Do you invest your emergency fund?

El_Torro

sevenhills said:

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?

Yes, emergencies are rare, hopefully at least for most people. However the issue is that we usually don't know when the emergency will hit. If someone loses their job as investments are down then it's not ideal to sell investments to fund living costs. Better off having left some money in cash and spend the cash.

eskbanker

sevenhills said:

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.

But you can't possibly guarantee that being the case in future, even if it's been true so far....

hoofy

I can't see why it would make a difference whether you sell shares in profit or loss unless you knew how those shares were going to perform in the future.

Selling the shares that are in profit just because they are in profit would be a disaster if they doubled the week after and selling the losing shares would be a god send if they halved the week after.

sevenhills

El_Torro said:

However the issue is that we usually don't know when the emergency will hit. If someone loses their job as investments are down then it's not ideal to sell investments to fund living costs. Better off having left some money in cash and spend the cash.

Since the posters on this forum are wealthier than average, my guess would be that only the wealthier have an emergency fund.

Just like many poor people don't prioritize a pension. Every time that I have changed jobs, it's always been planned by me. I guess a person that has been sacked or made redundant might value an emergency fund.

barnstar2077

hoofy said:

I can't see why it would make a difference whether you sell shares in profit or loss unless you knew how those shares were going to perform in the future.

Selling the shares that are in profit just because they are in profit would be a disaster if they doubled the week after and selling the losing shares would be a god send if they halved the week after.

It is not recommended generally that people invest in individual shares unless they know what they are doing, so most would be using some kind of fund.  A globally diverse fund goes up and down as the world markets do, but generally increases over the long term.  So having the option to sell a fund at a time of ones choosing can make a huge difference.

I am of the view though that as long as my emergency doesn't happen too soon then my increased gains will help to negate any damage done.  On the other hand my boiler could breakdown during a peak and my "plan" will have paid off.  It's a gamble, but the longer I go without an emergency the less risky it is. 

El_Torro

hoofy said:

I can't see why it would make a difference whether you sell shares in profit or loss unless you knew how those shares were going to perform in the future.

Selling the shares that are in profit just because they are in profit would be a disaster if they doubled the week after and selling the losing shares would be a god send if they halved the week after.

This isn’t true at all.

Firstly, nobody should be selling their investments because they’re in profit. People sell investments because they want to spend the money. It doesn’t matter if those assets continue to rise after the sale, the idea is to make a decent profit while you can and sell the investments when you need to. Over the long term shares tend to exponentially increase. Does that mean we should never sell, and when our descendants inherit the shares they should never sell either? No, of course not.

Also, why sell an investment because it has dropped and is expected to continue to drop? You’re better off waiting until shares rebound, no point crystallising a loss if you don’t need to.

Of course the above applies if you are investing sensibly in a well diversified portfolio. If you are investing all your money in one company that might go bust then the above doesn’t apply, and isn’t sensible investing anyway.

Take two scenarios:

Person A invests £1,000 and after 1 year they lose their job and have to spend the money. They sell their investment, which is now worth £700.

Person B saves £1,000 in a 0.50% savings account and also loses their job after 1 year. They now have £1,005 they can spend.

So Person A has £700 and Person B has £1,005. Who would you rather be?

Thrugelmir

Building a cash contingency is always useful. Investments fluctuate in value.  Downturns can easily exceed the potential loss incurred by savings being eroded by inflation. Locking money into a ladder of fixed term accounts is a good way of eking out marginally higher returns. Nor does the return on investments always exceed the rate of inflation over a given time frame. 

DireEmblem

You need to decide how much of an emergency fund is enough for you.  You'll see from other posts some people have up to 6-12 months in cash.

The second part, if you are planning to invest, is how.  You could increase your pension contributions from your salaries, to take advantage of any tax benefits, and employer top ups(if any), using some of the cash to temporarily subsidise some of your earnings while you build up your pension.

Secondly, you could use a LISA to invest a small part of it if possible.

Thirdly - emergency cash is exactly that.  I'm not saying that Marcus is not safe, but what if for whatever reason they had some IT issues, and for a short period you couldn't access your funds.  Could you put 2k each into a Virgin Money account to earn 2% interest to spread it out?

Langtang

barnstar2077 said:

It is not recommended generally that people invest in individual shares unless they know what they are doing, so most would be using some kind of fund.

When you say unless they know what they are doing, what do you mean exactly? This is my situation at present (individual share)

TheAble

People talk about 6 months expenses and so on but what are true expenses really? The mortgage is the obvious one but most other stuff can be scaled down when things are tight. You can eat a little cheaper, cut out the holiday and so on. And if you did lose a job, then costs associated with said job are eliminated until you find a new one.
The point is, your expenses don't need to be a function of your income.
As for myself, I keep a few thousand in cash, usually 5-10k. The rest is invested.