Front-loading the question, why should an emergency fund be liquid? Even in an emergency I won't need it immediately. I have funds invested in stock and bond mutual funds, available in a few days. What's wrong with that?
Longer story:
I'm near retirement age. I have an IRA and a brokerage account, both invested in a mix of stock and bond mutual funds. I don't have an emergency fund. In an emergency I'll make a brokerage trade and have cash in a day or two.
Five years ago I went over my finances with an investment adviser. He helped me with some investment choices but my accounts are self-directed, no not managed by them.
After talking investments, insurance and a few other items we got to the question.
Him: Do you have an emergency fund with 3 to 6 months cash reserve? Me: No, I've got about a month's earnings in my checking account. Him: You need to have cash in an emergency fund. Me: I can execute a trade and have cash the next day. Him: But you need it in an emergency fund, you know, for emergencies. Me: Riiiight. OK, fine. Let's move on.
I didn't create an emergency fund. Flash forward four years to 2018. My furnace failed, replacement cost $5,000. I floated it on a credit card, executed a trade, got the cash and paid off the credit card in full. Two months later I had a medical emergency, spent several days in the hospital. Big bill paid by insurance, but my personal responsibility was about $7,000. I floated it on a credit card, executed a trade, got the cash and paid off the credit card in full. Yes, I paid long term capital gains on the trades with my 2018 taxes, but that's a good thing.
Jump to last week. It's been five years, time to review things again with my investment adviser. I'd throttled back just a bit on stocks, and he was generally happy with my investment choices. We talked dependents, insurance, etc.
Then we got to the question.
Him: Do you have an emergency fund with 3 to 6 months cash reserve? Me: No, I've got a month's slush fund in checking. Him: You need to have cash in an emergency fund. Me: Why? I can execute a trade and have cash the next day. Him: But it's for *emergencies*. Me: I had two emergencies last year. Used my credit card for both, executed trades, paid them off. Him: But you had to pay taxes on that, right? Me: Sure. Him: See? If it was in an emergency fund you wouldn't have that. Me: Sure. **Moving on**.
My money was making money. I don't see the need to park some of it in cash. His pitch that I shouldn't earn money on it because I'll have to pay taxes when drawing from it makes no sense to me.
Submitted August 25, 2019 at 08:30PM by FrankieMint https://ift.tt/2LblTd9
