The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: never give up on October 26, 2017, 11:41:15 AM
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Hi
I have an emergency fund I am looking to trim. I currently have a cash fund worth about £11,300. It is currently 2 years through a 3 year fix at 2.3%. Do I switch this into a tracker now and lose the third year interest and take a hit of roughly a £70 charge for ending the fix early or do I wait the year?
Its a choice of £11,230 now or £11,560 in a years time I guess which provides a guaranteed return of 2.94% for waiting.
I presume most on here would switch now based on this low rate and ignore any market timing thoughts around it may be better to hold off given the run the stock markets have been on?
I've been a cautious mortgage over-payer and have not invested this sort of money in one go into the stock market before hence my hesitation.
Any thoughts are much appreciated.
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pull it out now
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pull it out now
My first thought was "that's what she said"...but it would be pretty lame in this case.
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pull it out now
My first thought was "that's what she said"...but it would be pretty lame in this case.
YES!!!! haha
i love the value we're adding to this thread
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What does your investment policy statement (https://www.bogleheads.org/wiki/Investment_policy_statement) say? That rate seems pretty comparable to bonds right now, so you could wait and treat it as part of your bond asset allocation (assuming this lines up with your IPS).
If it doesn't fit in with your IPS then no reason to hang onto it.
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You state the £11,300 is your emergency fund that you wish to trim. How much would you consider withdrawing? I assume you are not going to invest your entire emergency fund.
What happens to the remainder? Does it continue to earn 2.3%, or do you have to find some other arrangement, such as sitting in a bank account earning next to nothing? Suppose you withdraw and invest £5,000, and the remaining £6,300 earns zero. Your invested money would have to earn 6.6% to break even. That is doable but by no means a certainty.
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Thanks RWD and smallstache for the responses.
RWD - I haven't heard of an IPS before (relatively new to all of this) so thanks for the link. Something for me to think about.
smallstache - sorry I should have provided more context. My EF is about £21,000 of which the £11,300 is tied up in this 3 year fix. I would look to transfer all of this £11,300 either now or in a years time leaving the other £10,000 as my EF.
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Is this EF your only savings/investments? If so, does your IPS allow you to reduce the EF?
(Yes, the question is, what does your investment policy tell you to do)
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Why don't you invest the cash not tied up in the 3 year account, and then if you have an emergency you break the deposit?
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Thanks DBM for the reply. The remainder is a combination of EF and to cover annual type expenses. This is instant access. I don’t want to alter how this bit of it works. I think I will let my 3 year fix run down, withdraw a little into the instant access and then transfer the remainder into index funds. Appreciate the responses.