Do you invest your emergency fund?

Thrugelmir

TheAble said:

People talk about 6 months expenses and so on but what are true expenses really? 

Sufficient money to comfortably survive which will obviously depend on individual circumstances. Finding a new job isn't always an easy task. As the years pass becomes a greater challenge for many, not least to maintain the same level of income.  

BarleyGB

I don’t apply an emergency fund principle and am not averse to considered risks.

I’m usually fully invested and have minimal funds  (1-3 months) available in current accounts. 

Last year I had to liquidate £15k from S&S ISA to cover a significant employment gap and sold in May/June at about 30% (£4-5k) notional loss from January 2020 peak.  Had I not been fully invested and had £15k sitting in current accounts for the last 10 years my notional loss (lost opportunity) would have been much more than £4-5k, nearer £10-15k.  

Having reinvested £10k in October 2020 and gained approx £3k via the market recovery, the notional loss was only about £1-2k.

Such an emergency scenario may only happen every 10 years, For me holding an emergency fund just means a lost opportunity.

Sea_Shell

If you've been invested for a length of time, you can always tell (convince) yourself that you're selling the units you bought "cheap" 10 years ago, rather than the units you recently paid "top dollar" for!!!      

BuildTheWall

Strike a balance between easy access and returns. 10k in bank, 10k in premium bonds and 10k in a wealth preservation fund? 

CGT and PNL are some examples for conservative funds. 

There is a small element of market risk, but it won’t collapse like equities during a crash, while long term growing more than inflation or any savings accounts. 

fred246

If you ask "How do I invest a lump sum?". You will be told "well statistically you will be better to just invest it all at once". I always imagine if you ask "Am I better having a cash buffer or invest it all?" . I think the answer would be "statistically you are better just investing it all". It all depends on your circumstances whether you actually do that. I probably will but I have a DB pension that covers all living expenses so I would be selling at a low just to pay for holidays etc

Alexland

Our S&S ISAs now provide enough smoothed Investment Trust dividends to pay the interest only mortgage (already have enough in pensions to eventually repay the balance from the 25% lump sum) and cover some of our living costs so we don't need to hold as much emergency money. Over time that income will increase with further contributions, dividend growth and reinvestment.

We also have cash from stoozing a few 0% credit cards and while the profit is low it might be handy to have the money available if needed. Overall I try and ensure we have around £5k to £10k more in cash than on the cards although I sometimes run it tight if the stock market is looking very good value or at tax year end to make good use of ISA allowances.

We have long service so are on good redundancy terms and I can see plenty of work for me in the next couple of years. Even if we did have to dip into our investments it wouldn't make much difference to their scale or performance. Overall we could just about survive without working if we also had access to the dividend yield from our LISAs (wouldn't want to pay the penalty) and pensions.

NameWithheld

I've currently got about £40k cash, not counting cash needed to pay off interest free credit. I've decided this is too much and aim to get it down to about £10k.  But it will be done slowly because I'm drip-feeding it into a pension using salary sacrifice.

RyanHello

You only need to have 6 months worth of expenses and maybe a bit more for car repairs, new boiler. For most people this about £10k at most. though you could easily get away with £5k . It all depends if you live a debt free life.( except mortgage & car finance)

Having £30k in a bank account earning you nothing is illogical .
Here is what i would do:

• Leave £10k in your bank now for emergencies.
• Stick £10k in stocks and shares ISA
• Buy £10k premium bonds

chelseablue

Thank you all! So much great advice 
For background I am 37 and an employee, husband is 31 and self employed (we pay 15% of his income into a SIPP)
I have 2 credit cards both at £0 balance, 1 credit limit is £12,000 and the other is £8,000 so could use those if I really had too.
Our monthly direct debits are £1,400 so thinking of keeping £10,000 as cash which is 6 months worth of expenses.
Then maybe 10k to my S&S ISA. 
I've never considered premium bonds before, must look into it. 
Would you pay some off the mortgage? Balance is £206,000 with 27 years left. On a fixed rate of 1.79% until April 2023

eskbanker

RyanHello said:

You only need to have 6 months worth of expenses and maybe a bit more for car repairs, new boiler. For most people this about £10k at most. though you could easily get away with £5k . It all depends if you live a debt free life.( except mortgage & car finance)

Unhelpful generalisation - even if it was true that most people spend less than £20K/year, the notion that they could easily get away with half of that is distinctly unlikely!  There's a reason emergency funds are typically expressed in terms of months rather than absolute pound note terms, as the latter is obviously massively variable....