Author Topic: Investing the Emergency Savings Fund?  (Read 735 times)

Tango-16

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Investing the Emergency Savings Fund?
« on: April 19, 2019, 11:11:58 AM »
Hey guys,

28 years old. A little behind the investing power curve...
I have a 40k emergency savings fund set aside. I'm wondering if I should invest a decent chunk of this?
Yes, 40k is pretty extreme... we went overboard.. but regardless would you guys recommend investing part of your emergency savings into index funds (or elsewhere) to try to catch up on investing?

Thanks!

Update:

I'll provide as much as I can;
Income: $6,300
Expenses: $5,000
Roth IRA's amount: $28,000
Contributing to max Roth IRA x2 (me and wife).
Working for the Gov. (secure job)
No large expenses in the foreseen future.
No other investments at this time.

Thanks for your time!
« Last Edit: April 19, 2019, 06:04:30 PM by Tango-16 »

Montecarlo

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Re: Investing the Emergency Savings Fund?
« Reply #1 on: April 19, 2019, 11:24:30 AM »
I kept 3 months in cash, 3 months in treasuries maturing in 3 months, 3 months in treasuries maturing in 6 months, and 3 months in treasuries expiring in 9 months.

That gives a year of expenses.

E*TRADE letís you buy treasuries commission free.

Once you get closer to FI having a big e fund becomes less important and you can aim for a bigger return on those funds

nereo

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Re: Investing the Emergency Savings Fund?
« Reply #2 on: April 19, 2019, 12:48:56 PM »
Hey guys,

28 years old. A little behind the investing power curve...
I have a 40k emergency savings fund set aside. I'm wondering if I should invest a decent chunk of this?
Yes, 40k is pretty extreme... we went overboard.. but regardless would you guys recommend investing part of your emergency savings into index funds (or elsewhere) to try to catch up on investing?

Thanks!

More information needed before we can be much help
What do your current monthly expenses look like?  How secure are your jobs? Do you have any large upcoming expenses (e.g. a down payment)? What's your monthly cashflow (income - expenses)?

On the investing side, do you currently contribute to IRAs, 401(k), HSA accounts ('tax-advantaged')?  Do you have other savings in 'normal' (taxable) accounts?

cincystache

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Re: Investing the Emergency Savings Fund?
« Reply #3 on: April 19, 2019, 05:59:37 PM »
As @nereo said, it's hard to answer without more details. What are your goals in the next 5 years? House purchase? Wedding? Grad School? I'd at least put some in a Roth IRA so you are filling those buckets before the clock expires.. Even if you leave it in cash for now within the Roth. You can always take contributions out if you have an actual emergency but having it in a Roth account will make you think twice and avoid impulse purchases.

I personally don't like to keep a bunch of cash accessible because I tend to be a spontaneous spender but if the money is in the retirement account I don't consider it available unless I lose my job (true emergency).

Bottom line: do what works for you and what makes you sleep well at night, there is no right or wrong answer here


Tango-16

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Re: Investing the Emergency Savings Fund?
« Reply #4 on: April 19, 2019, 06:02:25 PM »
More information needed before we can be much help. What do your current monthly expenses look like?  How secure are your jobs? Do you have any large upcoming expenses (e.g. a down payment)? What's your monthly cashflow (income - expenses)? On the investing side, do you currently contribute to IRAs, 401(k), HSA accounts ('tax-advantaged')?  Do you have other savings in 'normal' (taxable) accounts?

I'll provide as much as I can;
Income: $6,300
Expenses: $5,000
Roth IRA's amount: $28,000
Contributing to max Roth IRA x2 (me and wife).
Working for the Gov. (secure job)
No large expenses in the foreseen future.
No other investments at this time.

Thanks for your time!
« Last Edit: April 19, 2019, 06:04:10 PM by Tango-16 »

MDM

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Re: Investing the Emergency Savings Fund?
« Reply #5 on: April 19, 2019, 06:07:22 PM »
I have a 40k emergency savings fund set aside. I'm wondering if I should invest a decent chunk of this?
...
Roth IRA's amount: $28,000
How does Roth IRA as an emergency fund strike you?

Tango-16

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Re: Investing the Emergency Savings Fund?
« Reply #6 on: April 19, 2019, 06:09:58 PM »
I have a 40k emergency savings fund set aside. I'm wondering if I should invest a decent chunk of this?
...
Roth IRA's amount: $28,000
How does Roth IRA as an emergency fund strike you?

The Dave Ramsey in me don't hate me for that would say it's a bad idea.... the person who wants to catch up on investing in me says sounds good enough to me!. So yeah. I don't know if I want to view that as being too "risky" or not.

nereo

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Re: Investing the Emergency Savings Fund?
« Reply #7 on: April 19, 2019, 06:24:41 PM »
Ok - currently you have 8 months worth of expenses sitting in cash, plus an additional $28k (5+ months) accessible in your Roths.   Ultimately you need to decide how much of an e-fund is sufficient for you to sleep at night, but given what you have described, here's what I would do:

keep 1-3 month's worth of expenses in a savings account (e.g. $5,000-$15,000), and invest the remainder.

During a financial emergency you would first try to cashflow the expense (you have $1,300 'extra' each month, and potentially more if you cut discressionary spending that month). 
Then you would draw down your e-fund from your savings account. 
If for whatever reason you still fell short you would have your taxable investments to fall back on. Your final 'line of defense' would be the money in your Roth, but to get to that point you will have exhausted $40k+.


MDM

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Re: Investing the Emergency Savings Fund?
« Reply #8 on: April 19, 2019, 06:33:25 PM »
I have a 40k emergency savings fund set aside. I'm wondering if I should invest a decent chunk of this?
...
Roth IRA's amount: $28,000
How does Roth IRA as an emergency fund strike you?

The Dave Ramsey in me don't hate me for that would say it's a bad idea....
Why?

cincystache

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Re: Investing the Emergency Savings Fund?
« Reply #9 on: April 19, 2019, 07:09:46 PM »
I agree with @nereo

Even if you stick to Ramsey's advice, 40k is too much. He advises 3-6 months of expenses which is 15-30k in your case.

Do you work for the fed gov such that you have access to the TSP? Maxing that out for 2019 would be an easy way to put that cash to work.

ApacheStache

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Re: Investing the Emergency Savings Fund?
« Reply #10 on: April 19, 2019, 11:27:32 PM »
I have a 40k emergency savings fund set aside.

This isn't intended to sound snarky, but what sort of emergency do you anticipate will require you to immediately pay upwards of $40,000? Off the top of my head, I can't think of any, but I'm happy to stand corrected. Truth be told, many of us will likely never see a true emergency of that magnitude in our lifetime and if we did, we wouldn't likely wouldn't be expected to pay that large of a lump sum immediately. Medical emergencies and housing emergencies caused by mother nature are expensive but much of that will be covered by insurance (fingers-crossed) or won't be due immediately. Personally, I only keep $3,000 in emergency funds in a CapitalOne 360 savings account and then I have ~$30,000 in personal investments that I can dip into if something out of the ordinary comes up.

Tango-16

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Re: Investing the Emergency Savings Fund?
« Reply #11 on: April 21, 2019, 08:15:02 PM »
I have a 40k emergency savings fund set aside.

This isn't intended to sound snarky, but what sort of emergency do you anticipate will require you to immediately pay upwards of $40,000? Off the top of my head, I can't think of any, but I'm happy to stand corrected. Truth be told, many of us will likely never see a true emergency of that magnitude in our lifetime and if we did, we wouldn't likely wouldn't be expected to pay that large of a lump sum immediately. Medical emergencies and housing emergencies caused by mother nature are expensive but much of that will be covered by insurance (fingers-crossed) or won't be due immediately. Personally, I only keep $3,000 in emergency funds in a CapitalOne 360 savings account and then I have ~$30,000 in personal investments that I can dip into if something out of the ordinary comes up.

I just wanted to say that I really appreciate everyone's advice here!
The fact that all you guys are willing to take time out of your day to offer advice to a complete stranger, and new guy, is outstanding. I've lowered by Emergency savings fund down to 30k. I know that's still too high for most of you.... but I'm easing into it... and I've invested the difference. Thanks again all of you!

Goldy

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Re: Investing the Emergency Savings Fund?
« Reply #12 on: April 21, 2019, 08:32:31 PM »
I used to have a 40k EF but as time passed I started to realize that I couldnít actually think of a true emergency that would require that size of an EF.  We decided to invest half of it and trim our EF down to 15-20 for now.  As the stash grows the EF becomes less important but I still like having 15k accessible.

BicycleB

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Re: Investing the Emergency Savings Fund?
« Reply #13 on: April 21, 2019, 09:26:15 PM »

I just wanted to say that I really appreciate everyone's advice here!
The fact that all you guys are willing to take time out of your day to offer advice to a complete stranger, and new guy, is outstanding. I've lowered by Emergency savings fund down to 30k. I know that's still too high for most of you.... but I'm easing into it... and I've invested the difference. Thanks again all of you!

@Tango-16, good for you.

Fwiw, I would go with:
5k cash/savings
5k money market
10k in i-bonds (buy several at different sizes to be flexible when selling...these are the core emergency fund)
20k VTWSX or other stock fund

Once the i-bonds are liquid (1 year after investing), I'd put the money funds into a stock fund too.

Keep up the shift into investing. More important, when the periodic drops come, keep buying stock or at least don't sell. A nice chunk of my FIRE stash is from purchases made while safely working a govt job during a downturn (2008-2010).
« Last Edit: April 21, 2019, 09:28:10 PM by BicycleB »