Where to Invest Money Right Now?

[oldnew_guy]

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.

You can also have a EF strategy that relies on a mix of less liquid investments (savings bonds, CDs, etc), cash, short term strategic use of CC’s etc.

I don’t see my EF as something outside of my overall portfolio, but something that is part of the overall plan that is worth growing at the best rate possible.

I’ve also never actually used my EF in 20 years of having one.

[Danno]

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.

Where did I say that there was no principal risk? That was my whole thesis, accepting some of that risk (while still in a conservative investment) for greater returns. In fact, I just posted some hypothetical numbers that included a 15% downturn. Seriously, reading is fundamental.

And my my whole point is keeping money in cash for those things doesn't make a lot of sense to me. Yes, Name Redacted is right that I chose a 10 year period after which the market crashes, and sure, I guess I gamed the numbers in that respect. But in the last 25-30 years or so, we have had only 2 significant downturns, and by significant I mean downturns that were big enough to wipe out more than just the gains you'd made in the last 2 or 3 years prior. So for me, I think I'd rather make more than MM rates for my EF. But my EF is a more significant part of my investments than for many. Obviously, YMMV.

And yes, Foggy, I am relying on PERA. If PERA fails, I am fucked, and the entire state is fucked since there's a statutory mandate to fund it. But I don't really have any choice but to rely on it, so... :shrug:

[Name Redacted]

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

Not what I meant.

[J. Barron DeJong]

Not what I meant.

ok. Guess I didn’t get it.

[J. Barron DeJong]

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.

I thought there was some risk in relying on a HELOC for emergencies. Could lose it due to change in job status or maybe housing market downturn? (Sorry, don’t recall the specifics.)

[Conundrum]

I thought there was some risk in relying on a HELOC for emergencies. Could lose it due to change in job status or maybe housing market downturn? (Sorry, don’t recall the specifics.)

I'm sure there is but probably less risk than not having a reserve fund or HELOC or any other safety nets. Seems like there's ways to attach risk to any of the solutions being presented. Cash-opportunity cost and inflation. Heloc-might be pulled for job or market conditions. 401k loan-pulling money at bottom, reducing future gains. Stock-market fluctuations. Real estate-market conditions and liquidity. CDs-immediate liquidity. Family safety net-dealing with family and shame and guilt. Being poor-not having any available options except digging a much deeper hole.

[Danno]

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.

I do agree with that. I wasn't suggesting illiquid investments that couldn't be used to handle emergencies; the whole point was that it was an emergency fund. But "emergency" doesn't have to be "walk into the bank and withdraw $10k", it can be "sell off some of the fund and transfer it to my bank account". One gets you the money that day, the other gets it to you in a few days, which should be sufficient to handle any emergency that doesn't involve the mafia.

[Conundrum]

Since we're on a ski forum, my real advice would be have a car you can sleep in, a second credit card with a high limit and $0 balance, a few grand cash, and your passport in an envelope ready to go at moment's notice. And if you have a dog, someone who can watch it while you bug out to escape trouble or find yourself...either AK or the Alps would be good options here.

[Danno]

I thought there was some risk in relying on a HELOC for emergencies. Could lose it due to change in job status or maybe housing market downturn? (Sorry, don’t recall the specifics.)

I thought the risk was that the bank has the option of canceling it, and if they exercise that option it's likely to be at a time when you most needed it.

That said, I had a HELOC as my emergency fund until I sold the house.

[J. Barron DeJong]

I thought the risk was that the bank has the option of canceling it, and if they exercise that option it's likely to be at a time when you most needed it.

That said, I had a HELOC as my emergency fund until I sold the house.

Yeah, the concern was cancellation when to you actually need it. Just don’t recall what the possible triggers for cancellation were.

[skaredshtles]

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.

Check.

And even that is *almost* gone.

[J. Barron DeJong]

Motley Fool says it’s ok to use HELOC as a supplement:

While it's not a bad idea to secure a HELOC and use it as extra protection in the face of life's unknowns, that HELOC should supplement an existing emergency fund rather than replace it. If you're sitting on loads of equity in your home, you can think about socking away three months of living expenses in the bank rather than six months' worth, and then securing a HELOC as well. That way, you'll have some cash on hand, coupled with a means of accessing more should the need arise.

[J. Barron DeJong]

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.

I have a mortgage at 2.75% and a car loan at 0.9%. Acceptable?

[Kevo]

IMHO HELOCs are a bad emergency fund. Banks can and do proactively close HELOCs during economic downturns and real estate downturns to expose their risk. If the price of real estate falls, the amount of home equity decreases and banks start slashing HELOCs. There is a real chance you won't have access to the money during the times when you are most likely to need it.

I did the whole "have three to six months of expenses saved up before investing" thing. I've had an emergency fund in place since my mid-20s. It has lost out compared to the opportunity cost of having invested it, but looking at it purely as cash vs invested money doesn't tell the full story.

Having that liquid money in reserve gave me leverage and confidence when negotiating salaries and terms at multiple different employers and it definitely helped me sleep at night. I have repeatedly refused non-compete agreements and doing so has lead to salary increases at future jobs. Financial peace of mind is priceless.

YMMV based on career path and COL. I still think it is worth having a six month emergency fund if at all possible though.

[Bunion 2020]

if you’re that worried about an injury there’s Aflac.

Except that Aflac has a premium due every month while money in a safe liquid interest bearing fund earns money. Aflac works for some folks but like every other type of insurance, they don't give away money unless they think they will make it back plus the vig.

[dunfree]

I have a mortgage at 2.75% and a car loan at 0.9%. Acceptable?

No, you need to pay cash for the third pickup truck.


don’t depend on credit for your emergency fund isn’t the same as virtue signaling/humble bragging about wasting capital

[J. Barron DeJong]

No, you need to pay cash for the third pickup truck.


don’t depend on credit for your emergency fund isn’t the same as virtue signaling/humble bragging about wasting capital

Shiiiiit. I don’t think I have cash on hand for a single one of today’s luxurious pick me ups, let alone three.

[Garbowski]

Since I had to look it up- plans may differ on a 401(k) loan, but the IRS max is 50k (or half the balance, whichever is lower) and the interest rate is a couple points higher than prime. You pay the interest to yourself, so seems like a good emergency option. It is not based on hardship- though your administrator may have a separate hardship plan.

[Mazderati]

If the emergency is losing your job that could be a very bad option.

[Conundrum]

If the emergency is losing your job that could be a very bad option.

Worse than The Lending Tree?

[jm2e]

I’m in the, “sure wish I’d done something with my emergency cash 15 years ago” camp.
In reality, I’ve had a few times along the way when cash got so scary low that it’s more of a PTSD overreaction. Plus I know fuck all about investing.
But my plan now is to stagger it into Ebonds or CDs in 1 year contributions. So there will always be a chunk locked up, but hopefully most of it will be liquid by the time I need/want access to it.


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[singlecross]

Since we're on a ski forum, my real advice would be have a car you can sleep in, a second credit card with a high limit and $0 balance, a few grand cash, and your passport in an envelope ready to go at moment's notice. And if you have a dog, someone who can watch it while you bug out to escape trouble or find yourself...either AK or the Alps would be good options here.

C’mon man… get with it… with the Yen so low, Japan is the obvious place to bug out to for a few months until the smoke clears. Other than that, solid plan.

[goldenboy]

I'm sure I have more money than I need to in my EF, but I also don't have a steady paycheck. I could go months with no income. For me, getting 3% in the savings account that I can instantly access is worth more than getting a bit over 4% in a CD for 18 months.

[Name Redacted]

Also not mentioned, if your investments are held in your retirement accounts, you’ll be paying a penalty and taxes when you withdraw. Which will wipe out more than any potential gains that you might have gotten from investing anyway.

[jono]

Also not mentioned, if your investments are held in your retirement accounts, you’ll be paying a penalty and taxes when you withdraw. Which will wipe out more than any potential gains that you might have gotten from investing anyway.

Lots of people with a Roth IRA that's been open for a while can withdraw up to the original contributions without penalty. Downside is not putting it back in, but if you have EF money sitting someplace and weren't maxing out the annual Roth contribution that's a good place for the "probably won't need it" money.