Author Topic: Recommendations for Investment to hold part of an Emergency Fund  (Read 1893 times)

Ensign1999

  • Stubble
  • **
  • Posts: 119
  • Age: 43
  • Location: Northern Virginia/Washington DC Area
Recommendations for Investment to hold part of an Emergency Fund
« on: February 20, 2018, 06:16:15 AM »
I transitioned careers about a year ago to a job that initially paid much lower. In preparation for the transition we saved up a large emergency cushion. After being in the job for a while now, we are making more than I expected to and havenít needed to touch our emergency fund that is currently in a savings account at 1.5%.

Iím looking for some recommendations on where I could move a large portion of the emergency fund.  We would plan to keep some money in the savings account to take care of anything that pops up, but would like to receive better returns and do not mind thadditional risk associated with investing the money.

Goals:
Better return than 1.5% that we are currently receiving
Simple account to set up and monitor
Low fees and costs
Plan to leave the investment alone unless we absolutely need it

Amount to invest: $15k to $20k leaving about $6k in our savings

Bird In Hand

  • Pencil Stache
  • ****
  • Posts: 549
Re: Recommendations for Investment to hold part of an Emergency Fund
« Reply #1 on: February 20, 2018, 06:48:22 AM »
Our strategy for EF has been to max out our Roth IRAs each year.  Potentially more risky than a savings account at the bank, but you can choose the fund(s) to suit your risk/return preferences.

We've socked away around $50k in Roth contributions in the last five years.  I like it because it works as both an EF and a tax-diversification tool for ER.  And it lowers the amount of dead-weight $$ sitting around in a low-interest savings account.

If you already have or are planning on contributing to Roth IRAs, you might consider counting the contributions as part of your EF.

Ensign1999

  • Stubble
  • **
  • Posts: 119
  • Age: 43
  • Location: Northern Virginia/Washington DC Area
Re: Recommendations for Investment to hold part of an Emergency Fund
« Reply #2 on: February 20, 2018, 07:48:07 AM »
Our strategy for EF has been to max out our Roth IRAs each year.  Potentially more risky than a savings account at the bank, but you can choose the fund(s) to suit your risk/return preferences.

If you already have or are planning on contributing to Roth IRAs, you might consider counting the contributions as part of your EF.

We are already maxing contributions to our IRAs as well as maximizing the company match on a 401k.  We view both of these as retirement accounts only and will hopefully not have to touch them for many years. While in a real true emergency we could draw on them, we hope to not touch them.

Iím looking for specific funds/companies that folks would recommend to put a more liquid emergency fund into for short to long term investment. We would use the cash from our savings first if we needed it before pulling money from these accounts so the cash could be used in a pinch, but based on our cash flow over the last year the likelihood of needing these funds is low, so they would be left alone to grow.

ooeei

  • Handlebar Stache
  • *****
  • Posts: 1143
Re: Recommendations for Investment to hold part of an Emergency Fund
« Reply #3 on: February 20, 2018, 08:03:38 AM »
Your emergency fund should stay in savings or maybe some CDs.

If you decide to invest it you need be okay with it being down significantly when an emergency pops up. Also keep in mind many "emergency" situations come during times of a down market. Layoffs, furloughs, housing problems, etc. If you're okay with that risk, just invest it per your risk tolerance balancing stocks/bonds accordingly.

There is no magic short term investment that pays more than savings accounts without significant risk of being down when you need it.

Bicycle_B

  • Handlebar Stache
  • *****
  • Posts: 1825
  • Mustachian-ish in Live Music Capital of the World
Re: Recommendations for Investment to hold part of an Emergency Fund
« Reply #4 on: February 20, 2018, 06:44:21 PM »
This is not a professional recommendation, just examples I thought of after reading your question...

Vanguard account.  Invest per your standard asset allocation. 

Better return than 1.5%?  Yes on average, but specific results depend on market variations.
Simple account to set up and monitor?  Yes
Low fees and costs?  Hell yes

Fund examples:
2/3 in Vanguard's VTSAX fund (invests in broad US stock market, proportional companies' market value.  Fee is only .04% per year with minimum investment of $10,000.  Can switch at no cost to other fund with smaller minimum if you need a withdrawal.)
https://personal.vanguard.com/us/funds/snapshot?FundId=0585&FundIntExt=INT&funds_disable_redirect=true

1/3 in Vanguard's VBIIX fund (invests in US intermediate term bonds, roughly approximating the whole market for 5 to 10 year "investment grade" bonds, both corporate and govt; fee .12%/year, minimum investment $3,000.)
https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0314&funds_disable_redirect=true
« Last Edit: February 20, 2018, 06:46:03 PM by Bicycle_B »

Ensign1999

  • Stubble
  • **
  • Posts: 119
  • Age: 43
  • Location: Northern Virginia/Washington DC Area
Re: Recommendations for Investment to hold part of an Emergency Fund
« Reply #5 on: February 24, 2018, 04:52:48 PM »
Thank you for your reply....

I understand that a true emergency reply should stay in savings (I wouldn't recommend a CD unless there was some way to access the money prior to it becoming mature without penalty).  I had hoped I made it clear that I feel the current stash we have as an emergency fund to help us transition from one job to the next is larger than we need.  We plan on keeping some money still set aside in a savings account, but were looking for recommendations on where we could move the rest to hopefully receive a better return (understanding anything that has the potential to give a higher return also has a higher risk associated with it).

Your emergency fund should stay in savings or maybe some CDs.

If you decide to invest it you need be okay with it being down significantly when an emergency pops up. Also keep in mind many "emergency" situations come during times of a down market. Layoffs, furloughs, housing problems, etc. If you're okay with that risk, just invest it per your risk tolerance balancing stocks/bonds accordingly.

There is no magic short term investment that pays more than savings accounts without significant risk of being down when you need it.

Ensign1999

  • Stubble
  • **
  • Posts: 119
  • Age: 43
  • Location: Northern Virginia/Washington DC Area
Re: Recommendations for Investment to hold part of an Emergency Fund
« Reply #6 on: February 24, 2018, 04:55:12 PM »
B_B....

Thank you, this was more alongs the lines of what I was looking for.  Still working through some of the money movements, but hopefully I will start seeing some better returns in the not so distant future (market holding up) and if not then I will sit and wait...there is no need for this cash anytime soon.



This is not a professional recommendation, just examples I thought of after reading your question...

Vanguard account.  Invest per your standard asset allocation. 

Better return than 1.5%?  Yes on average, but specific results depend on market variations.
Simple account to set up and monitor?  Yes
Low fees and costs?  Hell yes

Fund examples:
2/3 in Vanguard's VTSAX fund (invests in broad US stock market, proportional companies' market value.  Fee is only .04% per year with minimum investment of $10,000.  Can switch at no cost to other fund with smaller minimum if you need a withdrawal.)
https://personal.vanguard.com/us/funds/snapshot?FundId=0585&FundIntExt=INT&funds_disable_redirect=true

1/3 in Vanguard's VBIIX fund (invests in US intermediate term bonds, roughly approximating the whole market for 5 to 10 year "investment grade" bonds, both corporate and govt; fee .12%/year, minimum investment $3,000.)
https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0314&funds_disable_redirect=true

letired

  • Pencil Stache
  • ****
  • Posts: 823
  • Location: Texas
    • Needs More Glitter
Re: Recommendations for Investment to hold part of an Emergency Fund
« Reply #7 on: February 24, 2018, 05:20:50 PM »
https://www.doctorofcredit.com/high-interest-savings-to-get/
I do an Insight account and three of the Netspend accounts, getting me to $8k at 5% interest. I have automated deposits set up every two months for $1 via Ally to avoid inactivity fees. This is a reasonable level of effort for me.

After that, I would look at certificates of deposit or US government bonds in appropriate intervals.





SubL stache

  • 5 O'Clock Shadow
  • *
  • Posts: 59
Re: Recommendations for Investment to hold part of an Emergency Fund
« Reply #8 on: February 24, 2018, 08:59:36 PM »
I keep about 15k-20k in my emergency fund as well. Some of that sits at Ally at 1.45%.  I use these funds to open new bank accounts and shuffle it around to earn bank bonuses.  In 2016 I made $3,500 moving around these funds.  I'm already at $900 this year, nice way to make a decent return on idle money that you may need to access.  The penalty if you need to close some of these accounts early is minimal like 20-50$ ETF.  There is a thread in the badassity forum detailing bank bonuses and I use doctorofcredit.com to locate new bank bonus offers.  Hope that helps.

COEE

  • Pencil Stache
  • ****
  • Posts: 606
Re: Recommendations for Investment to hold part of an Emergency Fund
« Reply #9 on: February 25, 2018, 06:04:49 PM »
I have recently started buying I-series bonds from the US Treasury.  The investment has two rates - a static rate (currently 0.1%), and an adjustable rate (currently 2.48%).  The adjustable rate is based on the CPI-U (inflation).  You can't access your money for 1 year after purchasing, and you're limited to purchasing $10k in ibonds a year per Social Security Number.  You also lose 3 months of interest if you withdraw before 5 years is up.  But it typically offers a bit better rates than CD's and savings accounts, and is backed by the federal government.

I plan to hold about 25% of my emergency fund in cash in a high yield savings account and the rest in iBonds.  This strategy protects some of my emergency fund from losing a bunch of value due to inflation.  That was my goal.  I suspect that I will never have to access these emergency funds, but they are easily accessible if I do. 

I also consider my ibonds as part of my bond allocation.  So that allows me to buy more stock in my retirement accounts for investing.

DreamFIRE

  • Handlebar Stache
  • *****
  • Posts: 1596
Re: Recommendations for Investment to hold part of an Emergency Fund
« Reply #10 on: February 25, 2018, 06:35:50 PM »
I have recently started buying I-series bonds from the US Treasury.  The investment has two rates - a static rate (currently 0.1%), and an adjustable rate (currently 2.48%).  The adjustable rate is based on the CPI-U (inflation).  You can't access your money for 1 year after purchasing, and you're limited to purchasing $10k in ibonds a year per Social Security Number.  You also lose 3 months of interest if you withdraw before 5 years is up.  But it typically offers a bit better rates than CD's and savings accounts, and is backed by the federal government.

Also, you don't have to pay state and local income tax on the interest of the I Bonds, which is another advantage vs. CD / savings accounts in states that would require you to pay tax on those alternatives.

TomTX

  • Magnum Stache
  • ******
  • Posts: 3342
  • Location: Texas
Re: Recommendations for Investment to hold part of an Emergency Fund
« Reply #11 on: February 25, 2018, 06:59:41 PM »
I bonds.

If you need more than $10k per SSN per year, overpay your taxes and get up to $5k of your refund as a (paper) I bond. This is also the only method to get paper I bonds if you prefer paper.

ooeei

  • Handlebar Stache
  • *****
  • Posts: 1143
Re: Recommendations for Investment to hold part of an Emergency Fund
« Reply #12 on: February 26, 2018, 07:39:38 AM »
Thank you for your reply....

I understand that a true emergency reply should stay in savings (I wouldn't recommend a CD unless there was some way to access the money prior to it becoming mature without penalty).  I had hoped I made it clear that I feel the current stash we have as an emergency fund to help us transition from one job to the next is larger than we need.  We plan on keeping some money still set aside in a savings account, but were looking for recommendations on where we could move the rest to hopefully receive a better return (understanding anything that has the potential to give a higher return also has a higher risk associated with it).

So basically you want to invest money that is not part of an emergency fund, that's a very different request.

CorpRaider

  • Bristles
  • ***
  • Posts: 381
    • The Corpraider Blog
Re: Recommendations for Investment to hold part of an Emergency Fund
« Reply #13 on: February 26, 2018, 07:47:39 AM »
Yeah, I was going to mention I bonds as well.  One thing to note is that you can't redeem until a year has passed so you might want to stagger your purchases to keep some cash for the first year, if you decide to go that route.

pdxvandal

  • Bristles
  • ***
  • Posts: 281
  • Location: Earth
Re: Recommendations for Investment to hold part of an Emergency Fund
« Reply #14 on: February 26, 2018, 10:55:09 AM »
Perhaps you have a local credit union providing 2.5-3% rates on a certain amount. This also will require some debit card transactions.

This is where I keep my emergency fund, for example: https://www.trailheadcu.org/membership/benefits/kasasa/