Emergency fund absurdity MatthewAinsworth

#1
In what situation in life would you genuinely need immediate access to 3 months of expenses? So immediately that it can't wait the 4 days or so to sell an investment? By all means hedge your investment with different asset classes so you don't sell in a crash but by no more than the emergency fund youre genuinely going to need.



I had a big car repair bill, but they gave me forewarning and charged me after the work, what other unexpected expense could require immediate payment?



Remember that insurance may be cheaper than opportunity cost

And odds are you can open a new line of credit for expenses

#2
Emergency funds are there to prevent you being forced to sell investments during a market crash. If you are comfortable taking that hit if necessary, then you can reduce your emergency fund down a bare minimum or even replace it with a credit facility. Cash does have a place in an investment portfolio though, and when you can get a 5% return on a limited amount of cash it probably makes sense to hold that much at least.

#5



For me, a last minute flight to the US would do it - say if a family member was taken ill.
Originally posted by Rosemary7391


Good Thread.

Yes I think it does depend on personal circumstances. Maybe some people don't need to hold much cash. I might be travelling Europe in my motorhome and suddenly need a large sum for medical expenses or repairs. I wouldn't want to try and get online to sell shares, wait for the proceeds and transfer them into my bank etc.

In any case I would be reluctant to inconvenience myself by putting everything into equities now with the market at its record high.

#6
Psychology and minimise stress in difficult situations:



1) Consider the situation where there is an economic crash. Your funds drop drastically and your employer goes bust. With the emergency fund there is no need to panic. During the times when a crash doesnt happen you know you are safe if it should - it helps one get a good night's sleep..



2) You should regard your investments as sacrosanct until their objective is attained. Once you start treating your investments as another bank account to be dipped into when the going gets difficult you could be on a slippery slope.



Emergency funds arent wasted money. If they didnt exist you would need to design your portfolio to be able to cope with unexpected demands for large amounts of cash outside your normal budget. Much easier to pass that job over to a pot of cash and focus your portfolio on its long term objective.



Emergency funds are particularly important for new/small investors to ensure that they dont invest at too high a risk to cope with the normal problems of life. In retirement when one is dependent on steady income from investments a large cash buffer is also important so one doesnt have to regularly sell investments in good times and bad. Experienced investors with a large portfolio still accumulating perhaps could argue that they need less cash. On the other hand the suggested 6 months living expenses would probably be a fairly small % of their wealth.

#7
Masonic - just hedge instead maybe? And not for overall market timing, just for emergencies



Robin - insurance instead perhaps? I can outperform it, or just work out how far JSA will take us, that's a kind of insurance already, my pay wouldn't be miles from it

#8
Linton - as long as it's well hedged though, that should in theory cover a market crash? Or a credit line or insurance. It's the liquidity of said fund that's in question, I accept needing something

#10



Gold and property to hedge the equities?
Originally posted by MatthewAinsworth


If there was another pandemic like swine flu that was as deadly as SARS... a near certainty at some point. The global population takes a hit, property and stocks would therefore crash, and you'd need cash to pay for urgent needs (flights, medical care, supplies) which have suddenly become more expensive.



This may sound like a Domesday scenario but every generation before the baby boomers had to face a crisis as dramatic as this (war, famine, disease etc).

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