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General Discussion => Essentially Flyertalk => Topic started by: Kat Kid on October 14, 2012, 02:30:17 PM
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With terrible interest rates and money market funds being even worse than my brick and mortar townie rewards checking rate, should I put a portion of my emergency/contingency fund in the stock market? I mean my wife and I are successful and employed, with little to no threat of unemployment. We have a mortgage, 1 car payment, 1 small student loan and a baby. We both have health insurance, no health problems. Potential emergency costs could be a new car/baby crap/durable goods in the house.
Have 2.5 mo's income in this emergency acct.
The biggest problem is we don't have enough COH for an emergency, so I want to grow it with a vanguard fund. Is this a good idea? If so, what percentage should I put in there?
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Keep it in your checking account for liquidity for something of that size. Any better potential for gain is offset by the costs and potential for loss given you can't wait out fluctuations in the market if you need it.
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Keep it in your checking account for liquidity for something of that size. Any better potential for gain is offset by the costs and potential for loss given you can't wait out fluctuations in the market if you need it.
That makes sense.
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put it all in stocks. keep at least a little in companies or funds that are pretty stable, so you aren't going to feel like crap if you have to sell at a loss. the rest in whatever risk you are comfortable with.
i hear the Fake Sugar Dick (WARNING, NOT THE REAL SUGAR DICK!) financial people on radios advising people to keep emergency funds in cash and it drives me rough ridin' crazy. who the eff has emergencies so sudden and unforseen that you can't wait to sell your stock in time to cover them, and also so large that you can't credit card them? no one, that's who. and you're just supposed to have thousands of dollars sitting around losing money for your entire life? that's Fake Sugar Dick (WARNING, NOT THE REAL SUGAR DICK!).
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put it all in stocks. keep at least a little in companies or funds that are pretty stable, so you aren't going to feel like crap if you have to sell at a loss. the rest in whatever risk you are comfortable with.
i hear the Fake Sugar Dick (WARNING, NOT THE REAL SUGAR DICK!) financial people on radios advising people to keep emergency funds in cash and it drives me rough ridin' crazy. who the eff has emergencies so sudden and unforseen that you can't wait to sell your stock in time to cover them, and also so large that you can't credit card them? no one, that's who. and you're just supposed to have thousands of dollars sitting around losing money for your entire life? that's Fake Sugar Dick (WARNING, NOT THE REAL SUGAR DICK!).
This was the point-counter-point I initially was going with, albeit less forcefully.
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With an amount that small just the costs associated with making transactions is going to take time to recover. Invest in securities, emergency fund for emergencies.
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Keep it in your checking account for liquidity for something of that size. Any better potential for gain is offset by the costs and potential for loss given you can't wait out fluctuations in the market if you need it.
That makes sense.
no it doesn't. i mean, it does if you're talking about you want to buy something in 6 months and you don't know what to do with the money till then. but if you're talking about keeping a permanent emergency fund in perpetuity, then that's absolutely Fake Sugar Dick (WARNING, NOT THE REAL SUGAR DICK!). you're foregoing income off of that money for like 50 years. on the off chance that you might have to sell at a loss at some point? that's just playing to your Fake Sugar Dick (WARNING, NOT THE REAL SUGAR DICK!) loss avoidance bias. yes it will cause you psychological pain if you ever have to sell at a loss. and yes, you don't feel the same pain when you decide to not participate in market gains for the rest of your life. but you're far more likely to lose far more money the first way. be smarter than your emotions.
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With an amount that small just the costs associated with making transactions is going to take time to recover. Invest in securities, emergency fund for emergencies.
transaction costs = like $10-15 to buy+sell with an online broker. gmafb. and don't give this amount too small crap. 2.5 months for the two of them is what 20-30k? 20-30k invested over 50 years is a crap ton of money.
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With terrible interest rates and money market funds being even worse than my brick and mortar townie rewards checking rate, should I put a portion of my emergency/contingency fund in the stock market? I mean my wife and I are successful and employed, with little to no threat of unemployment. We have a mortgage, 1 car payment, 1 small student loan and a baby. We both have health insurance, no health problems. Potential emergency costs could be a new car/baby crap/durable goods in the house.
Have 2.5 mo's income in this emergency acct.
The biggest problem is we don't have enough COH for an emergency, so I want to grow it with a vanguard fund. Is this a good idea? If so, what percentage should I put in there?
2.5 mo's of income is not very much imo. i advise you to just max out your 401k.
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With terrible interest rates and money market funds being even worse than my brick and mortar townie rewards checking rate, should I put a portion of my emergency/contingency fund in the stock market? I mean my wife and I are successful and employed, with little to no threat of unemployment. We have a mortgage, 1 car payment, 1 small student loan and a baby. We both have health insurance, no health problems. Potential emergency costs could be a new car/baby crap/durable goods in the house.
Have 2.5 mo's income in this emergency acct.
The biggest problem is we don't have enough COH for an emergency, so I want to grow it with a vanguard fund. Is this a good idea? If so, what percentage should I put in there?
2.5 mo's of income is not very much imo. i advise you to just max out your 401k.
Yeah, I know that, trying to grow it
already do that for her, pension + maxed roth for me
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If you aren't going to invest, I'd start paying off your car and student loan rather than it sitting in a checking account
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If you aren't going to invest, I'd start paying off your car and student loan rather than it sitting in a checking account
we are. we make extra payments on the car. The difference in interest rate between what we are getting charged for the loan and what we would earn with the money sitting there is negligible which is why I brought this up in the first place.
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If you aren't going to invest, I'd start paying off your car and student loan rather than it sitting in a checking account
we are. we make extra payments on the car. The difference in interest rate between what we are getting charged for the loan and what we would earn with the money sitting there is negligible which is why I brought this up in the first place.
Or have another baby, and that will take care of the money question altogether
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Take out the max loan you can get from a bank and invest it.
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you should do whatever makes you and her feel most comfortable/happy. do you both really like the idea of having several thousand dollars in a bank down the street? does it feel good and make you feel good and safe, etc? because if so then do that. but maybe you both hate the idea of having several thousand dollars sitting in the bank getting .3% interest when you could be investing every penny in an attempt to grow it? if so then you should invest it.
because at the end of the day we aren't talking about enough of a difference either way to make you guys force yourselves to make the decision that you would be less comfortable with or that would bring you less joy, etc.
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Buy a farm with it, bet the farm.
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you should do whatever makes you and her feel most comfortable/happy. do you both really like the idea of having several thousand dollars in a bank down the street? does it feel good and make you feel good and safe, etc? because if so then do that. but maybe you both hate the idea of having several thousand dollars sitting in the bank getting .3% interest when you could be investing every penny in an attempt to grow it? if so then you should invest it.
because at the end of the day we aren't talking about enough of a difference either way to make you guys force yourselves to make the decision that you would be less comfortable with or that would bring you less joy, etc.
Good advice
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just started my emergency fund in a moderately conservative mutual fund. hopefully better than keeping it in my checking or savings account.
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kk, also may want to consider that with your family situation the chances you may need to access that money have gone up significantly
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Emergency funds are great. Mostly for the piece of mind. But we keep it relatively low at $500-$700, depending how recently we've had to access it.
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There is no right answer - depends on your situation...
I have about 1 mo income in a high interest checking account (approx. 1 %APR). I shop around for a new fund every 6 mo or so. Can usually find one that is +1%. Its not a lot, but it keeps my overall ROI where I would like. I like to have that "emergency" ready - as in perhaps the cats go to the ncg and I have to drop $2K on a random weekend.
As far as the other 2.5 mo income you have, if you're scared about fluctuation in the market, just invest in high yield dividend stocks that have a beta ~1. Then, hedge that investment with a inverse S&P 500 derivative of similar value. That way you will reap the dividends from the stock and if the value of that equity goes down, you will see a relatively equal return on you derivative investment.
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you should do whatever makes you and her feel most comfortable/happy. do you both really like the idea of having several thousand dollars in a bank down the street? does it feel good and make you feel good and safe, etc? because if so then do that. but maybe you both hate the idea of having several thousand dollars sitting in the bank getting .3% interest when you could be investing every penny in an attempt to grow it? if so then you should invest it.
because at the end of the day we aren't talking about enough of a difference either way to make you guys force yourselves to make the decision that you would be less comfortable with or that would bring you less joy, etc.
/thread
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Have you considered doing anything illegal with it?
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Have you considered doing anything illegal with it?
High returns!
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you should do whatever makes you and her feel most comfortable/happy. do you both really like the idea of having several thousand dollars in a bank down the street? does it feel good and make you feel good and safe, etc? because if so then do that. but maybe you both hate the idea of having several thousand dollars sitting in the bank getting .3% interest when you could be investing every penny in an attempt to grow it? if so then you should invest it.
because at the end of the day we aren't talking about enough of a difference either way to make you guys force yourselves to make the decision that you would be less comfortable with or that would bring you less joy, etc.
/thread
open thread back up, because that crap is stupid. this "do whatever feels good, man" idea ignores the fact that these are highly divergent choices that make a significant impact on your finances. unless 30 yr old kk hates 80 yr old kk, he should think long and hard about whether he wants to indulge his emotions or think rationally about his choices.
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you should do whatever makes you and her feel most comfortable/happy. do you both really like the idea of having several thousand dollars in a bank down the street? does it feel good and make you feel good and safe, etc? because if so then do that. but maybe you both hate the idea of having several thousand dollars sitting in the bank getting .3% interest when you could be investing every penny in an attempt to grow it? if so then you should invest it.
because at the end of the day we aren't talking about enough of a difference either way to make you guys force yourselves to make the decision that you would be less comfortable with or that would bring you less joy, etc.
/thread
open thread back up, because that crap is stupid. this "do whatever feels good, man" idea ignores the fact that these are highly divergent choices that make a significant impact on your finances. unless 30 yr old kk hates 80 yr old kk, he should think long and hard about whether he wants to indulge his emotions or think rationally about his choices.
it's not stupid. it's not like we're telling him to use it for kindling. assuming he's in his 30's, he has plenty of time to save more for retirement and invest that money. it's the same with paying off your mortgage when rates are this low. if you sleep better at night, do it. if not, great, invest it instead. there's no right or wrong answer.
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I don't need an emergency fund because if there were an emergency I would just call that company with montell jordan and stuff.
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it's not stupid. it's not like we're telling him to use it for kindling. assuming he's in his 30's, he has plenty of time to save more for retirement and invest that money. it's the same with paying off your mortgage when rates are this low. if you sleep better at night, do it. if not, great, invest it instead. there's no right or wrong answer.
that's exactly what you're telling him to do with it. you're not telling him to the use the money for something else. he's already set the parameters - he wants 2.5 months in reserve for the rest of his life for whatever reason. the question is just whether to let the money make money while it waits for an emergency, or whether to have it hunker down at the local bank and depreciate out of paranoia of having to use it at some point when the market is down, or when you need it within 72 hours or god knows what the logic is.
if you assume even highly conservative returns, we're talking about a difference of hundreds of thousands of dollars for 80 year old kk. it's not a coin flip, either decision is right question. these are highly divergent results.
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I don't need an emergency fund because if there were an emergency I would just call that company with montell jordan and stuff.
I'd probably go with the Native American company. Mostly just for the Indian Giver jokes.
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it's not stupid. it's not like we're telling him to use it for kindling. assuming he's in his 30's, he has plenty of time to save more for retirement and invest that money. it's the same with paying off your mortgage when rates are this low. if you sleep better at night, do it. if not, great, invest it instead. there's no right or wrong answer.
that's exactly what you're telling him to do with it. you're not telling him to the use the money for something else. he's already set the parameters - he wants 2.5 months in reserve for the rest of his life for whatever reason. the question is just whether to let the money make money while it waits for an emergency, or whether to have it hunker down at the local bank and depreciate out of paranoia of having to use it at some point when the market is down, or when you need it within 72 hours or god knows what the logic is.
if you assume even highly conservative returns, we're talking about a difference of hundreds of thousands of dollars for 80 year old kk. it's not a coin flip, either decision is right question. these are highly divergent results.
Keep it in your checking account for liquidity for something of that size. Any better potential for gain is offset by the costs and potential for loss given you can't wait out fluctuations in the market if you need it.
That makes sense.
no it doesn't. i mean, it does if you're talking about you want to buy something in 6 months and you don't know what to do with the money till then. but if you're talking about keeping a permanent emergency fund in perpetuity, then that's absolutely Fake Sugar Dick (WARNING, NOT THE REAL SUGAR DICK!). you're foregoing income off of that money for like 50 years. on the off chance that you might have to sell at a loss at some point? that's just playing to your Fake Sugar Dick (WARNING, NOT THE REAL SUGAR DICK!) loss avoidance bias. yes it will cause you psychological pain if you ever have to sell at a loss. and yes, you don't feel the same pain when you decide to not participate in market gains for the rest of your life. but you're far more likely to lose far more money the first way. be smarter than your emotions.
i went back and read the thread and it seems like you "got it" on the first page, so i quoted it and bolded part. i could be wrong but i don't think discussion is just about what would give a hypothetical 80 year old kk the most hypothetical money. i'm pretty sure he already knows that.
it's a cost/benefit thing or whatever and he absolutely should let his emotions on the subject play into what he does and have it affect his decisions. humans as it is are laughably horrible at trying to guess what will make their future selves happy in the first place and jmo, but life is too short too worry about what you may or may not think or need when you are 80 (if you live that long) to make choices that will make you less happy when you are 30. also, telling him to "be smarter than his emotions" is stupid talk.
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I don't need an emergency fund because if there were an emergency I would just call that company with montell jordan and stuff.
http://www.youtube.com/watch?v=0hiUuL5uTKc (http://www.youtube.com/watch?v=0hiUuL5uTKc)
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Sys is killing it in this thread.
I'll split it down the middle. Take half and buy the S and P 500 index fund and get the most interest you can with the other half.
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Invest all your real money in high return crap and if you need emergency funds in a hurry just accept one of the 15 credit card special offers that come every week.
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Gamble. A lot.