Obviously in index stock funds. Anticipate a 30% hit and then just invest 30% more than you currently expect your so called emergency to be. 10k setting at near zero is a very bad long term plan. How bad? 10k at zero in 60 years will be worth 2 k inflation adjusted. 10 k at 10% will be worth 2 million inflation adjusted. Little choices do matter over the long term. Don't settle for less.
This exactly. In an emergency you may need to withdraw in a down market, but this is an emergency fund not a flexible pool of cash. 30% over your target in a taxable index stock fund is the best way to cover an emergency and plan for growth.
Thank you Bord- If there is a job loss emergency for instance at the very bottom of the market you would have 9 months of so to draw down and the market would have some recovery time.
I do believe that initially one should just acquire and save cash. This rule generally applies to those in debt or recently out of debt. But a person who is diligently saving 1 - 3 K per month can easily just put that money into indexs.
You are either guaranteed to pay a huge insurance (0 percent on the 10K or an average of 1K per year) or a possible smaller insurance (a 30% one time hit on the 10K).
I'm not sure anyone has done any studies on how often EFs are actually used but I'm guessing not very often for the MMM crowd? What do we think? - A 5% likelihood of using and EF.
Regardless, once you have twice what you perceive as an emergency is it should all be invested for life. So it may be just a matter of months of transitioning.
Another scenario --
Those who keep $1,000 in zero rate checking --
60 years that 1 k is worth 200 dollars inflation adjusted..
Keep that 1K invested and in 60 years the 1K is worth $160,000. It really is amazing that that little 1K decision can mean the difference between 160K and 200 dollars (a factor of 800).
I always ask --- So which would you rather give your grandkids 200 dollars or $160,000?
(If you have 1 million today and keep it invested --- You'll potentially have 166 million in 60 years! Inflation adjusted)