I finally invested my emergency fund, but...

[El_Viajero]

So I actually have a post on this forum from awhile back where I extolled the good feelz I got from keeping an emergency fund with $10K in it. Since then, my spouse has gotten a big raise and has way more job security. I also learned about using 0% APR credit card promos to finance big purchases and spread out the cost over the zero APR-eligible period – tried it for a big purchase and it worked out swimmingly. I also know that there are always ways to finance specific big-ticket items at 0% interest for X number of months (new HVAC, for instance).

In essence, I've become less afraid of not having an emergency fund. I invested all $10K into Vanguard funds along with the rest of my stash; HOWEVER, there's one thing that's still giving me pause: a car purchase.

I'm not planning to buy another car anytime soon, but shit happens. If I need to buy another car, I'll have to yank the money out of my index funds... possibly at a time when they're down. I could end up losing more money doing this than just financing the car at a low interest rate.

My question: Is it still worth keeping some cash around to mitigate the risk of this one potential purchase? It's the only large emergency expense I can think of that can't easily be purchased with the available cash in our checking account or financed at 0% for 12+ months.

Or is it really easy to finance a used car at 0% for a short time period? I've never had a car loan, so I don't know. The last car I purchased cost $6,200 and I bought it with a debit card.

[FreelanceToFreedom]

You probably won't be able to get 0% on a used car purchase. But a credit union would probably offer 4-6%

Do you hold any bonds? If so just pull from that if need be.

[Wrenchturner]

I don't think you'll come out on top with a car loan vs cash purchase; pretty sure either the cost of the loan or the price of the car will be higher with credit.  Not sure about this though.  I'm sure there are other threads on it.

But assuming that's correct, and you buy a used car like a smart person, there's probably more risk in the purchase of the car(since something on it could break) than in the risk of selling stock when it's down.  Also, if you buy a used car and start investing on the same date, 5-10 years later when you're due for your next car, your stock return should be more evident.

Buying a car is always a loss.  Unless you're a shrewd mechanic or something.

[Telecaster]

I'm not planning to buy another car anytime soon, but shit happens. If I need to buy another car, I'll have to yank the money out of my index funds... possibly at a time when they're down. I could end up losing more money doing this than just financing the car at a low interest rate.

My question: Is it still worth keeping some cash around to mitigate the risk of this one potential purchase? It's the only large emergency expense I can think of that can't easily be purchased with the available cash in our checking account or financed at 0% for 12+ months.

Or is it really easy to finance a used car at 0% for a short time period? I've never had a car loan, so I don't know. The last car I purchased cost $6,200 and I bought it with a debit card.

I don't think buying a car qualifies as an emergency.   Based on age and condition, you should be able to make a reasonable estimate how long the car will last.    You can also make a reasonable estimate how much the replacement will cost.    It is perfectly fine to save up cash over time such that you have enough money to make a cash purchase when the time comes.  Same as any other planned purchase.   

But, let's say the worst happens.  The timing belt fails unexpectedly and totals the engine.   Now you may need to finance a car and pay some interest.  BFD.  Money in cash will guaranteed lose to inflation.   So if you keep cash in case of a car emergency, you are guaranteeing a loss to a avoid a potential loss.   

You cannot get a 0% loan on a used car.   You might be able to buy the car with a credit card.  Not all dealers allow it, some charge a fee, and some have a maximum amount.   If they charge a fee, it isn't worth it, and of course you must pay off the balance before the end of the month.   I put the max on my credit card for a car purchase one time (it was like $5000 or something) and airline points worth a trip to Hawaii out of it.   Nice way to meet your minimum spend in a hurry. 

[2sk22]

I know this may not be possible for everyone but I believe that the emergency fund ought to be stored in a savings account and not in stocks. The money you save up towards big purchase should be separate from the emergency fund can be in a mutual fund - depending on the time horizon.

[FIREstache]

Actual cash vs. equities aren't the only choices.  Money in cash stuffed in your mattress or a non-interest cash account will lose money to inflation, as mentioned.  But why do that when there are other ways to save money in cash equivalents that track more closely with inflation, such as some higher yield online savings accounts and money market funds?  You can get quick access to the funds without penalty while minimizing inflation risks.

Regarding a future car purchase, I allocate $200/mo of my FIRE budget for that very purpose, but it's just part of my stash.  I don't sweat over it needing to be separated into its own account any more so than long term savings for costly home maintenance.  I keep enough in non-equities to cover anything that will come up so that I won't be forced to sell equities when the market is down.

[El_Viajero]

So if you keep cash in case of a car emergency, you are guaranteeing a loss to avoid a potential loss.

This is a really good point. I also suppose whatever interest I might pay on a car loan would be negligible as I'd immediately begin using the money I'd otherwise invest to pay down the loan on, say... a $6K car. It wouldn't take long at all.