Do you invest your emergency fund?

Doshwaster

jimjames said:

Deleted_User said:

I would argue you should have six months of salary easily accessible for it to be a proper emergency fund. I think it is a bit dangerous (but perhaps an acceptable risk for you) to say things like "If I lose my job it would be ok because". Emergencies are just that, you don't think it will ever happen but it can. The emergency fund is there for if your household loses its stream of income. In my book.

Six months of salary seems somewhat excessive. It's way more than I have, I think generally it's suggested 3-6 months of expenses not salary is a good place to be for emergency funds but as I put above everyone is different depending on their situation and risk tolerance.

The OP is still suggesting keeping at least £5k in cash alongside £25k investments.

Yes, 6 months (take home) salary does seem a little on the high side especially if you have a second income in the household.  Remember that during this "emergency" period you would be cutting back on non-essential spending and not making your regular contributions to savings or investments which means that you would need much less money per month than usual. 

Personally, I'd feel comfortable at the £5-10k level of emergency fund. The only spending outside of that would be if I was thinking of changing my car or doing major work on the house in which case I might allow my cash savings to increase. 

Eyeful

An emergency fund is just that and should not be invested. Emergencies, by there nature appear unexpectedly.
The question is "how big should my emergency fund be?" That depends upon the individual, their risk profile, age and circumstances, which will be different each person.
Consider the length of time the current Covid has lasted and may go on for. Someone might look at the total of their last years household bills and multiply that amount by 2. 
Your emergency fund in the end should be as large as makes you feel comfortable.

csgohan4

Eyeful said:

An emergency fund is just that and should not be invested. Emergencies, by there nature appear unexpectedly.
The question is "how big should my emergency fund be?" That depends upon the individual, their risk profile, age and circumstances, which will be different each person.
Consider the length of time the current Covid has lasted and may go on for. Someone might look at the total of their last years household bills and multiply that amount by 2. 
Your emergency fund in the end should be as large as makes you feel comfortable.

I think you won't go wrong with the PB limit of 50k, that would be a reasonable target for some, but as you said, some require far less at 5-10k for example

Notepad_Phil

Whether you need to keep the full £30K as an emergency pot depends on what that £30K covers.

in the latter half of my working life, I personally used a guideline of 6 months of income as an emergency pot and would never have thought of keeping it anywhere but in a savings account.However I was the sole breadwinner with partner and children to look after and so if I lost my job then I wanted to ensure that we were well covered.

If we had both been working on the same kind of salaries but in different sectors, companies and roles then I may well have reduced my guideline to 6 months of expenditure, but I would always have kept it in savings.The last thing you want is to be both unemployed at a time when stock markets are down and you need fairly quick access to the money that you've invested.

jimjames

csgohan4 said:

Locking your emergency fund in an investment, is no longer an emergency fund is it? Say you invest 50% of your emergency fund into SMT 1-2 weeks ago, your looking at a loss of around 20%, could you live with that?

Just to clarify but an investment is not locked away, certainly not if into SMT or other traded shares. You can access the money invested in a very short period of time, normally a few days. So not as accessible as cash in a bank account but not far off. The issue is that the timing might not be ideal and the value of the investment might be lower at the point when you need it. Even so you would still be able to access the money. Even in the Covid crash in March last year the my portfolio was down around 30% so you could still get cash if needed.

[Deleted User]

jimjames said:

Deleted_User said:

I would argue you should have six months of salary easily accessible for it to be a proper emergency fund. I think it is a bit dangerous (but perhaps an acceptable risk for you) to say things like "If I lose my job it would be ok because". Emergencies are just that, you don't think it will ever happen but it can. The emergency fund is there for if your household loses its stream of income. In my book.

Six months of salary seems somewhat excessive. It's way more than I have, I think generally it's suggested 3-6 months of expenses not salary is a good place to be for emergency funds but as I put above everyone is different depending on their situation and risk tolerance.

The OP is still suggesting keeping at least £5k in cash alongside £25k investments.

At the end of the day, If you lose your job most people are paying a lot of their salary each month to outgoing costs, so it makes sense to me that the emergency funding should use the same scale as your salary. 5K to me seems a bit small, but it depends what the outgoings are. If I lost my job right now, 5K would last me about six months, but I have no kids, pay only part of a rent and live cheaply. If you have a family it will last three months at most. And what of other types of emergencies, ones which nobody wants to think about (death of a family member etc). 5K is gone instantly in some of these circumstances. 

jimjames

[Deleted User] said:

jimjames said:

[Deleted User] said:

I would argue you should have six months of salary easily accessible for it to be a proper emergency fund. I think it is a bit dangerous (but perhaps an acceptable risk for you) to say things like "If I lose my job it would be ok because". Emergencies are just that, you don't think it will ever happen but it can. The emergency fund is there for if your household loses its stream of income. In my book.

Six months of salary seems somewhat excessive. It's way more than I have, I think generally it's suggested 3-6 months of expenses not salary is a good place to be for emergency funds but as I put above everyone is different depending on their situation and risk tolerance.

The OP is still suggesting keeping at least £5k in cash alongside £25k investments.

And what of other types of emergencies, ones which nobody wants to think about (death of a family member etc). 5K is gone instantly in some of these circumstances. 

As I'd said it really depends on your personal circumstances and risk profile. It is worth looking at what the possible emergencies are that you may need to cover and what money would be required - I'm not sure anyone would have considered parts of the economy being shut for over 12 months in that list though!
If you have life insurance cover or other benefits then some of those situations will be covered but new boiler, car written off and needing replacement or major repair bills. All of those are more likely but probably covered by £5k of savings and a credit card with decent limit.

It's more risky to run with a lower balance but if you have carefully considered the options and mitigated some of the risks then I think it's still a far better position than the 44% of UK who have less than £2000 in savings including 12% with none.

csgohan4

jimjames said:

csgohan4 said:

Locking your emergency fund in an investment, is no longer an emergency fund is it? Say you invest 50% of your emergency fund into SMT 1-2 weeks ago, your looking at a loss of around 20%, could you live with that?

Just to clarify but an investment is not locked away, certainly not if into SMT or other traded shares. You can access the money invested in a very short period of time, normally a few days. So not as accessible as cash in a bank account but not far off. The issue is that the timing might not be ideal and the value of the investment might be lower at the point when you need it. Even so you would still be able to access the money. Even in the Covid crash in March last year the my portfolio was down around 30% so you could still get cash if needed.

Crystalizing your loses because you needed the money now, rather in a true emergency fund in a non investment vehicle, would be bad for some. Again personal preference and risk appetite. If your happy with that risk and yes you can access it anytime, but you will inevitably be losing a proportion potentially if the ISA is not doing well in a short span of time

sevenhills

El_Torro said:

Investing your emergency fund defeats the purpose of having an emergency fund.

Surely an emergency is a rare occurrence, so if you don't mind risk, investing it is sensible?

sevenhills

jimjames said:

So not as accessible as cash in a bank account but not far off. The issue is that the timing might not be ideal and the value of the investment might be lower at the point when you need it.

I hold shares in 10 companies, one of them will always be in profit, generally more than one.