Emergency fund absurdity

Ray_Singh-Blue

I keep a sum of money in cash which happens to be equal to several months expenses, but don't call it an emergency fund.

It's more an opportunity fund, a hassle-free fund. Say April creeps up and I want a new sofa and the kids have a school trip and the old car needs retiring and so does the mower and the guy who fixed the roof needs paying and it's time to renew car and buildings insurance and we spot a deal on a summer holiday to the Canary Islands. No biggy. The fund might need topping up after but I know that any expenses we can reasonably accrue can be met without having to plunder investments which have been made for other reasons.

masonic

MatthewAinsworth wrote: »

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

What are you going to hedge with? Equities, property, gold and bonds all fell during the global financial crisis. Gold was at a 20 year low during the dotcom crash, etc. The cost of using futures or derivatives is likely to be a bigger drag on returns than holding some cash and introduces counterparty risk.

jimjames

Rosemary7391 wrote: »

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

I can think of reasons but that wouldn't be one of them. If I need to book a flight I pay by card. Probably one reason I run a lower cash level than others.

Linton

MatthewAinsworth wrote: »

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

An emergency fund may typically be perhaps £10-15K. For a large long term investor that is a minor matter. Much less effort and possibly cost to keep it in cash and not allow the requirement for relatively short term emergency cover to complicate one's portfolio. For a small investor, if one hasnt got £10K any form of investment beyond an employers pension is in my view highly risky. In any case long term hedging is far from guaranteed

You cant insure against all possible emergencies (major car breakdown?) and the costs of extensive insurance cover (health of oneself and family, redundancy, central heating boiler etc) could well exceed the lost returns from keeping the emergency fund in cash.

However it's your choice, you may have the resources, experience and luck to make it work. My choice is to keep a significant amount in cash and not worry at all about the short term. I dont think one should suggest to the mainly inexperienced and small investors who ask questions on this forum that investing without a sizable cash emergency fund is a sensible way to manages one's finances.

System

Hmm so cash is better in a crash than gold? I assumed gold would be negatively correlated, but if it isn't then it's pointless. I know in 2008 property correlated like bonds do, but growth in those things can be tempting. Current accounts compete reasonably but my 5% ends soon

But it is a tempter that cash is better for opportunities, and it certainly would be quicker to buy equities with, it'd also help my next mortgage if I stop the card arbitage

My flexdirect 5% is coming to an end soon so I'll close it and wait till I can be a new customer again, or look for other accounts

atush

MatthewAinsworth wrote: »

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

Have you ever claimed on insurance? There is nothing quick about it.

jimjames

shortcrust wrote: »

I could spend all day thinking of reasons why you might need instant access to funds. None of them remotely likely but all of them possible.

Same here and I'd think equally unlikely. Then something happens and all remote possibilities coincide within a short period.

New clutch & DMF on 2 cars
New turbo on car
New boiler in 2 properties

Without some emergency cash funds I'd have been in deep trouble! Some could have been put on a card but that was about £7k of expenses to cover.

Long term 0% credit card is also a way to back up a smaller cash buffer.

k6chris

How much should you hold in cash-cash, in case there is a run on banks or significant IT outage?? one weeks funds?? (Serious questions)

jimjames

k6chris wrote: »

How much should you hold in cash-cash, in case there is a run on banks or significant IT outage?? one weeks funds?? (Serious questions)

I currently have £5 cash and coins totalling a few quid. If all banks were shut down I'd be screwed, one bank has an IT failure I use a different one - the benefit of having multiple current accounts

System

In future I'll do what my friend did with cars - £500 banger, goes wrong - scrap lol
Luckily I live on a bus route anyway, but it was unpleasant being without my brumbrum