Emergency Funds

[Tiger]

I am considering not counting my emergency funds as part of my asset allocation and I was wondering how others handle it.

 

[73ss454]

I just leave it in, it's all part of the same #'s in the end.

 

[chinaco]

Yup. Because I know for a certainty that I will not need to spend it.

I am 99.9% positive that I will retire at my company in 4.x years.

I am 99.9% positive that DW will retire at her company in 4.x years

Both companies have survived over 100 years independently. DW company is #1 Mega corp in its primary market. My company is a bit smaller (mutli-billion $ organization) but in the top 10 in its industry... very strong! Plus, both companies are in completely different industries.

Even if one of use got fired (downsized, whatever), the other job is a backup with full retirement health benes. We could easily live on the lowest salary and still save money... we have a very low probability of needing to actually use the money.

Right now, it is the basis for accumulating 3 years of cash for the cash bucket of our retirement income stream. We are putting most savings into cash (and short-term bond) right now in prep for retirement.

 

[accountingsucks]

I try to keep only a couple months expenses as an emergency fund. If I were to get let go, I would still be able to get employment insurance from the gov't and the amount would actually be higher than my monthly expenses. Also if I was really in a pinch I could access $ from my retirement accounts although this would be a worst case scenario. I just don't see the need to keep $10K or whatever in a low interest bearing account for an unlikely event.

 

[Alan]

I can still rmember when the days when my emergency cash reserves was all the savings I had. I count it in with my whole portfolio which is 5% cash these days instead of 100%

 

[NinjaPigeon]

I can still rmember when the days when my emergency cash reserves was all the savings I had. I count it in with my whole portfolio which is 5% cash these days instead of 100%

Heh, that was less than two years ago for me Now, I'm afraid, I've gone too far in the other direction. My emergency fund is too small! So I'm gonna start trying to get it back up to snuff.

 

[Darryl]

I don't count it.
Emergency funds are part of savings for me I've bought in that savings is any money you may/will be using in the next five years and investments are things you will be holding for more than five years.
For me savings are cash or equivalents I use some cash, MMF & online savings acct at 5.05% etc rather than CD's.
Investments are just that and that is where I apply AA thinking.
I noticed Nords promoting Four Pillars and my used copy is in the UPS/Fedex system on it's way. I read another poster in the last week saying that Bernstein says to count Emergency Fund in the AA and I am not feeling a strong conviction with my present approach.

 

[sgeeeee]

I only have one portfolio. I know some people like to think about separate buckets or about their real investments vs their gambling money, etc.

I try to think about everything as one portfolio comprised of many investments with various risk-reward profiles. So the risks of one investment can be balanced with other investments that have different risks.

 

[youbet]

I only have one portfolio. I know some people like to think about separate buckets or about their real investments vs their gambling money, etc.

I try to think about everything as one portfolio comprised of many investments with various risk-reward profiles. So the risks of one investment can be balanced with other investments that have different risks.

Me too. Years ago, I used to think of things as being divided into "buckets," "stashes," "special purpose funds," and so on and so forth. Sometimes I'd add it all up and look at the AA and find my total AA made no sense! It just got simpler to look at everything as one portfolio for purposes of AA.

For example, instead of having a separate emergency fund, I carry an adequate percentage of cash in my one portfolio to provide liquidity for emergency situations if they should arise.

As discussed on another thread, my current AA, at age 59 and about one year into ER is 65% equity, 30% fixed and 5% cash/cash equivalents.

 

[unclemick]

Target Retirement 2015 with a once per year sweep into Prime MM - trying 5% variable as of 12/31.

The rest is lagniappe and fun to jaw about.

40% early SS and non cola pension plus 60% income(estimated) from the 5% variable portfolio takeout.

Bon Temps Rolliere!

heh heh heh - emergency! - holy Bear Bryant Batman! :

 

[d]

i do not count it as part of my investment portfolio, and hence do not count it as part of my asset allocation.

 

[kat]

I keep changing my mind. I used to keep it separate, but stopped yesterday. That's only because when I added it to my port, my total got me closer to the port total I want to have before I splurge and buy myself a Sportsmobile.... The way I figure it, I have the money there somewhere if there's an emergency, and if there's an emergency chances are something else will matter more than the money.

 

[figner]

I don't count it, 'cause I don't rebalance between my emergency fund and my other investments.

 

[SteveR]

Yup. Because I know for a certainty that I will not need to spend it.

I am 99.9% positive that I will retire at my company in 4.x years.

I am 99.9% positive that DW will retire at her company in 4.x years

Both companies have survived over 100 years independently. DW company is #1 Mega corp in its primary market. My company is a bit smaller (mutli-billion $ organization) but in the top 10 in its industry... very strong! Plus, both companies are in completely different industries.

Even if one of use got fired (downsized, whatever), the other job is a backup with full retirement health benes. We could easily live on the lowest salary and still save money... we have a very low probability of needing to actually use the money.

Right now, it is the basis for accumulating 3 years of cash for the cash bucket of our retirement income stream. We are putting most savings into cash (and short-term bond) right now in prep for retirement.

The danger with this logic is emergencies outside of the work place. Health issues (cancer, heart attack, stroke) or accidents can upset even the best laid plans. If one of you were to become disabled would you still be OK without touching your emergency funds for the next 4.X years? What if one of you were killed by a health issue or accident? How would that affect your finances? I see no reason to necessarily have these funds in an isolated account as long as you consider the money there as an emergency reserve that is only to be used in a true emergency. How you have it invested is not as important as having it.

 

[Rich_by_the_Bay]

The danger with this logic is emergencies outside of the work place. Health issues (cancer, heart attack, stroke) or accidents can upset even the best laid plans. If one of you were to become disabled would you still be OK without touching your emergency funds for the next 4.X years? What if one of you were killed by a health issue or accident? How would that affect your finances? I see no reason to necessarily have these funds in an isolated account as long as you consider the money there as an emergency reserve that is only to be used in a true emergency. How you have it invested is not as important as having it.

Exactly.

How you choose to handle emergency funds aside, don't overestimate your invulnerability. It is rare for a catastrophic things to happen in a predictable way.

I have seen 20-somethings become paraplegic overnight. I have seen 30-somethings develop weird and serious illnesses that not only require tons of care and expense, but can only be handled at a few specialty facilities far from home. I've heard of civil lawsuits outside of work where the defendant's coverage is denied by their umbrella carrier because they claimed the action was negligent or illegal or some other legal exclusion. How about a nasty divorce?

I'm not addressing whether you keep your emergency funds separate or mixed with your main portfolio, just a cautionary note that stuff happens. And sometimes in bunches. And often in a way that you never saw coming.