Author Topic: Good investment for emergency fund money  (Read 30620 times)

ender

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Good investment for emergency fund money
« on: April 17, 2016, 01:59:34 PM »
We currently have a lot of money "invested" in savings accounts for emergency funds.

I have been pondering the idea of taking that amount, doubling it, and then investing the total into a lower risk taxable account. The idea being if we have an emergency fund of $10k, having $20k invested in a medium to low risk fund probably will always be at least $10k worth of value.

Are there good funds for this sort of thing? One approach would be to just get one of Vanguards target retirement funds (with maybe a 60/40 stock/bond ratio) or some similar type of fund. I'm curious what other folks in a similar situation do.

Indexer

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Re: Good investment for emergency fund money
« Reply #1 on: April 17, 2016, 02:06:05 PM »
Here is what I do which is similar.

I keep true emergency money I could need tomorrow in a high yield savings account. There are a few that will pay 5-6% on $5000. I use mangomoney.

Anything after that I keep in VASIX. It is conservative, well diversified, and low cost. In 2008 it was down about 10%. I can live with that level of volatility. Instead of keeping double you can just keep a little extra.

doggyfizzle

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Re: Good investment for emergency fund money
« Reply #2 on: April 17, 2016, 02:10:13 PM »
Ishares Conservative Allocation ETF...liquid, better returns than a savings account, low fees.  Ticker is AOK.

wienerdog

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Re: Good investment for emergency fund money
« Reply #3 on: April 17, 2016, 05:20:39 PM »
If you're wanting to be a little more aggressive than VASIX you could also do Vanguard Target Retirement Income Fund VTINX.  Same 70% bonds and 30% stocks as the 2025 fund you mentioned but with ~17% in short term inflation protected on the bond side.  (5 funds total)  Just depends on what you feel comfortable with.  The extra fund costs you .02% more over your 2025.

mrpercentage

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Re: Good investment for emergency fund money
« Reply #4 on: April 17, 2016, 06:24:21 PM »
Here is what I do which is similar.

I keep true emergency money I could need tomorrow in a high yield savings account. There are a few that will pay 5-6% on $5000. I use mangomoney.

Anything after that I keep in VASIX. It is conservative, well diversified, and low cost. In 2008 it was down about 10%. I can live with that level of volatility. Instead of keeping double you can just keep a little extra.

What is the catch with Mango money? Do they make it hard to get to your money or something?

abbythebear

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Re: Good investment for emergency fund money
« Reply #5 on: April 22, 2016, 01:24:11 AM »
Are you all simply investing your emergency funds through a regular broker?   etrade, etc?

Also, I've seen many responses that show the larger gains through an investment.  But none of them seem to take capital gains tax into consideration.  Are people simply not including that in their calculations or are capital gains somehow not an issue here?  Sure, of course, it's probably still better than leaving the funds sitting in a savings account but want to get a more realistic idea of potential gains.

Seppia

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Re: Good investment for emergency fund money
« Reply #6 on: April 22, 2016, 02:26:15 AM »
Provocative post:
Are you sure you actually even need one?
Don't know about the USA, but today in Italy I could call my bank and, without negotiation, I could easily get a 10.000 euro loan at around 5% interest rate tops.
I could pay this back fairly quickly if need be.

Now personally I am much more conservative because I fear my irrationality, so I keep about 15% of my savings in cash, to be used as a "buy in and average down" in case of a 30% stock market crash.

I know the math doesn't work.
I know I would do better just keeping it invested.
I also managed not to panic sell during the 2008 stock market crash despite my relatively young age (28 at the time), but at the time
1- I had a lot less money in the market in absolute value
2- I was single and now I'm married

But if I were 100% I could be as cold and rational as an Investing Terminator I would keep close to 0% cash.

opnfld

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Re: Good investment for emergency fund money
« Reply #7 on: April 22, 2016, 04:21:19 PM »
Before you have substantial assets, an emergency fund can keep you from giong into debt.  After you've saved some money, it's primary function changes.  It allows you to avoid selling investments at a loss.  Being forced to sell at 50% loss in an emergency (as OP suggests) is about the worst possible scenario.  Being forced to sell anything at a loss is undesirable.  Keep your emergency fund in something stable.

Half of mine is in cash and half in a short-term investment grade bond fund (VFSTX).  Yields about 1.75% after expenses.

Heckler

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Re: Good investment for emergency fund money
« Reply #8 on: April 22, 2016, 11:02:03 PM »
Before you have substantial assets, an emergency fund can keep you from giong into debt.  After you've saved some money, it's primary function changes.  It allows you to avoid selling investments at a loss.  Being forced to sell at 50% loss in an emergency (as OP suggests) is about the worst possible scenario.  Being forced to sell anything at a loss is undesirable.  Keep your emergency fund in something stable.

Half of mine is in cash and half in a short-term investment grade bond fund (VFSTX).  Yields about 1.75% after expenses.

This is what I also subscribe to.  2-3 months spending in cash and 10 months in short term bonds that I dont plan to sell unless the cash runs out.

Interest Compound

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Re: Good investment for emergency fund money
« Reply #9 on: April 23, 2016, 11:43:39 AM »
It allows you to avoid selling investments at a loss.  Being forced to sell at 50% loss in an emergency (as OP suggests) is about the worst possible scenario.  Being forced to sell anything at a loss is undesirable.

This thought process is always interesting to me.

"I'd rather be nearly guaranteed to have 50% less money after 10 years in one way (keeping cash in a savings account vs. investing), so I can avoid the small chance of having 50% less money after 10 years in another way (being forced to sell after a 50% crash)."

People just have trouble visualizing opportunity cost.

ender

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Re: Good investment for emergency fund money
« Reply #10 on: April 23, 2016, 12:23:47 PM »
It allows you to avoid selling investments at a loss.  Being forced to sell at 50% loss in an emergency (as OP suggests) is about the worst possible scenario.  Being forced to sell anything at a loss is undesirable.

This thought process is always interesting to me.

"I'd rather be nearly guaranteed to have 50% less money after 10 years in one way (keeping cash in a savings account vs. investing), so I can avoid the small chance of having 50% less money after 10 years in another way (being forced to sell after a 50% crash)."

People just have trouble visualizing opportunity cost.

This is exactly the thought process leading me to this thread.

I'm super risk averse for this sort of thing. But if I invest a sizeable amount of money as an emergency fund it seems like I balance that risk well, particularly if it's in a "more safe" fund than purely stocks.

Interest Compound

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Re: Good investment for emergency fund money
« Reply #11 on: April 23, 2016, 01:37:32 PM »
It allows you to avoid selling investments at a loss.  Being forced to sell at 50% loss in an emergency (as OP suggests) is about the worst possible scenario.  Being forced to sell anything at a loss is undesirable.

This thought process is always interesting to me.

"I'd rather be nearly guaranteed to have 50% less money after 10 years in one way (keeping cash in a savings account vs. investing), so I can avoid the small chance of having 50% less money after 10 years in another way (being forced to sell after a 50% crash)."

People just have trouble visualizing opportunity cost.

This is exactly the thought process leading me to this thread.

I'm super risk averse for this sort of thing. But if I invest a sizeable amount of money as an emergency fund it seems like I balance that risk well, particularly if it's in a "more safe" fund than purely stocks.

Don't forget to do the math on both sides. If you're taking an additional $10,000 away from your main portfolio, with an expected return of 7%, and moving it to a "more safe" fund with an expected return of 3%, that represents a $6,000 opportunity cost after 10 years. A $20,000 opportunity cost after 20 years.

Not saying it's not worth it, just be sure to calculate it so you can make an educated decision.

Indexer

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Re: Good investment for emergency fund money
« Reply #12 on: April 23, 2016, 04:32:09 PM »
What is the catch with Mango money? Do they make it hard to get to your money or something?

You have to have a $500 direct deposit each month. I just have $500 go there and I move it right back to my normal bank account.


This thought process is always interesting to me.

"I'd rather be nearly guaranteed to have 50% less money after 10 years in one way (keeping cash in a savings account vs. investing), so I can avoid the small chance of having 50% less money after 10 years in another way (being forced to sell after a 50% crash)."

People just have trouble visualizing opportunity cost.

It isn't just about having the money there in an emergency so you don't have to tap your investments and possible sell at a 50% down market. That is a big part of it, and for investors who are already risk averse it is a kind of 'security blanket' so they don't freak out as much when they see volatility. It is also there to prevent you from drawing on retirement accounts. That is the big one for people under 59 1/2. Most people keep their retirement funds in IRAs & 401ks. They don't have large taxable accounts. You don't want to tap retirement accounts in an emergency due to the markets being volatile and the potential early withdrawal penalties. Even for people over 59 1/2 they don't want to have to draw 10-20k more than usual from a retirement account since that could cause a surprise come tax time and even bump them up a tax bracket.

Interest Compound

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Re: Good investment for emergency fund money
« Reply #13 on: April 24, 2016, 01:00:31 PM »
What is the catch with Mango money? Do they make it hard to get to your money or something?

You have to have a $500 direct deposit each month. I just have $500 go there and I move it right back to my normal bank account.


This thought process is always interesting to me.

"I'd rather be nearly guaranteed to have 50% less money after 10 years in one way (keeping cash in a savings account vs. investing), so I can avoid the small chance of having 50% less money after 10 years in another way (being forced to sell after a 50% crash)."

People just have trouble visualizing opportunity cost.

It isn't just about having the money there in an emergency so you don't have to tap your investments and possible sell at a 50% down market. That is a big part of it, and for investors who are already risk averse it is a kind of 'security blanket' so they don't freak out as much when they see volatility. It is also there to prevent you from drawing on retirement accounts. That is the big one for people under 59 1/2. Most people keep their retirement funds in IRAs & 401ks. They don't have large taxable accounts. You don't want to tap retirement accounts in an emergency due to the markets being volatile and the potential early withdrawal penalties. Even for people over 59 1/2 they don't want to have to draw 10-20k more than usual from a retirement account since that could cause a surprise come tax time and even bump them up a tax bracket.

I agree. If all your money is in the IRA/401k, you don't have a standard "savings account" emergency fund either. Simple solution. Open a regular taxable account and start saving for your emergency fund. :)

opnfld

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Re: Good investment for emergency fund money
« Reply #14 on: April 25, 2016, 12:09:35 PM »
This thought process is always interesting to me.

"I'd rather be nearly guaranteed to have 50% less money after 10 years in one way (keeping cash in a savings account vs. investing), so I can avoid the small chance of having 50% less money after 10 years in another way (being forced to sell after a 50% crash)."

People just have trouble visualizing opportunity cost.
Whether opportunity cost outweighs risk depends on one's circumstances.  First, I should clarify that I am within months of leaving my job so my emergency fund also serves as a cash buffer that will certainly be drawn down over the course of the next 2-3 years.  No plan to lose 10-20 years of returns.

But even so, the emergency fund is about 2% of my total portfolio (and I would hold less than half that if I were planning to continue working).  I would rather forgo 50% in earnings on 2% than be forced to liquidate 4% of my total portfolio in the unlikely case of an emergency coinciding with a 50% crash.  The opportunity cost of 7% annual returns on 2% of my portfolio seems nil to me in my situation.

Another consideration -  being forced to sell equities in an emergency in an up-market may force unanticipated capital gains that have tax ramifications - even pushing one into a higher tax bracket and eliminating the 0% tax on LTCG.  Whether or not this is a concern depends on personal situation.

Interest Compound

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Re: Good investment for emergency fund money
« Reply #15 on: April 25, 2016, 12:28:01 PM »
This thought process is always interesting to me.

"I'd rather be nearly guaranteed to have 50% less money after 10 years in one way (keeping cash in a savings account vs. investing), so I can avoid the small chance of having 50% less money after 10 years in another way (being forced to sell after a 50% crash)."

People just have trouble visualizing opportunity cost.
Whether opportunity cost outweighs risk depends on one's circumstances.  First, I should clarify that I am within months of leaving my job so my emergency fund also serves as a cash buffer that will certainly be drawn down over the course of the next 2-3 years.  No plan to lose 10-20 years of returns.

But even so, the emergency fund is about 2% of my total portfolio (and I would hold less than half that if I were planning to continue working).  I would rather forgo 50% in earnings on 2% than be forced to liquidate 4% of my total portfolio in the unlikely case of an emergency coinciding with a 50% crash.  The opportunity cost of 7% annual returns on 2% of my portfolio seems nil to me in my situation.

Another consideration -  being forced to sell equities in an emergency in an up-market may force unanticipated capital gains that have tax ramifications - even pushing one into a higher tax bracket and eliminating the 0% tax on LTCG.  Whether or not this is a concern depends on personal situation.

I don't see how this contradicts my point. If anything, you're providing evidence for it. You'd rather lock-in a loss, to avoid an admittedly small chance of an equal loss. If the opportunity cost seems nil, then so should the risk you're trying to mitigate.

opnfld

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Re: Good investment for emergency fund money
« Reply #16 on: April 25, 2016, 02:57:11 PM »
I don't see how this contradicts my point. If anything, you're providing evidence for it. You'd rather lock-in a loss, to avoid an admittedly small chance of an equal loss. If the opportunity cost seems nil, then so should the risk you're trying to mitigate.
Whether these "losses" are equal depends on when the emergency takes place and where the market is at that time - both unknowable.  I would rather give up a small return each year for the confidence that I'm not forced to liquidate positions when it isn't favorable to do so.  Half of my emergency fund is in VFSTX and included in my bond allocation.  It's not in a savings account, it yields 1.75%, and it also serves to mitigate sequence of returns risk - i can spend it for regular expenses if I don't want to sell equities.

The consideration the OP needs to make is what happens if the market tanks next year and an emergency requiring $10K arises.  This is the basic rationale for maintaining an emergency fund.  Weigh that against opportunity cost, not projected returns for >10 years.

Interest Compound

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Re: Good investment for emergency fund money
« Reply #17 on: April 25, 2016, 05:14:02 PM »
I don't see how this contradicts my point. If anything, you're providing evidence for it. You'd rather lock-in a loss, to avoid an admittedly small chance of an equal loss. If the opportunity cost seems nil, then so should the risk you're trying to mitigate.
Whether these "losses" are equal depends on when the emergency takes place and where the market is at that time - both unknowable.  I would rather give up a small return each year for the confidence that I'm not forced to liquidate positions when it isn't favorable to do so.  Half of my emergency fund is in VFSTX and included in my bond allocation.  It's not in a savings account, it yields 1.75%, and it also serves to mitigate sequence of returns risk - i can spend it for regular expenses if I don't want to sell equities.

The consideration the OP needs to make is what happens if the market tanks next year and an emergency requiring $10K arises.  This is the basic rationale for maintaining an emergency fund.  Weigh that against opportunity cost, not projected returns for >10 years.

Seriously, it's just math. I choose 10 years to keep the math easy, but here's the year 2000-current. A historically bad time for stocks. Left side is 100% stocks, right side is a 1% savings account:



Scenario A: We put $100 in our Emergency Fund, and have a $50 emergency in 2008.
Balance during emergency: $26 for stocks, $59 for savings account. A relative difference of $33 in favor of the savings account.
Balance today: $70 for stocks, $64 for savings account. A relative difference of $6 in favor of stocks.



Scenario B: We put $100 in our Emergency Fund, and have no emergencies.
Balance today: $207 for stocks, $117 for savings account. A relative difference of $90 in favor of stocks.



Scenario C: We put $100 in our Emergency Fund, and have a $50 emergency in 2002, and another $50 emergency in 2008.
Balance during 2002 emergency: $13 for stocks, $53 for savings account. A relative difference of $40 in favor of the savings account.
Balance during 2008 emergency: -$34 for stocks, $6 for savings account. A relative difference of $40 in favor of the savings account.
We remove $100 from our portfolio to replenish the Emergency Fund.
Balance today: $118 for stocks, $113 for savings account. A relative difference of $5 in favor of stocks.

"You'd rather lock-in a 50% loss (by going with the savings account in the almost-certain Scenario B), to avoid an admittedly small chance of only earning 5% (worst-case scenario C with stocks)?"

Even if we only look at the balance during an emergency, the savings account is only up $40. So you're locking in an almost certain loss of $90, so you can avoid the temporary loss of $40? There is no mathematical justification I can see. Only an emotional one.

talltexan

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Re: Good investment for emergency fund money
« Reply #18 on: April 26, 2016, 02:23:40 PM »
Suppose you have a fairly risky stock fund (I have in mind $16,000 that could even be in SP500). If an emergency were to arise, you take out short-term debt (I'm thinking a 3% transaction fee on $5,000); the dividends and gains from the stock fund should paper over the costs of the debt if the ratio is favorable enough. the 2% dividends from the stock fund would be $320 in this example, which is more than double the transfer fee for the debt)

And if things get dicey and rolling over the debt with another credit card is not possible, you can sell the stocks as a last resort.

Seppia

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Good investment for emergency fund money
« Reply #19 on: April 26, 2016, 11:42:12 PM »
There is no mathematical justification I can see. Only an emotional one.

Don't discount the emotional part though.
I hold a relatively large % of my assets in cash* (about 15%, but going down because I always invest 100% of the money I earn minus expenses).
I am 100% aware it's approximately a -3% yield I am taking every year (been lucky lately with zero inflation in Europe), but it is also a "psychological safety net" against panic selling in case of a semi-dramatic crash of 30-40%.

I don't think I would panic sell: I've not in 2008, but the amounts in play were smaller by a factor of 10 and I was single.
But I'm sure in case a big big drop happened, knowing I can push in a certain amount of cash to average down would be a great psychological help.

*also worth noting: I have no bonds

missmoneymachine

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Re: Good investment for emergency fund money
« Reply #20 on: April 27, 2016, 05:16:26 AM »
For those of you who are investing a portion or all of your EF separately from your normal AA (i.e in interm bond funds, lifestrategy, munis, etc), what are your plans for the earnings?

Are you going to let the money continue to grow forever?

Or

Will you sell some of the fund once it gets to a certain amount and invest it according to your AA?

ender

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Re: Good investment for emergency fund money
« Reply #21 on: April 27, 2016, 06:06:35 AM »
Even if we only look at the balance during an emergency, the savings account is only up $40. So you're locking in an almost certain loss of $90, so you can avoid the temporary loss of $40? There is no mathematical justification I can see. Only an emotional one.

One thing to keep in mind is that with this decision, it is made on a yearly basis. You have no way of knowing when a 2008 might happen. If you start this process in 2008, investments do much worse than in 2000 (with an emergency in 2008). We have to make this decision however every year.

You can account for this somewhat by increasing your amount in the emergency fund investments (maybe if you figure $100 is the most you need, given your situation, so you try to keep at least $300 or more into that account).

Also consider that if your emergency fund is designed to cover job loss, the ability to easily replenish it  (as shown in your third example) is potentially less feasible. Admittedly this applies to both situations, but only one of them went negative.

massmustache

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Re: Good investment for emergency fund money
« Reply #22 on: April 27, 2016, 06:27:10 AM »
This is relevant to our recent situation and I am curious on others thoughts.

My wife and I recently sold our house and are planning on renting for the next 1-3 years.  We needed to relocate for personal reasons for the next 3 years and were not confident that the location was right for us long term... so we called off our purchase search and found a rental house.

We took ~60k home from the house sale and are considering this part of a downpayment for future home purchase (could be as short as 1 year and as long as 3+ years).  We are both in our early 30s.

We have a roughly 150k in non-retirement investments (90/10 split) and 10k in cash reserve.  401k is healthy (she no longer works but saved well during working years).  My question is what the right thing to do with the ~60k is.  We also will have an additional ~1k extra a month in terms of mortgage vs rent... so I intend on adding that into the investment mix.  I wouldn't be surprised if some other costs go down as we have much less maintenance than before.

Right now my plan is to DCA into VWINX and VASIX over the next year the entirety of the 60k (plus 1k excess).  My thought is that if bonds dip I can tap the stocks for downpayment and do the converse if stocks dip...

Thoughts?

GorgeousSteak

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Re: Good investment for emergency fund money
« Reply #23 on: April 27, 2016, 02:58:27 PM »
The more money you have the riskier you can be with your emergency fund.  This is particularly true if you have backup options that aren't that bad, like pulling from a 401K at penalty or transferring out some Roth principle, HELOC, or whatever your case might be.  At the point you have double what you believe your emergency fund balance to be, I think i'd have all that money in my standard asset allocation (fwiw, this is what I do).  Even at the extreme 50% loss, you can still cover your emergency.  If you think you need more safety than this, I'd just aim to get an even higher emergency fund balance that you're ok with so that it could be invested more aggressively.

NotJen

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Re: Good investment for emergency fund money
« Reply #24 on: April 27, 2016, 03:28:41 PM »
We currently have a lot of money "invested" in savings accounts for emergency funds.

I have been pondering the idea of taking that amount, doubling it, and then investing the total into a lower risk taxable account. The idea being if we have an emergency fund of $10k, having $20k invested in a medium to low risk fund probably will always be at least $10k worth of value.

Are there good funds for this sort of thing? One approach would be to just get one of Vanguards target retirement funds (with maybe a 60/40 stock/bond ratio) or some similar type of fund. I'm curious what other folks in a similar situation do.

This is exactly what I'm doing!

I've determined that I'm comfortable with a $30k EF.  I'm single, and would like to survive an extended job loss without going into debt or touching tax-advantaged retirement accounts.

Once I started investing in a taxable account, I decided that half of my EF could go there.  Like you, I decided that I wanted half of my EF to "always" be available in my taxable account, and I assume a 50% max loss on that investment.  So, now I have $15k sitting in a savings account earning 1%, and $30k (+) in my taxable investments (currently losing money overall, but slowly gaining ground!).

I use Vanguard, and I include my taxable account in my total asset allocation.  Currently, taxable is only invested in VTIAX as it's supposed to be pretty tax efficient (tossup between that and VTSAX).

NotJen

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Re: Good investment for emergency fund money
« Reply #25 on: April 27, 2016, 03:37:59 PM »
Are you all simply investing your emergency funds through a regular broker?   etrade, etc?

Also, I've seen many responses that show the larger gains through an investment.  But none of them seem to take capital gains tax into consideration.  Are people simply not including that in their calculations or are capital gains somehow not an issue here?  Sure, of course, it's probably still better than leaving the funds sitting in a savings account but want to get a more realistic idea of potential gains.

I guess I'm assuming that capital gains won't really be an issue.  If my investments have increased in value and I sell due to job loss, my income is potentially low enough that my capital gains tax rate will be 0%.  Even at 15%, that doesn't change my plan, and I'd weigh that against the option of going into debt, if I can get a cheap loan.  And if I have to sell at a loss, no capital gains tax.

opnfld

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Re: Good investment for emergency fund money
« Reply #26 on: April 28, 2016, 12:41:49 PM »
Right now my plan is to DCA into VWINX and VASIX over the next year the entirety of the 60k (plus 1k excess).  My thought is that if bonds dip I can tap the stocks for downpayment and do the converse if stocks dip...
Prior to a home purchase in March, we had 70% of our down payment camped out in short-term corporate bonds (VFSUX), the rest was cash.  As it turned out, when we needed the money, the market had recovered most of it's winter losses, but I would have been unhappy to have liquidated the down payment at a 5% loss if we had needed to close in January.  I don't keep any other bonds in taxable, so that wasn't an option for us.  I could have liquidated bonds from Roth contributions, but keeping that tax sheltered as long as possible is more desirable than a a short-term gain in balanced funds in a taxable account.

I am allergic to forced selling at a loss - I worked hard for that money!

opnfld

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Re: Good investment for emergency fund money
« Reply #27 on: April 28, 2016, 12:52:02 PM »
I guess I'm assuming that capital gains won't really be an issue.  If my investments have increased in value and I sell due to job loss, my income is potentially low enough that my capital gains tax rate will be 0%.  Even at 15%, that doesn't change my plan, and I'd weigh that against the option of going into debt, if I can get a cheap loan.  And if I have to sell at a loss, no capital gains tax.
When considering capital gains problems, I'm thinking about high-cost emergencies while still employed, e.g. at-fault accident that totals our car and requires $10-15K out-of-pocket replacement.  We are a one-car family with liability coverage.  Selling equities to raise $15K could generate $3K in capital gains that might push us out of the 15% tax bracket.  We tend to just scrape by in the 15% bracket after maxing contributions to retirement accounts.

I agree, if you are out of work you can potentially control your income to prevent this scenario.  I would rather set aside part of my portfolio than consider going into debt to pay for an emergency.

Are you all simply investing your emergency funds through a regular broker?   etrade, etc?
Taxable account at Vanguard

NotJen

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Re: Good investment for emergency fund money
« Reply #28 on: April 28, 2016, 01:44:26 PM »
I guess I'm assuming that capital gains won't really be an issue.  If my investments have increased in value and I sell due to job loss, my income is potentially low enough that my capital gains tax rate will be 0%.  Even at 15%, that doesn't change my plan, and I'd weigh that against the option of going into debt, if I can get a cheap loan.  And if I have to sell at a loss, no capital gains tax.
When considering capital gains problems, I'm thinking about high-cost emergencies while still employed, e.g. at-fault accident that totals our car and requires $10-15K out-of-pocket replacement.  We are a one-car family with liability coverage.  Selling equities to raise $15K could generate $3K in capital gains that might push us out of the 15% tax bracket.  We tend to just scrape by in the 15% bracket after maxing contributions to retirement accounts.

I agree, if you are out of work you can potentially control your income to prevent this scenario.  I would rather set aside part of my portfolio than consider going into debt to pay for an emergency.

Honestly, my plan is to cash-flow any emergencies that don't involve a job loss (benefit of having a high savings rate like many here do).  Which is why I usually classify my EF as being for a job loss only.  Need a $10k car today?  No need to touch the half of my EF that's invested.  I can use the $15k that's in the regular savings account.  Or I can get a loan and pay it off in 3 months (I've actually done this before under different circumstances).  I'm debt averse, but not opposed to very short term debt if I know I can pay it off quickly.

My way of "keeping half invested" is really just tricking myself into having a smaller EF than I want.

signhere

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Re: Good investment for emergency fund money
« Reply #29 on: April 28, 2016, 02:16:58 PM »
would just do Brinks or one of those other FDIC insured savings accounts paying 5%

Interest Compound

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Re: Good investment for emergency fund money
« Reply #30 on: April 28, 2016, 02:29:55 PM »
Honestly, my plan is to cash-flow any emergencies that don't involve a job loss (benefit of having a high savings rate like many here do).

Hmm, yes. I have the same plan. Taking a step back, I see how my savings rate plays a part in my risk analysis. When you're saving $12,000 a month it's an easy decision to invest your "Emergency Fund". While I might feel differently if I were saving $1,000 a month, I'm not so sure. Once you have a a healthy taxable account it really shouldn't matter. The math doesn't care about your savings rate.

massmustache

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Re: Good investment for emergency fund money
« Reply #31 on: April 29, 2016, 07:11:51 AM »
Right now my plan is to DCA into VWINX and VASIX over the next year the entirety of the 60k (plus 1k excess).  My thought is that if bonds dip I can tap the stocks for downpayment and do the converse if stocks dip...
Prior to a home purchase in March, we had 70% of our down payment camped out in short-term corporate bonds (VFSUX), the rest was cash.  As it turned out, when we needed the money, the market had recovered most of it's winter losses, but I would have been unhappy to have liquidated the down payment at a 5% loss if we had needed to close in January.  I don't keep any other bonds in taxable, so that wasn't an option for us.  I could have liquidated bonds from Roth contributions, but keeping that tax sheltered as long as possible is more desirable than a a short-term gain in balanced funds in a taxable account.

I am allergic to forced selling at a loss - I worked hard for that money!

That certainly seems reasonable.  We have a lot of flexibility in our rental situation in that we don't REALLY want to buy till 3 years or so... but I recognize that it's been almost 10 years since we were renters and may feel otherwise in a year.  I am banking a little on the fact that we can be flexible on when we purchase and potentially sit tight.

As much as I hate forced sales, I hate having large sums sitting on sidelines even more.

opnfld

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Re: Good investment for emergency fund money
« Reply #32 on: April 29, 2016, 11:29:45 AM »
Honestly, my plan is to cash-flow any emergencies that don't involve a job loss (benefit of having a high savings rate like many here do).

Hmm, yes. I have the same plan. Taking a step back, I see how my savings rate plays a part in my risk analysis. When you're saving $12,000 a month it's an easy decision to invest your "Emergency Fund". While I might feel differently if I were saving $1,000 a month, I'm not so sure. Once you have a a healthy taxable account it really shouldn't matter. The math doesn't care about your savings rate.
Very good point.  We save ~$6K/month but it all comes out pre-tax into retirement accounts.  Adjusting that would take several weeks.  There are a lot of individual circumstances to consider.


GGNoob

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Re: Good investment for emergency fund money
« Reply #33 on: April 29, 2016, 11:39:27 AM »
Honestly, my plan is to cash-flow any emergencies that don't involve a job loss (benefit of having a high savings rate like many here do).

Hmm, yes. I have the same plan. Taking a step back, I see how my savings rate plays a part in my risk analysis. When you're saving $12,000 a month it's an easy decision to invest your "Emergency Fund". While I might feel differently if I were saving $1,000 a month, I'm not so sure. Once you have a a healthy taxable account it really shouldn't matter. The math doesn't care about your savings rate.
Very good point.  We save ~$6K/month but it all comes out pre-tax into retirement accounts.  Adjusting that would take several weeks.  There are a lot of individual circumstances to consider.

Same situation. My wife and I save on average about $6,800 per month. With about $1,600 of that after tax, we can cover most smaller emergencies. Since everything is put on a credit card anyhow, we usually have 45ish days to pay off any large credit card purchases so we can easily adjust spending if needed. We don't have cash sitting around as everything is invested according to our desired asset allocation. As far as job loss goes, we each make the same and spend less than 50% of our income, so there is no issue if one of us loses our job.

GGNoob

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Re: Good investment for emergency fund money
« Reply #34 on: April 29, 2016, 11:46:58 AM »
This bank is currently offering 7% on a 7-month CD: https://www.depositaccounts.com/blog/2016/04/nrl-fcu-easy-membership-offers-777-7month-certificate.html

If I were to actually have an emergency fund, it would be invested somewhere like Betterment (30-40% stocks) or in a fund at Vanguard (Lifestrategy Income/Conservative Growth or Wellesley Income). I wouldn't let it sit in a bank account.

massmustache

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Re: Good investment for emergency fund money
« Reply #35 on: April 29, 2016, 12:10:39 PM »
This bank is currently offering 7% on a 7-month CD: https://www.depositaccounts.com/blog/2016/04/nrl-fcu-easy-membership-offers-777-7month-certificate.html

If I were to actually have an emergency fund, it would be invested somewhere like Betterment (30-40% stocks) or in a fund at Vanguard (Lifestrategy Income/Conservative Growth or Wellesley Income). I wouldn't let it sit in a bank account.

Interesting... but 7k cap is kinda bummer