Ok, I should have mentioned that since we've paid off the last car we have been setting aside around $300 mo., about the amount of a car payment, into a checking account. We had about $7k built up just sitting there. So I moved it to our taxable account and continue to put in that amount monthly, as well as any other surplus after contributing to 401k and Roths. It should be quite a few years before we need that money for a replacement vehicle. Good strategy? Thanks
It depends on your own personal temperament. You'll have to find that answer for yourself, whether you feel comfortable with an emergency fund of cash, or with a taxable buffer account invested and with, say, margin loan access on it. If you expect to need money within the next 3-5 years, cash/CD's is the best option, because of volatility. However, if you don't know when you'll need money, and you take the long view on returns/risk, then S&P500 has returned an average of 9%, ~7% after inflation for the last 100 years of history. Or alternatively you could go with
Capital in the 21'st Century's estimate of ~5% real gains per annum on capital. YMMV, past results are not indicative of future returns, and terrible periods do exist such as the 15 years it took to recover after the Great Depression, or periods of hyperinflation and other such times in other countries. Historically though, if you expand your time period to 20-30 years, then investing is the best choice.
But look back at the Financial Crash and the dot com burst, post 9/11 and ask yourself where you were mentally, or how you would react, or whether for you personally an emergency fund feels better as something that can't shrink.