Where to Invest Money Right Now?

[Danno]

If you are going to hold a huge EF, at least consider ways other than a money market fund to store it. By definition you probably don’t need it all on day one of your crisis.

This was the point I made earlier. There are plenty of liquid options (liquid in that it can be accessed within a few days) that earn way more than a money market and are stable/conservative enough that they won't completely shit the bed in a 2008 downturn (and if you had the money earning over a long time period, to the extent it does dive in a 2008 downturn, the money lost is probably your previous gains).

[Dantheman]

Remember, 40% of the country doesn't have cash on hand to cover an unexpected $400 bill. If you're in an either/or situation where you have to choose between building an EF or stashing some money into a 401k/IRA/etc., you're probably better off going long-term and gambling on things being OK short-term. Or, start learning to like cat food now.

That said, an EF can be useful for a lot more than genuine "emergencies." My truck got totaled late last fall. Insurance takes time, but I needed a new truck ASAP. I was able to loan myself the payout and buy a truck, then pay myself back two weeks later when the insurance co. actually cut the check. Those two weeks would have been a minor nightmare otherwise.

[Name Redacted]

This was the point I made earlier. There are plenty of liquid options (liquid in that it can be accessed within a few days) that earn way more than a money market and are stable/conservative enough that they won't completely shit the bed in a 2008 downturn (and if you had the money earning over a long time period, to the extent it does dive in a 2008 downturn, the money lost is probably your previous gains).

You guys make the EF out to be a huge amount of money. It isn’t big at all compared to your retirement. Think about it in those terms and you are fighting for pocket change in the grand scheme.

[hatchgreenchile]

Remember, 40% of the country doesn't have cash on hand to cover an unexpected $400 bill.

I wonder what percentage of households has an emergency fund, max 401K and max HSA (and pays medical bills out of pocket)? It can’t be much!

We stopped calling it an EF, it’s a “cash reserve”, replenished and depleted based on market conditions.

[Name Redacted]

This was the point I made earlier. There are plenty of liquid options (liquid in that it can be accessed within a few days) that earn way more than a money market and are stable/conservative enough that they won't completely shit the bed in a 2008 downturn (and if you had the money earning over a long time period, to the extent it does dive in a 2008 downturn, the money lost is probably your previous gains).

But why would you set yourself up to be forced to pull your money out of the market when it is down in the first place? Poor strategy no matter what your timeline.

[oldnew_guy]

I can walk and chew gum.

1-2% interest difference over the life of a 6-12 month EF established prior to investing for retirement is not huge (so 20-30 years) but is not irrelevant either.

[fastfred]

18k in cash and rifle under the bed
pretty secure

[MontuckyFried]

FTT!!!

[neufox47]

You guys make the EF out to be a huge amount of money. It isn’t big at all compared to your retirement. Think about it in those terms and you are fighting for pocket change in the grand scheme.

Saving up $50k is a huge amount of money for most people, even $20k. If saving that EF takes you two years and delays your entry into a 401k, then has your initial two years of investments handicapped at making less than inflation that becomes a significant difference.

If you lose your job there’s unemployment, if you’re that worried about an injury there’s Aflac.

[Name Redacted]

I can walk and chew gum.

1-2% interest difference over the life of a 6-12 month EF established prior to investing for retirement is not huge (so 20-30 years) but is not irrelevant either.

But you aren’t even getting 1-2% over the life. You are just looking at todays conditions. There’s a reason that nobody invested in IBonds and Tbills until recently. CDs are the only one that you mentioned that are consistently higher and they aren’t even liquid w/o penalty.

[J. Barron DeJong]

For my EF I put 3 months in a savings account, and then another 3 month in a Wealthfront investment account. If shit really hit the fan and we both lost our jobs during a major downturn we could take a hit selling from the investment account, but it seemed worth the risk given the probabilities.

So far the investment account has more than doubled. The savings account has not.

[Name Redacted]

Saving up $50k is a huge amount of money for most people, even $20k. If saving that EF takes you two years and delays your entry into a 401k, then has your initial two years of investments handicapped at making less than inflation that becomes a significant difference.

If you lose your job there’s unemployment, if you’re that worried about an injury there’s Aflac.

Why does this “most people” thing keep coming up. Most people are shitty with money, that’s not news. Most people can’t come up with cash to cover $400 emergency? Yeah, that’s not a reason for other people to not have an EF. It is just the reason for “most people” to be in debt up to their eyeballs for many years after what could have been a minor hurdle.

[oldnew_guy]

But you aren’t even getting 1-2% over the life. You are just looking at todays conditions. There’s a reason that nobody invested in IBonds and Tbills until recently. CDs are the only one that you mentioned that are consistently higher and they aren’t even liquid w/o penalty.

Sounds like you have considered it and it’s not for you.

<shrug>

[Foggy_Goggles]

OK, so ya'll talking about some marginal return plus loss of liquidity as being preferred to cash better not be financing anything other that your house. People love to act real smart with their investing and act real dumb with their borrowing. Payments suck.

[Danno]

You guys make the EF out to be a huge amount of money. It isn’t big at all compared to your retirement. Think about it in those terms and you are fighting for pocket change in the grand scheme.

I'm no dentist. My retirement is mostly pension, and a 401K that I am trying to grow but isn't that big. So for a non-baller like me, the EF is not some minor amount of my available (ie non-retirement acct) money. So giving up any significant return on that money is not "pocket change"; it's actually quite the opposite. Maybe it is for you, but not for me.

But why would you set yourself up to be forced to pull your money out of the market when it is down in the first place? Poor strategy no matter what your timeline.

Disagree with the "no matter your timeline." Because you're looking at this with a small time window, which is the wrong window IMO (or at least, the wrong window to evaluate what I am talking about). Sure, having to withdraw during a market downturn is not great. But if that money has been earning me 5% for the previous ten years, and your MM has been earning 1%, then even if my money crashes by 15% during a downturn at year 10, and yours doesn't budge, I still have WAY more than you, even though you're not withdrawing after your money has taken a downturn and I am. To put hard dollars on it, if we each started with $10k, I would have ~$14k (AFTER that 15% downturn) and you would have ~$11k.

[Foggy_Goggles]

Danno, what's this hypothetical investment that outperforms cash by 4% with no principal or liquidity risk? Because that's what your example assumes.

Home repairs
Medical bills
Family emergencies
Strategic opportunities
Vehicle Repairs

Too much cash has an opportunity cost but it's usually less than having to finance the realities of life.

[Name Redacted]

I'm no dentist. My retirement is mostly pension, and a 401K that I am trying to grow but isn't that big. So for a non-baller like me, the EF is not some minor amount of my available (ie non-retirement acct) money. So giving up any significant return on that money is not "pocket change"; it's actually quite the opposite. Maybe it is for you, but not for me.



Disagree with the "no matter your timeline." Because you're looking at this with a small time window, which is the wrong window IMO (or at least, the wrong window to evaluate what I am talking about). Sure, having to withdraw during a market downturn is not great. But if that money has been earning me 5% for the previous ten years, and your MM has been earning 1%, then even if my money crashes by 15% during a downturn at year 10, and yours doesn't budge, I still have WAY more than you, even though you're not withdrawing after your money has taken a downturn and I am. To put hard dollars on it, if we each started with $10k, I would have ~$14k (AFTER that 15% downturn) and you would have ~$11k.

Yeah, you set the parameters and you can make the math work great for you. Must be nice to only have emergencies after 10+ years of exceptional market conditions. Man, I don’t think I’d invest in an account that earned 1% either.

Once again, if your other investments are 10-20x your EF, then who cares about earning a few grand extra return over 10 years on your EF? And yeah, I was able to invest more of my paycheck more consistently over the years because I have the comfort of knowing that I have a healthy EF.

Pensions are not the norm these days either but if you have one, that’s great, you have different circumstances. Hopefully it is being invested well too and doesn’t disappear in a downturn.

[Name Redacted]

Danno, what's this hypothetical investment that outperforms cash by 4% with no principal or liquidity risk? Because that's what your example assumes.

Home repairs
Medical bills
Family emergencies
Strategic opportunities
Vehicle Repairs

Too much cash has an opportunity cost but it's usually less than having to finance the realities of life.

^this, and taxes.

[Foggy_Goggles]

I'm guessing Danno has PERA which is only about $32billion underfunded. Its all really just mental accounting of the personal balance sheet and income statement. Someone with more liquid lower risk investments probably needs less cash and so on.

[oldnew_guy]

It’s almost like different people are comfortable with different levels of risk and return. Crazy.

I bet someone here is “right” though.

[Foggy_Goggles]

True, my point was more about optimization and avoiding the trap where one is illiquid and has to borrow though inefficient means like car loans and credit cards. Its really more about scenario analysis than cherry picking the conditions under which one's choice wins.

[rod9301]

In addition to an emergency fund, i would keep at least 10 percent of your investable assets in either cash or some very liquid stuff.

Then when the market or a favorite stock goes down, you can invest

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[J. Barron DeJong]

^this, and taxes.

Why would you be using an EF to pay taxes? That’s not an unforeseen event.

[J. Barron DeJong]

In addition to an emergency fund, i would keep at least 10 percent of your investable assets in either cash or some very liquid stuff.

Then when the market or a favorite stock goes down, you can invest

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Yes. As every good financial adviser says: Try to time the market! Pick individual stocks!

FFS.

[Conundrum]

Without entering the how much cash to have on hand for emergencies conversation, there may be other options. If you own a home with some equity, how about setting up a HELOC and not touching it unless you have an emergency or find a great investment that will outrun the HELOC interest? If you have a 401K, many of those have loan options out of the 401k funds so something to review for emergency needs prior to having an emergency. A lot of people get rich on interest and a lot of people get poorer. An emergency isn't a time to be thinking about rich and poor. It's an emergency...you just want to get through it and get back to normal life where you can make good or bad long term financial decisions.

Signed-an idiot with too much cash sitting in a non-interest bearing account waiting for building permits.