Author Topic: Emergency Fund Investments  (Read 4810 times)

Maya

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Emergency Fund Investments
« on: August 02, 2015, 05:54:23 PM »
We just sold our income property with had a HELOC on it for emergencies so am now need to actually have an emergency fund on hand as well as some money for our potential capital gains tax bill come April. Currently we're keeping about 30 k cash around. I'm wondering what you would suggest as an investment to get a bit better gains, while still protecting it and keeping it accessible for about the next year. Currently we get 0.8% in the savings account.

Our plan is in a year to buy a new house and get a HELOC on it to have for emergencies and have the rest of our money working for us.

Maya

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Re: Emergency Fund Investments
« Reply #1 on: August 02, 2015, 05:55:41 PM »
I'm in Canada

fb132

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Re: Emergency Fund Investments
« Reply #2 on: August 02, 2015, 05:56:38 PM »
I don't know much about your situation, but in my case, whatever money I have leftover at the end of month goes towards my regular investments (90% equities, 10% Bonds). If I am hit with an emergency, I simply pay it off with my leftover money at the end of the month which is usually enough to cover most emergencies. When you have a high savings rate, it can cover most emergencies, unless I get hit with 4K$ like last year when I had to pay to repair the roof. It took me 3 months to pay it off.

protostache

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Re: Emergency Fund Investments
« Reply #3 on: August 02, 2015, 06:05:42 PM »
A year is a pretty tight timeline, especially if you're expecting to need most of it for your new house. I'd stick with the savings account, or maybe shop around for a better interest rate. I don't have any specific advice re: account options, unfortunately.

Retired To Win

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Re: Emergency Fund Investments
« Reply #4 on: August 02, 2015, 06:57:54 PM »
... am now in need to actually have an emergency fund on hand as well as some money for our potential capital gains tax bill come April. Currently we're keeping about 30 k cash around. I'm wondering what you would suggest as an investment to get a bit better gains, while still protecting it and keeping it accessible for about the next year. Currently we get 0.8% in the savings account...

I think you are doing as well as you can expect with your emergency fund money.  The whole point of an emergency fund is for it to be liquid and immediately accessible.  To me, that means having those funds in some kind of cash instrument.  A 0.8% savings account is a reasonable way to go if one is going to meet that liquidity requirement.

MoonShadow

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Re: Emergency Fund Investments
« Reply #5 on: August 02, 2015, 07:07:08 PM »
In my own opinion, if you can get to it within a week, it's liquid enough.  You can do this with a taxable brokerage account just fine, particularly if you use mutual funds and not actual stocks or bonds that have to be sold.  There are quite a few mutual funds that make ideal candidates for an emergency fund accessible within a week.

StacheEngineer

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Re: Emergency Fund Investments
« Reply #6 on: August 02, 2015, 09:51:15 PM »
There are quite a few mutual funds that make ideal candidates for an emergency fund accessible within a week.

I'm interested in learning what funds have a higher yield than a 1% savings account with an online bank and with equivalent or slightly more risk.

CletusMcGee

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Re: Emergency Fund Investments
« Reply #7 on: August 03, 2015, 05:18:58 AM »
Quote
I'm interested in learning what funds have a higher yield than a 1% savings account with an online bank and with equivalent or slightly more risk.


I follow the Bogleheads multi tier emergency fund.  3 months expenses in a savings / money market fund, followed by 3 months expenses in CDs, followed by 3 months expenses in a short term bond fund:

http://www.bogleheads.org/wiki/Emergency_fund

aj_yooper

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Re: Emergency Fund Investments
« Reply #8 on: August 03, 2015, 06:22:17 AM »
+1 CletusMcGee!

An EF is just that, not an investment account so a higher return (with additional risk) is not its purpose. 

Helocs can be terminated quickly and credit cards have to be re-paid within a month; further, not everything can be paid with a cc.  Tapping a Roth could be in a very down market if the emergency is systemic to the economy.  It is ok to have some employees on standby.  For me, redundancy (having an adequate EF) is comfortable.

As usual, everyone has a different situation.


MoonShadow

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Re: Emergency Fund Investments
« Reply #9 on: August 03, 2015, 08:35:32 AM »
There are quite a few mutual funds that make ideal candidates for an emergency fund accessible within a week.

I'm interested in learning what funds have a higher yield than a 1% savings account with an online bank and with equivalent or slightly more risk.

Basicly any money market fund would qualify, or short term bond fund. For a bit more risk, an internally balanced/diversified fund with a cash component would work.

slugline

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Re: Emergency Fund Investments
« Reply #10 on: August 03, 2015, 09:08:07 AM »
Does anyone still use money market funds to "park" cash? Interest rates seem so low that I figure I may as well keep it in a bank savings account instead and at least enjoy the FDIC insurance.

Bric-a-Brac

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Re: Emergency Fund Investments
« Reply #11 on: August 03, 2015, 09:58:28 AM »
Many rewards checking accounts offer 2% or more.  The FDIC safety, liquidity, and simplicity make this a no-brainer for me.  I'm mystified when I hear about people setting up CD ladders.

StacheEngineer

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Re: Emergency Fund Investments
« Reply #12 on: August 04, 2015, 12:20:02 PM »
@MoonShadow or CletusMcGee, what specific funds would you recommend that beat say Ally's 0.99% savings account rate?

Ally's money market account is yielding less than the savings account and Ally's 12 month CD is yielding 1.05% which doesn't seem worth it for the liquidity. In addition, the only Vanguard short term bond funds that yield more than 1% include a significant amount of corporate bonds which are not as safe as an FDIC insured bank account. For example, the short-term investment grade fund dropped 8% during the financial crisis, not a huge amount but not something I'm willing to chase 0.8% extra yield for on $1X,XXX. At $20K invested, the extra yield is worth only $2,000 after 10 years.

@Bric-a-Brac, I'll have to look into these reward checking accounts...

MoonShadow

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Re: Emergency Fund Investments
« Reply #13 on: August 04, 2015, 01:41:56 PM »
@MoonShadow or CletusMcGee, what specific funds would you recommend that beat say Ally's 0.99% savings account rate?


VTMFX  Would be a decent Vanguard choice, by a quick glance.

I would also think that one of those near term target date retirement funds would be a fine choice.  What you are looking for is a 'fund of funds' that shoots for a conservative & balanced allocation itself, and preferrablely one with light turnover for tax reasons.

I can't really recommend anything though, because I'm more focused on Fidelity funds, because I have a Fidelity account.  However, these funds still do have some risk, and are not insured against loss.  If that really is an issue for you, stick with the high rate bank savings accounts; but be aware that banks can typically borrow from each other very close to the prime rate, so if they are offering unusually high savings rates to get consumers to deposit funds, there is probably something that you don't know going on there.  And FDIC insurance isn't as good as you might think, because there is no time frame for the FDIC to pay out claims.  It's not atypical for the FDIC to take 6 months to compete a failed bank's transfer of accounts to full value & access.  The insurance for credit unions tends to be more reliable, historicly.