Quote:
Originally Posted by hellodeli1
I totally agree that an emergency fund should be kept in very liquid vehicles -- cash, CDs, and the like. Having an emergency fund in stocks or even funds is risky because by the very nature of the fund, it is something that you may need to tap into at any time -- and that time may not coincide with an opportune time in the market. Having standing stop loss orders may be a way to fight this, but it seems like a good way to have your money churn a bit.
Also, there were some questions as to why you would have a substantial sum, say $15,000 in an EF. Well, it all amounts to your personal expenses and tolerance for risk. If your expenses for 6 months total 15k, it would certainly be wise to have all of that available in your EF -- say, if you lost your job and had to cover your expenses for a duration of time.
Personally, I keep a decent amount in cash and more in staggered 1 year CDs, so every month, I have a CD that matures that I could tap into should I need it, if not, it just renews to another 1 year term. It also helps flatten spikes and dips in near term interest rates.
|
I don't see how a CD is considered "liquid" and stocks are not. If you have 12,000 EF and per your plan, $1000 matures each month, then wouldn't that mean you really only have access to $1000 of your emergency fund at any given time? I've never used CD's so my question is probably an ignorant one
Everyone is different, but for me, once I am up in a stock, and I have a stop loss in to protect most of my paper gains, then I really don't care what the market is doing if I need to cash out. I don't consider it an investment or retirment, just an emergency fund; if I cash out then so be it. If I still own the stock and my stop loss has not kicked, then I am doing well regardless if it happens to be up or down that particular day/week/month.
When I get to $20k on a particular stock/fund/investment, half becomes permanent investment and the other half is allocated as the new emergency fund. It is liquid within three days and if my stop loss kicks in, then it sits in a tax-free money market account while I look for my next investment.
For example: Johnson & Johnson I bought at $58 a couple years(?) back and left it alone. It got up to 67-68 and I had my loss set at 66. When 66 hit, rather than get greedy, I sold and let it sit in my MM account. At any time I had access to that money and when it sold, I made three times what ING would have paid me. Heck the dividends alone come close to matching a typical savings account.
I understand this is obviously not for everyone and may be considered risky, but so is crossing the street if you don't look both ways. I pick my stocks carefully and only go for dividend producing, well established companies (JNJ, GE, etc..).
I've tapped into it twice over the years; once for a new HVAC and once for a new roof, and both times I was very happy with how it worked out. I took out what I needed and left the rest alone. I'll also mention that this EF is for *EMERGENCIES*, which for me personally does not include car insurance, etc. I have a very stable job and can switch agencies very easily if I ever needed so, so this fund is more for large housing expenses, so I don't need to be nearly as liquid (even though in my opinion I am) as most people.
The bottom line is to have access to money in case of emergency, the vehicle you choose to hold it is secondary in my opinion.