Author Topic: Bonds in lieu of EF?  (Read 1519 times)

HeadedWest2029

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Bonds in lieu of EF?
« on: February 26, 2016, 03:37:16 PM »
I keep $1-5k in checking and then another $20k in savings account with 1% interest
Net of credit card balances this is about 6 months of expenses saved up.
Other factors: I have liability only car insurance and HDHP...thus a more conservative approach to EF

Today I got to thinking about bonds replacing a bulk of the $20k savings account.  In general, if the stock market is going bananas I could sell equities as needed, and if we have a correction bonds could be sold (which would be purchased from this $20k allocation).  I guess the danger is a 2008 situation where nothing was safe for a period of time.  I've looked into HELOC for springy debt, but short story I don't think it's for me personally. 

So, is this a good or terrible idea? What would be the best hedge to a double whammy of bad stock performance & personal hardship? Vanguard TIPS, Vanguard muni (since it would be a taxable account), or regular ole BND? Or am I chasing yield and deserve a mustachian face-punch?


Heckler

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Re: Bonds in lieu of EF?
« Reply #1 on: February 27, 2016, 06:31:04 PM »
I keep 5-7K in chequing/HIS savings (<1%) and 21K in short term bonds (VSB) tax free account as emergency fund.   $5200 allocated as HIS for cash needs in the next year.

The 21K has not been growing in the past year, but has a 1.22 YTM if I hold it for 3+ years.  Seems like a good idea to me as a EF. 


(we're also mortgage free and $140k/year gross for now.)  Might be different if you're a fourpercenter and not working.
« Last Edit: February 27, 2016, 06:35:06 PM by Heckler »

Telecaster

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Re: Bonds in lieu of EF?
« Reply #2 on: February 27, 2016, 06:53:09 PM »
We've had a couple threads on this topic, but my view is that you don't need an emergency fund nearly that large.  Emergencies by definition are rare, so if you hold that much cash over long periods of time it really starts to drag down your returns.

The main thing you want is liquidity. 

HeadedWest2029

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Re: Bonds in lieu of EF?
« Reply #3 on: February 28, 2016, 02:36:04 PM »
I've seen threads regarding pros and cons of a large EF. I've also seen discussions on what banks people use to earn the highest interest rate for their EF.  I guess I haven't seen a discussion on using bonds in place of cash for an EF.  In general, I'm pretty lukewarm on bonds, but for this purpose I thought it might make more sense than cash.  Still kicking around what I'll do...maybe 5k checking, 10k BND, 5k cash in savings.  Oh, and FourPercenter is terrible handle...meant as a reference to 4% WR, but I'm not FI.  Thanks for ideas

Heckler

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Re: Bonds in lieu of EF?
« Reply #4 on: February 28, 2016, 02:49:17 PM »
Look into understanding short term vs long term bonds differences and how they will be affected as interest rates change.  My EF is short term bonds, with the intention of not using it in the next three years unless absolutely necessary.   My retirement funds are long term bonds, to hold for at least 10 years and longer.

http://canadiancouchpotato.com/2015/05/18/how-changing-interest-rates-affect-fixed-income/