Emergency fund absurdity

Linton

MatthewAinsworth wrote: »

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 at

An emergency fund isnt about protecting you from major world economic events, you design your portfolio to do that in as much as you need to or can. Its purpose is to protect you from the need for cash to cover shorter term localised events affecting you and your family in the context of the world economy.

I think its the case that gold has about zero correlation to equities with major volatility of its own. So gold may be useful for diversification but not hedging. See here.

Apodemus

Robin9 wrote: »

Redundancy comes to mind, coupled with having no investments to sell.

Surely for most people redundancy comes with a notice period and a redundancy payment? Self-employment on the other hand would be a good reason to hold emergency cash in the business.

Having no investments to sell is one very good reason for having an emergency fund and why it is normally recommended to build that first before starting to switch into investments.

For me, it is difficult to see any normal event that I couldn't meet with credit card, at least to the sort of level that I would hold in emergency instant-access cash. However, I do still hold emergency funds, for no better reason than psychology. Most of that is in what I term my "Bills" account - built up over the years (and topped up monthly) so that the cash for all my bills is already there when the bill comes in. Psychologically it means I have no dread of bills coming in and avoid that "put it to the bottom of the pile and deal with it later" approach that I might otherwise have (and which can play havoc with your credit rating!)

Rosemary7391

jimjames wrote: »

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.

It isn't all that long ago that my credit card limit wouldn't stretch to that level of expenditure. Even now, I'd probably prefer to pay cash for the flight and use the card for expenses over there. Obviously depends on your financial position - if you have multiple credit cards with high limits then you're less likely to need an emergency fund immediately.

justme111

Because one would not want to sell investments? You saying gold - but how much better gold which does not bring you any money while you have it and has costs to buy, sell and keep is better than 3% accounts?
Insurance - I guess you are not aware of how expensive insurance that covers most of your expenditure would be. It would work out cheaper to keep money in 3% accounts than invest it and pay insurance premiums. Insurance is not going to be cheaper in principle and is designed for people and occasions when they do not have enough money to cover the event insured; if they do it will always be cheaper to self Insure as if you think about it insurance companies are meant to make a profit. Besides as atush rightly said claiming is long stressful and has far from certain success.

justme111

MatthewAinsworth wrote: »

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

You still would need to find a new banger for £500, insure it and be ready for something major goung wrong to go with it 2 weeks after purchase

masonic

MatthewAinsworth wrote: »

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

Don't forget about the Flexclusive Regular Saver, which pays 5% and allows access without penalty, and regular savers from First Direct, HSBC and M&S which pay 5% and allow access with an interest penalty. Spread out applications over the course of a year and you can have a few grand spread between these accounts at all times.

trailingspouse

My emergency fund has always been based on the possibility of needing to get somewhere else in the world at a moment's notice, ever since #1 child took themselves off to Mozambique to work for a charity. That was in 2002. Since then there has always been at least one child somewhere a long way away - US, South Africa, Kenya, Senegal. Currently there's one in Australia.

So, I have sufficient funds to get me and a.n.other to wherever we might need to be, tomorrow (and home again).

talexuser

I have POA for my mum. Her care home (which I rate) costs ~ £40,000 every year. Her S&S ISA (which I ran for her the last 25 years) dividends covers around a third of this, her state and private pensions and attendance allowance almost the rest. I calculate a cash buffer of around 80k in several banks and a building soc covers the shortfall for a conservative estimate of how long it will be required with a margin for a major crash reducing the ISA contributions.

Would I really be performing my duty as POA to put the vast majority of the cash buffer into equities, then rely on selling units to cover normal running costs, thereby reducing constantly the dividends while care costs go up every year, let alone having to sell more in a crash?

System

Flexclusive reg saver it is ☺

Linton - I don't overly rate diversity much more than tracking one index, to me that's enough to virtually guarantee never getting completely wiped out and continuing to follow historical averages for small cap. I believe in compounding gains and that this offsets the risk of loss, so I believe bonds have no place in any portfolio that isn't being drawn for several years - holding bonds is market timing in my book, a fair thing to have as you're drawing it but a wasted opportunity for growth before, but adding that potential role to an emergency fund makes it look a little more attractive. I don't worry about crashes as it's always recovered before
I won't bother with gold in that case, or property, as they are just unhelpful distractions. I also believe that going for growth lowers you're employment dependency in the long term, lowering risk

Just me - I invest more aggressively than insurance companies do, sure they would make a profit (like my mortgage does) but I would in theory still make a mark up (small caps)

System

Talex- the wording "constantly reducing dividends" wouldn't actually be true if it's growing faster than you sell - you'd hold a decreasing number of units with an increasing value, and increasing dividend per unit

But I could understand POA might be supposed to be cautious. If not though what have you got to lose? Care home can pick up the tab