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2009/10/19 at 11:41 am
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Retirement Savior 2009/10/19 at 10:16 am

That’s a good analysis. If one wanted to invest their emergency fund, I would suggest learning what maximum drawdown they are willing to put up with. A high yield bond fund could decline by 20-25% during any short term horizon. Over time it may perform well, but if you have a 30k emergency fund, I wouldn’t count on more than 25k being there for withdrawal at any particular moment.
.-= Retirement Savior´s last blog ..Dollar Reserve Currency Status Update =-.

Kelly Whalen 2009/10/19 at 10:38 am

Love your suggestion to put $1,000 in cash within reach in minutes. That’s something I never consider but really should.

Hopefully that planner didn’t charge your friend anything!

paul 2009/10/19 at 10:48 am

Oh but he did, at least he’s not getting the large commission on selling this bond.

Jason @ Redeeming Riches 2009/10/19 at 10:51 am

Paul, great assessment. I hope the recommendation had some merit other than to put a little cash in the planner’s pocket.

I agree with Retirement Savior that a high yield bond can decline significantly (see 2008) during a short term horizon.

Maybe a $30k cash reserve is a little too much for this situation and a portion of the money could be invested for a short term horizon – but as always you must know yourself – your risk appetite and the purpose for you money before you make a significant decision like investing your emergency fund!
.-= Jason @ Redeeming Riches´s last blog ..Why You Need a Larger View of Your Money (And So Do I)! =-.

Matt Jabs 2009/10/19 at 11:06 am

I wholeheartedly agree with the fiscal geek who plays a financial planner on the web.

Like you said, EF’s are not for investing… they’re for emergencies! And they need to be liquid.

I also agree with your recommendation to keep $1,000 stashed somewhere in your home. Good stuff Paul.
.-= Matt Jabs´s last blog ..Save Money ““ How To Talk To Customer Service =-.

JoeTaxpayer 2009/10/19 at 11:08 am

My only twist on emergency fund I’d offer: If you don’t fund an IRA, only 401(k), by putting the emergency funds into a Roth, you have the potential for tax free growth, and 100% access to the deposited money at all times, so long as the funds within the Roth are kept liquid, money market/CDs. Over time, if your income grows, you may decide that you actually save in the Roth, for retirement, that’s when you’d fund emergency money outside the Roth.
.-= JoeTaxpayer´s last blog ..The Dow 10,000 means nothing =-.

paul 2009/10/19 at 1:30 pm

Thanks Joe for weighing in, always providing valuable insights.

Paul Conley 2009/10/19 at 4:31 pm

Well said. But I’d probably go a bit further and suggest that your friend dump this particular financial planner forever.
If his advice about the emergency fund was this self-serving and inappropriate, I’d hate to think what he’d do if he had access to your friend’s retirement funds.

paul 2009/10/19 at 5:14 pm

I’m with you Paul and I think he did just that.

ctreit 2009/10/19 at 5:07 pm

What are you talking about? This was a great suggestion of the financial planner. How else would the planner make a lot of money? – I find it amazing that so called ” financial professionals” are free to roam and are free to work so blatantly for their own benefit rather than the benefit of the client. In the meantime, your suggestion is smack on. I especially like the idea to keep some money stashed away in hard cash.
.-= ctreit´s last blog ..Net Worth Calculator says dealing with financial emergencies and surprises is easy =-.

Evolution Of Wealth 2009/10/20 at 5:04 am

You said that the planner charged a fee as well? Then he tried to make mutual fund commissions? Was he able to convince your friend to buy anything from him? I would go as far as requesting the initial fee back due to poor recommendations. Most planners will come out and tell you that if you are unhappy with the process or the recommendations they will reimburse your fee. Have him write a letter to the planner requesting the fee back.
I’m in agreement with you and the comments. The money needs to be liquid not at risk. I like the Roth idea the problem is you can’t get all the money in there and hopefully he’s using it all ready. I don’t recommend CDs because they usually have some surrender charge tied to them.
.-= Evolution Of Wealth´s last blog ..Does His Sacrifice Define Him? =-.

Team @ Money Compare 2009/10/20 at 6:12 pm

Great post. Liquidity is so important. No point investing #30k and then not being able to access it in your hour of need.

@Kelly – I would even advise on installing a safe at home to store the cash in along with other goodies.
.-= Team @ Money Compare´s last blog ..8 Ways the Internet Can Make You Richer =-.

rb 2009/10/21 at 2:52 pm

I hope he took your advice. These financial planners are salesmen and this clearly is another case of why we need to avoid them. THey are not out to help us invest, but to skim off their take on our hard earned money.

Jason @ One Money Design 2009/10/22 at 7:38 pm

Great advice here. I don’t think an emergency fund should be an investment. It should be readily available in case of an emergency. $1000 of cash on-hand, especially if you have a fully fund savings? Love it!
.-= Jason @ One Money Design´s last blog ..Retirement Week: A Solution to the Retirement Crisis =-.

J.A. 2009/11/07 at 4:41 pm

Thanks for your post on how to invest. I do agree that “emergency money” should be easily available on the spot when it’s truly needed.

I think it’s a bit impractical to invest up to $30,000 as an “emergency fund”. If this money can’t be used right away, then you are stuck without it.

Writing a Will 2009/11/08 at 8:38 am

I worked in banks for a long time and I have seen this type of advice given over and over again. Customers often asked me what I thought and I used to give them my honest response which was based on what I would do in their situation.

I really think that the first priority is to keep plenty of cash as an emergency fund. Sure, you can invest the rest, but keep that emergency fund even if interest rates are low.

You never know what life night throw at you and it’s sensible to be able to lay your hands on some fast cash if you need to do so.
.-= Writing a Will´s last undefined ..If you register your site for free at =-.

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one touch ultra mini meter 2010/08/04 at 7:23 pm

Interesting piece! Do you have any opinions that you maybe willing to divulge to illustrate your first point a bit more? thanks

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