportunity cost so much.

I honestly don’t worry about only getting 2.3% to 2.5% on my short term cash type investments compared to longer term or lower credit quality bonds or equities.

I have so much invested in equities that I feel I can “afford” to have plenty of conservative investments as well.
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I think you misunderstood what I said. It is simply a risk-reward analysis I did at the time.

I am not 100% stocks at present. But there was a time in my accumulation stage when I was. And it made financial sense compared to keeping a large low-return emergency fund, in my opinion. Insurance is not free.

But people can assess the risks and decide differently. I am ok with that.

I also have heard people insist on keeping an emergency fund while maintaining credit card debt they could use their emergency fund to pay off. These good ideas (emergency fund) can be taken too far in my view.

I certainly have never "convinced myself" to only invest in the fastest growing assets as you suggest.
 
thelmers said:
With the inflation rate at about 2.45 and the best savings account rate at only 2.25, are there any other safe places to park my emergency fund money?
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The official inflation rate (CPI) is irrelevant. Your personal inflation rate is what matters. Your consumption of goods and services undoubtedly has a mix far different than what the government assumes when calculating the CPI.



The safest place to put any spare cash is US Treasury bills which are paying about 2.45% right now and are the the most liquid securities on the planet. However, with an emergency fund you shouldn't be concentrating on beating some artificially calculated number. You should be concentrating on making sure it is there if you need it.
 
Montecfo said:
After I had accumulated taxable investments I felt I did not need a separate emergency fund. You will accumulate less money if you maintain one, and I saw no need.

When you put a bunch of money in a MMF you are taking a loss every month to prevent a much smaller loss that might never happen.
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Spoken like someone who has ZERO understanding of risk management
 
jldavid47 said:
Spoken like someone who has ZERO understanding of risk management
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That's a bold statement. Maybe he actually understands risk management quite well and is therefore able to apply his approach with minimal risk?

Now, if you've got everything in bitcoin, obviously you are correct. However, if you have a portfolio worth a few million dollars, have an AA that you are comfortable with (maybe 10% is in a short term bond fund or ETF), Montecfo could very well be correct, minimally for his own situation.
 
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An emergency fund is great while you are in the early accumulation phase. But once ER'd most of us have a small cash balance of say a year or + in expenses, in easily accessed accounts such as the various high yield savings and cd's mentioned.

But yeah, once ER'd (or even once you have a healthy taxable saving accumulated) there's no need for a separate carve-out for emergency vs. regular expenses.

If I were counseling someone young starting out, then a clear Emer fund is the first thing you do, especially if you're otherwise prone to creating debt when the roof needs repairs. But once you can just write the check for the new roof no sweat, it's no longer a thing you need.

ETA: and yes even once ER'd if you don't keep much liquid, then a credit card solves the immediate/emer issue, while you then figure out what to sell to pay for it - still no debt, no interest has time to accrue, so credit cards become part of any back up plan. Another reason why we took a Heloc before retiring. Just in case.
 
Even though retired, we are building up an EF for large purchases, as the taxable account is being used for ACA income management.
Just different ways of getting to the end result.
 
jldavid47 said:
Spoken like someone who has ZERO understanding of risk management
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Welcome to the forum. It will be good to have a true expert in risk management around here.

But I don't understand your comment. Would you please amplify and explain? It would be helpful if you did it in terms of the usual dimensions: probability, impact, and cost to mitigate.

Thanks.
 
Interesting topic re: risk management. I have always felt the market is managing me and I'm just along for the ride. My only mitigation I can come up with is save more and let it ride in a 60/40 portfolio.
 
Threads have ways of going off on tangents (not a bad thing in most cases). The topic of this one seems pretty straightforward: a safe place for an emergency fund. I think I “over-answered”. The place I’ve chosen is a solid money market fund (Vanguard).
 
What sort of emergencies are you folks thinking of that require this short-term, instant liquidity thinking?
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Sleep. Sleep is very important to me.

For full disclosure, I have two years of "cash" at Ally which I may need in 2020 and 2021 IF megacorp cancels all retiree medical coverage. This is what we'd live on for ACA income purposes. In 2022, when I get on Medicare (God willing), that money will get invested according to our AA.

And, we also have an untouched HELOC which I sort of consider an emergency fund. I don't have a mission statement written out for tapping it, but I'll know it when I see it.

I suspect as we get further into retirement, we'll be less concerned about eating cat food. Right now, it's still in the back of our minds. To each his own.
 
OldShooter said:
Most of this doesn't make any sense to me.

I see an emergency fund as a reasonably significant chunk of money that is set aside and probably never accessed. If that is the case, then it is of little concern to me if I need to wait a day or two for a trade to settle. Also, since the fund is essentially a long-term investment why would I worry about risking some small penalty in the unlikely event I need access to the investment before maturity?

Said another way, if that is the scenario why would I take the yield hit that comes from demanding short-term liquidity?

What sort of emergencies are you folks thinking of that require this short-term, instant liquidity thinking?

(Another option to avoid this angst is to not have a separate emergency fund at all, but simply to set up a credit line that can be hit in an emergency then repaid from one's investment portfolio.)
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One potential issue with a credit line is that if the 'emergency' is a result of more massive economic activity, the credit line might disappear. This has happened during credit crisis events and was a frequent occurrence in the late 2008 - 2010 time frame. While it was mostly done on HELOC's, it wasn't limited to HELOC's.

Otherwise, I'm with you - I have very little in terms of instantly available cash from my local bank, but plenty of assets I can tap w/i a couple/few days. I've even done six figure short term margin loans & wired the money (same day) - expensive in terms of rate but who cares if it is only for a few dys.
 
Navy Federal offers a 6 month CD good for 2.960% a 17 month CD good for 3.2% and a 12 month 3.44% . These are special "limited CDs" meaning you can only have one of each and the 12 month is limited to a max of 3K

Long story short is my wife and I have one of each so we always have some money coming available usually rolling it into the best paying option we have available. We used to keep a large stache of cash ;however, the recent rise in interest rates finally made it worth the hassle get most of the cached cash to the credit union.



We have found that during normal life events, roof repairs, new furnace new transmission etc., putting it on plastic allows the time to get it paid in full before the float is over. We actually have a savings account that is currently earning 2.5% that is automatically making payments on a couple of 0% credit cards we used for two home expenditures . We figure that if the retailer will hold a note for free we will earn interest on the money we saved up for the purchases. Putting the money in the account and setting up autopay ensures we don't end up paying the onerous finance charges that occur if you miss a payment or don't have it paid off during the ("free finance period")
 
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njhowie said:
That's a bold statement. Maybe he actually understands risk management quite well and is therefore able to apply his approach with minimal risk?

Now, if you've got everything in bitcoin, obviously you are correct. However, if you have a portfolio worth a few million dollars, have an AA that you are comfortable with (maybe 10% is in a short term bond fund or ETF), Montecfo could very well be correct, minimally for his own situation.
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Somehow I've managed for decades to be a CFO responsible to my board of directors for risk management, among other things, while knowing nothing about it.

There is certainly a different and more highly plausible possibility.
 
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(I am not following the above discussion, so nothing personal meant in the following as it is addressed to the entire forum: )

You all would have a cow if you looked at my finances.

I really don't care if my bank account doesn't provide the highest interest ever. It's for money that I plan to spend in the next year or so.

And (please don't faint or throw up!) I have enough in it to pay for that new Highlander or Lexus SUV if/when I get around to buying it, as well as for all of my 2019 living expenses.

So, for now that doubles as my emergency money unless I spend it all down to zero (which is doubtful in the near future).
 

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W2R said:
(I am not following the above discussion, so nothing personal meant in the following as it is addressed to the entire forum: )

You all would have a cow if you looked at my finances.

I really don't care if my bank account doesn't provide the highest interest ever. It's for money that I plan to spend in the next year or so.

And (please don't faint or throw up!) I have enough in it to pay for that new Highlander or Lexus SUV if/when I get around to buying it, as well as for all of my 2019 living expenses.

So, for now that doubles as my emergency money unless I spend it all down to zero (which is doubtful in the near future).
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Oh the horror! I have $276k sitting in a MM fund waiting to pay for stuff over the next year (college, taxes, vacation, home improvements). There's a little extra if momma gets the urge to stop by the BMW dealership (she has the green light). The terrible part is it is an average MM fund that is taxable. I should be rolling 3 month T-bills with FIDO or chasing CD rates.
 
corn18 said:
Oh the horror! I have $276k sitting in a MM fund waiting to pay for stuff over the next year (college, taxes, vacation, home improvements). There's a little extra if momma gets the urge to stop by the BMW dealership (she has the green light). The terrible part is it is an average MM fund that is taxable. I should be rolling 3 month T-bills with FIDO or chasing CD rates.
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:LOL: :2funny: :ROFLMAO: Exactly, GMTA!!! ("Great Minds Think Alike!")
 
audreyh1 said:
I think some people are just saying things in a different way. If you have a large portfolio of investments, you likely have a pretty good chunk in reasonably liquid short-term investments unless you are a very aggressive investor. Those are easily tapped in case of emergency, and replenished later when it is prudent to do so investment-wise.
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Right. The thing is, the bulk of an emergency fund does not usually need to be liquid cash *immediately*, but within a small number of days it needs to be convertible into cash. So you can use short-term investments for a large chunk of it (not all of it) in almost all cases.
 
ziggy29 said:
Right. The thing is, the bulk of an emergency fund does not usually need to be liquid cash *immediately*, but within a small number of days it needs to be convertible into cash. So you can use short-term investments for a large chunk of it (not all of it) in almost all cases.
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This is why I have layers, or tiers, of money with different levels of access and liquidity. The most amount of hard cash I have needed in a pinch, at least in recent year, has been $250. I have needed to write checks off the muni bond fund account right away for as much as $1,500. That amount would be too much for my local bank's cushion, but not a problem for the much larger bond fund which sits around earning 2-2.5% interest, mostly tax-free.
 
Treasury bonds are also an option. Click the following for more info.

https://www.thestreet.com/investing/buy-treasury-bonds-14875437

To protect you against inflation...read about TIP is this article.

What you are doing is lending Uncle Sam your money and Uncle Sam agrees to pay you interest on the Treasury Bond. Some people are comfortable with this while other people are not.

However, if Uncle Sam goes under, how do they pay off the CD? I am not smart enough to answer this question.
 
During my adult life, most things that one might use an emergency fund for (an urgent need for money today or tomorrow) could be handled by putting it on a credit card and paying it off when due.
 
vchan2177 said:
Treasury bonds are also an option. Click the following for more info.

https://www.thestreet.com/investing/buy-treasury-bonds-14875437

To protect you against inflation...read about TIP is this article.

What you are doing is lending Uncle Sam your money and Uncle Sam agrees to pay you interest on the Treasury Bond. Some people are comfortable with this while other people are not.

However, if Uncle Sam goes under, how do they pay off the CD? I am not smart enough to answer this question.
Click to expand...

Thanks for posting this, as I've yet to buy any from the gov't. So I need to learn how.
 
OldShooter said:
Most of this doesn't make any sense to me.

I see an emergency fund as a reasonably significant chunk of money that is set aside and probably never accessed. If that is the case, then it is of little concern to me if I need to wait a day or two for a trade to settle. Also, since the fund is essentially a long-term investment why would I worry about risking some small penalty in the unlikely event I need access to the investment before maturity?

Said another way, if that is the scenario why would I take the yield hit that comes from demanding short-term liquidity?

What sort of emergencies are you folks thinking of that require this short-term, instant liquidity thinking?

(Another option to avoid this angst is to not have a separate emergency fund at all, but simply to set up a credit line that can be hit in an emergency then repaid from one's investment portfolio.)
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trying to predict the next emergency ( and it's impact on you ) is the name on the game ... are the power and/or phone lines down ( might stop EFT and CC transfers ) and the roads/trains cut ( can't get to a suitable merchant ) maybe widespread computer network failure

something you just need fixed QUICKLY and the tradesman only takes cash ( on the spot ) plumbing , gas , road-side repairs on the vehicle as some examples .
 
I use https://www.treasurydirect.gov/ once you get it all set up its easy..

I only buy " bills " the maturity is 4 weeks... all I did was setup the account and linked my checking account to it... it works like this...

you just log onto the site... input the amount to want to buy...
an example would be $200,000

and when they have the auction they take the discounted amount from your checking account... the discounted amount is what the bill pays in interest for that given 4 week period... so instead of them taking out the $200,000 they will just take out of your checking account $199,630 and the difference ( $270) represents the interest they will be paying you at the end of the 4 week period... $200,000 - $270 = $199,630... so at the end of the maturity they just send you $200,000 into the checking account...

so in this example if you were to do this each month for the year you would have gotten around $3240.00 per year.. if the interest rates didn't change...

hey it pays the insurance/utility bills on the house... for a year...

and if you don't want to mess with it each month they give the option of auto monthly purchase for you...
 
Sunset said:
Thanks for posting this, as I've yet to buy any from the gov't. So I need to learn how.
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Your are welcome.

The critical point: If you wait until the maturity date, you get your principle back from Uncle Sam. However, if you can not wait until the maturity date, you have to sell it on the secondary market. If you sell before the maturity date, you may suffer a loss or gain depending on the interest rate. For example, if you have a 3% treasury bond and the interest rate goes up, then you have to sell it at a loss. I prefer short term government bonds but short term government bonds have lower interest rates. Corporate bonds works similarly but you have be worried about default so they rate corporate bonds as AAA, AA, A, etc

The other option is a short term corporate bond fund such as VFSTX which I like because it provide liquidity in my portfolio. I have 5 years of retirement income in VFSTX while the rest of my portfolio is stock which are designed for performance. VFSTX on the other hand is not designed for performance but for liquidity. I draw from VFSTX for my retirement income so I do not have to worry as much about my performance portion of my portfolio simply because I have 5 years of liquidity. I replenish VFSTX from the stock portion of my portfolio.
 
pb4uski said:
During my adult life, most things that one might use an emergency fund for (an urgent need for money today or tomorrow) could be handled by putting it on a credit card and paying it off when due.
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Often true, though some of them may charge you 3% more to do so.
 
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