# What is the point of having cash/an emergency fund?



## favelle75 (Feb 6, 2013)

I don't get it? What are these crazy situations where people need instant cash? They say you should have 6 months of income saved up for a "rainy day"? Why cash though? Why not just sell some stocks? Surely if you are diversified enough, selling some of the stuff that is higher than what you bought it for better than pulling cash deteriorating in a savings account. Why the need for cash instantly? Don't people have credit cards or LOC's? That's instant cash, then pay it back with the equities you sold.

Never understood that. I'd rather:

1) Pay down mortgage
2) Buy more stocks
3) Buy fun stuff

In that order if I had extra cash.


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## HaroldCrump (Jun 10, 2009)

You are writing like someone who has never faced a real financial emergency.
Cash is king in such circumstances.
All this guff about using LOCs as emergency funds, borrow from friends/family, leverage home equity, sell some stocks, etc. is loosey-goosy.

How much cash is required is another matter.
Some folks like the-royal-mail recommend between 6 months to 1 year - others like James4Beach recommend even more - up to 2 years of expenses.

Whether the right number is 3 months of income, or 6 months of income, or 1 year+ of income is dependent purely on personal financial situation, job security, risk tolerance, etc.
We can debate that all night long.

But I am also in the camp that in any sort of financial emergency, cash is king.
It doesn't _have_ to be in a chequing account, accessible within minutes from an ATM, of course.
I suppose a couple of days lag to wire or transfer via cheques should also be fine.
But that is not the time you want to borrow more money from an LOC or HELOC.

As for selling stocks, sure you could.
But me - I don't like to sell my stocks for any reason other than purely because I _want_ to sell that particular stock at that particular time.
I hate being forced to sell stocks, regardless of whether it is in profit or in loss.


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## jcgd (Oct 30, 2011)

You're assuming things are normal or rosy when you need to raise cash. When in reality you may need to sell at a bad or the worst possible time. The economy may be tanking and you lose your job around the same time that the market is tanking.

It's just a risk thing. If you have access to quick cash that won't mess up your plans than do whatever you're comfortable with.

I don't get the extremes, for example, TRM's method. By the time you have all that money socked away you'll likely be in your 40s or so and half your compounding time is gone. I believe in balance. Have a LOC available until you can save up the cash you think you need. I've just started building an emergency fund, but it will probably be a while before it's the size I want, and I will only keep what I think I really need. I don't want to have too much opportunity cost either.


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## Jon_Snow (May 20, 2009)

I have always had what most would consider to be excessive cash on hand. 8 months ago I had about 250k in cash - mainly due to the fact that for the past few years I've been trying to educate myself about the world of investing. I wasn't about to go "all in" without knowing what I was doing. Since, I have invested much of the "stash" - I hold about 120k in cash now. Its nice to have it there for any market opportunities that arise. For instance, when BCE tanked on word of Verizon's entry, I didn't think twice about buying 1000 shares. Same with the plunge of POT - its nice to have dry powder available for such events.

And don't forget the "sleep well at night" factor - for many, having ample cash is a comfort.


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## AltaRed (Jun 8, 2009)

An emergency fund is for emergencies, most typically a loss of job. Think of all those folk who are operating on the limit of cash flow and then lose their jobs, perhaps for a year. Borrowing from a HELOC while having no job is a very naked feeling. 

Or a family member has an immediate crisis. Or a victim of the Alberta floods and had to come up with $3k or so for restoration companies to clean up the home, etc, etc.

JS, I am retired and maintain 6 figures in cash stuck in HISAs just for investment opportunities. I bought a bunch of Bell when it dropped to circa $42, and a bunch of TCK.B when it dropped to circa $21.


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## james4beach (Nov 15, 2012)

My target is to have 2 years worth of expenses in cash but I'm not at that level currently.

As for why not sell stocks? A very good reason actually ... equities are tremendously volatile and really should be left alone to give a greater probability of good long term returns. If you're going to tap into your stock holdings when you need cash, you're going to potentially kill those excellent returns. Stocks, or index investments anyway, should be left alone for periods like 20 years or more (at the very least 10 years).

2008 is a perfect example. Say someone lost their job in 2008; they lost their job because the economy was collapsing. Now they desperately need some money (for food, rent, children, etc). When they liquidate some of their stock holdings, right at the low, they are causing enormous damage to their portfolio's long term returns.


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## indexxx (Oct 31, 2011)

favelle75 said:


> I don't get it? What are these crazy situations where people need instant cash? They say you should have 6 months of income saved up for a "rainy day"? Why cash though? Why not just sell some stocks? Surely if you are diversified enough, selling some of the stuff that is higher than what you bought it for better than pulling cash deteriorating in a savings account. Why the need for cash instantly? Don't people have credit cards or LOC's? That's instant cash, then pay it back with the equities you sold.
> 
> Never understood that. I'd rather:
> 
> ...


I agree with you completely. For that (very) rare time when I might need some money, I have an extensive LOC at a very low rate, or I would sell some stock if it really came to it.


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## snowbeavers (Mar 19, 2013)

I used to think like that when I was in my 20s but as I get older, I need a safety net to protect my family. 3 months ago, I thought my job was extremely secure and then all of sudden, 12 people were forced to resign with only 2 months severance payed out. These were excellent people who were great at their jobs. The point is you just never know. 

We now have 12 months living expenses in cash in case of that very thing. 

Cash gives you more flexibility than liquidating assets or loans. I hate the thought of having to go into debt because of an emergency of some sort.


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## favelle75 (Feb 6, 2013)

AltaRed said:


> An emergency fund is for emergencies, most typically a loss of job. Think of all those folk who are operating on the limit of cash flow and then lose their jobs, perhaps for a year. Borrowing from a HELOC while having no job is a very naked feeling.
> 
> Or a family member has an immediate crisis. Or a victim of the Alberta floods and had to come up with $3k or so for restoration companies to clean up the home, etc, etc.
> 
> JS, I am retired and maintain 6 figures in cash stuck in HISAs just for investment opportunities. I bought a bunch of Bell when it dropped to circa $42, and a bunch of TCK.B when it dropped to circa $21.


You misunderstand. Its not about borrowing from a LOC or a HELOC. Its that if you are so strapped for IMMEDIATE cash, you can use those things until you can cash out some equities.

And why would Alberta flood companies not take Visa?


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## favelle75 (Feb 6, 2013)

snowbeavers said:


> I used to think like that when I was in my 20s but as I get older, I need a safety net to protect my family. 3 months ago, I thought my job was extremely secure and then all of sudden, 12 people were forced to resign with only 2 months severance payed out. These were excellent people who were great at their jobs. The point is you just never know.
> 
> We now have 12 months living expenses in cash in case of that very thing.
> 
> Cash gives you more flexibility than liquidating assets or loans. I hate the thought of having to go into debt because of an emergency of some sort.


Again, you misunderstand. Its not about going into debt. Its about not watching some emergency savings deteriorate at 1 or 2% while it COULD be generating real money. I'm not saying "don't have an emergency fund". I am saying, "why have your emergency fund in ever-decaying CASH?".


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## favelle75 (Feb 6, 2013)

Guy in another forum posted exactly what I was thinking:



> Originally Posted by wesboag
> 
> No point of a true "emergency" fund in my opinion. The reason being is the missed opportunity cost of deploying that capital to said " low interest" savings or cash equivalents instead of paying down debt, investing for higher returns, etc.
> 
> ...


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## favelle75 (Feb 6, 2013)

indexxx said:


> I agree with you completely. For that (very) rare time when I might need some money, I have an extensive LOC at a very low rate, or I would sell some stock if it really came to it.


Exactly. If you are sufficiently diversified, there will ALWAYS be an equity or ETF that is available to sell. Why park cash only to see it deteriorate and miss the opportunity of actually making you money if you don't currently need it. Its not like you need to put it in an RRSP where there would be a penalty. Just in your regular stock account, always there if you need it, but not sitting idley by while you don't.


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## Spudd (Oct 11, 2011)

I believe a lot of emergency fund advice is aimed at folks with a lot of debt. Instead of piling all their money into reducing their debt, they should keep a cash cushion to fall back on in case of emergency, as they may not be able to borrow more money if they lose their job. 

I don't personally have any non-registered investments, I only have TFSA/RRSP. I have made the decision to focus on paying down my mortgage after I max out my registered accounts. So I do keep a small emergency fund (around 2 months expenses) in cash just in case. I also save up in cash for my next year's TFSA contribution. Stocks are volatile and I don't want to be in the situation of having to sell a losing stock to raise cash for something. 

If I had no mortgage and large non-registered investments, then I would probably be more inclined towards your way of thinking. You still want some buffer though, so that if your car breaks down or whatever, you don't need to sell stock to cover that.


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## HaroldCrump (Jun 10, 2009)

For those that are recommending (or practicing) no cash savings and using LOC as an emergency "fund", how do you plan to pay the monthly interest on the LOC?
From another LOC, I suppose?
Or, sell stocks little by little every month to pay the LOC?


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## My Own Advisor (Sep 24, 2012)

"Why cash though? Why not just sell some stocks?"

I wouldn't want to sell stocks in a down market. I want to buy them. Doing this is a double-whammy if you need the cash.

We try and keep $5K as the emerg. fund but would like to increase to $10K by end of 2014.


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## MoneyGal (Apr 24, 2009)

What's the actual likelihood of an economic downturn (requiring you to "sell stocks in a down market") coinciding with a personal emergency that requires cash? Some of you sound like Doomsday preppers sometimes. :chuncky:

Example: I had to do some emergency repairs to my roof this summer. I'd just replaced all the knob-and-tube wiring and taken the whole family on a cross-country vacation. I didn't have any spare cash! 

Solution: I borrowed from my LOC, which will be paid back in a few months. 

What's the actual emergency that takes CASH ONLY, does not allow me to borrow from my existing and plentiful sources of credit, requiring me to cash in equities, which have simultaneously suffered a (sufficiently large) downturn?

If you are going to tell me: job loss, I will say: two incomes, we live on less than one, both highly employable, in the country's largest job market. Plus, I guess, EI, right? 

Is this just a generational thing?


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## Four Pillars (Apr 5, 2009)

MoneyGal said:


> What's the actual likelihood of an economic downturn (requiring you to "sell stocks in a down market") coinciding with a personal emergency that requires cash? Some of you sound like Doomsday preppers sometimes. :chuncky:


Not that unlikely. In 2008, the stock markets went down quite a bit and those of us in the financial industry had to deal with several waves of layoffs. If someone needed to cash in some equities to get through some unemployment - the timing wouldn't be very good.



MoneyGal said:


> Example: I had to do some emergency repairs to my roof this summer. I'd just replaced all the knob-and-tube wiring and taken the whole family on a cross-country vacation. I didn't have any spare cash!
> 
> Solution: I borrowed from my LOC, which will be paid back in a few months.
> 
> What's the actual emergency that takes CASH ONLY, does not allow me to borrow from my existing and plentiful sources of credit, requiring me to cash in equities, which have simultaneously suffered a (sufficiently large) downturn?


As long as you are working, then yes this is the best strategy (which makes sense since you did it). However, in times of unemployment where job prospects aren't good - I know I'd be more likely to cash in savings (rrsp or whatever) rather than borrow.



MoneyGal said:


> If you are going to tell me: job loss, I will say: two incomes, we live on less than one, both highly employable, in the country's largest job market. Plus, I guess, EI, right?


Not every family is in that situation. I'm the only breadwinner in mine.



MoneyGal said:


> Is this just a generational thing?


No, it's an individual thing. Some families/individuals are better suited to ride out harder times than others. Of course, a lot of scenarios are a result of decisions, so it's not luck that your family is in great shape and mine is ok as well (but not as good as yours). Be that as it may, if you have a family where there is one breadwinner who's a bit older (not me) and that breadwinner gets laid off - they could easily be looking at a situation of long-term unemployment and can't employ the same financial strategies that you can.

Yes, that family could/should have made better choices to prepare themselves better, but since they didn't - they have to deal with the situation and an emergency fund might be a good thing for them.


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## MoneyGal (Apr 24, 2009)

Zero arguments with your post, none at all. 

What rankles for me is the prescriptivist nature of these posts. (You know I work in financial services too, right? And did so through 2008? And was actually laid off from my job as a direct result of 2008?) YOU SHOULD DO THIS NO MATTER WHAT, the only point of disagreement is the number of months required in the emergency fund: is it 6, 12, 24, or 3,000?

I'd just like some agreement (although it is clear that not everyone actually agrees with the "prescription" so I should probably just untwist my undergarments) that there are multiple ways to skin this cat. 

But, yanno, I'm just semi-annoyed and killing time during a full Ground Stop (fog) at Billy Bishop. I'm almost through all the work I brought to occupy my downtime in airports today.


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## Toronto.gal (Jan 8, 2010)

My Own Advisor said:


> I wouldn't want to sell stocks in a down market.


No way José, especially when that's precisely when you would want to add [not sell, the good ones anyway] and/or when your dividend paying stocks [if not cut], would help you average down/accumulate. Even with the now 4 year 50% MFC dividend reduction, I smile when I look at all the free shares I have purchased since buying the stock first in 09 [not as low anymore as last year, but still, free is free, no matter the price]. Also smiling with the $29+ potash shares the dividends purchased last month.

*'how do you plan to pay the monthly interest on the LOC? From another LOC, I suppose?'* - LOL.


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## CanadianCapitalist (Mar 31, 2009)

I like an emergency fund because it helps me sleep better at night. Isn't that reason enough?


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## Ponderling (Mar 1, 2013)

We do try to keep a few months operating cash flow needs in our chequing account to keep the fee low. We have near cash - in investment accounts for longer periods of potential income disruption.

Then we have physical cash around the house. After a power outage of a few days about 10 years we decided to keep about $400 in small bills and change in a stash in the house. 

We take it with us garge sailing in the spring. Having exact small change is a powerful bargaining tool at these things. Tthen we replenish it from purchases change though the week.

Also have used it in the past for a float to start the day when selling stuff at craft shows and swap fairss.

Handy for things like when the girl guides come buy selling cookies, etc. Also useful when an unexpected gulp of money is neded like modest auto repairs. Often the rpair is cheaper on a cash basis.


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## Islenska (May 4, 2011)

I had a farming buddy couple of years ago who in the midst of combining needed rubber tracks for the tractor like right now, as this was time of the crops coming in he had no cash and it was too wet for conventional tires.
A catch 22 situation ,need tracks to create some cash, but cannot deliver as the crops are in the field and could not easily be brought in.

Lent him the 40K (at 10%int) needed and the story worked out and he paid the loan off soonest.

This is where a truly "rainy day" fund should be available, you never know when that Black Swan will land!


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## Toronto.gal (Jan 8, 2010)

MoneyGal said:


> And was actually laid off from my job as a direct result of 2008?


You were too expensive. 

Hopefully it was for the better!


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## MoneyGal (Apr 24, 2009)

I was! I'm so incredibly in favour of people doing what works for their businesses. That means laying people off sometimes. And my job became finding a new place to provide value. ALL GOOD.


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## andrewf (Mar 1, 2010)

CanadianCapitalist said:


> I like an emergency fund because it helps me sleep better at night. Isn't that reason enough?


(CC, this is not aimed at you, I'm just using your post as a jumping off point)

An emergency fund is just insurance. It has a real cost, just like insurance. The cost is the opportunity cost between holding cash at 1.35% and expected return on a balanced portfolio of, say, 6%. That's 4.65% times the size of the fund. If you are in the doomsday prepper camp and have 2 years of income on your after tax income of, say, $80k. That's $160k*4.65% = $7,440. So that warm and fuzzy comfort blanket costs you $7500 a year. Maybe that's reasonable, but some of the advocates of large emergency funds are the same people who freak out about expenses 1/100th the size of this...

Here's a few of my issues with this discussion:

--people are using months of income, not months of expenses. For me, these are two very different figures--otherwise I would not be saving as much as I currently do. And in the event of a financial emergency, I can tighten my belt and live even more frugally.

--this discussion focuses on liquidity and ignores solvency. I'm more comfortable with a strong personal balance sheet (no debt) than with a big cash cushion. As with companies, those that need big cash cushions are also those with high leverage ratios and the risk that they may not be able to roll over their debts.

--No one has elucidated exactly what kind of emergency requires spending a years worth of income/expenses in a matter of days, in cash. Much less the probability of that event occurring. I can't imagine one that seems plausible.

--Some here express an unwillingness to borrow in the event of an emergency, while borrowing to finance their current consumption. Consider me dumbfounded.

--Some here express an unwillingness to take a hypothetical loss liquidating savings (stocks) in the event of an emergency + an inability to finance with low-cost debt. So in avoiding that loss (say, selling stocks at a 50% drawdown) time a low probability of the event occuring (say 1%), you're looking at an expected loss of 0.5% per year on the amount you would need in the emergency. To combat this, they lose an expected 3.65% on the amount they might need in an emergency. This is probably being generous, as what are the chances of an emergency that requires exactly the amount of your e-fund and no more?


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## Eclectic12 (Oct 20, 2010)

favelle75 said:


> ... Its not about going into debt. Its about not watching some emergency savings deteriorate at 1 or 2% while it COULD be generating real money. I'm not saying "don't have an emergency fund".
> 
> I am saying, "why have your emergency fund in ever-decaying CASH?".


 ... and the answer is going to vary dramatically by individual.

For some that either underestimated their investing skills or lost track of how much was in conservative investments, the strategy of using investment for an emergency fund would have been "have your emergency fund in imploding investments."

Then too, one's track record as well as assets are also going to play into the number of institutions & what they will offer as alternatives (ex. LoC, HeLOC, short term loan etc.).


As well, there's the comfort factor. If one's personality keeps one up every night as the investments change value - the non-financial toll may mean that any financial gain is useless.


Cheers


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## MoneyGal (Apr 24, 2009)

OMG thank you.


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## HaroldCrump (Jun 10, 2009)

MoneyGal said:


> What's the actual likelihood of an economic downturn (requiring you to "sell stocks in a down market") coinciding with a personal emergency that requires cash?


Between Oct 2008 and April 2009, nearly 25% of staff in our Toronto office were laid off.
Across the board - from client managers, accounting, recruiting, I.T. - some departments were more affected than others, of course.

Sure, 2008 was an extreme scenario, but it is not unprecedented and not a once-in-a-lifetime event.
I am old enough to clearly remember the period from summer of 2000 - 2002, although not old enough to remember the 1987 crash or the recession of the late 1970s.

I have no idea how many families (on average) are single income vs. dual income, and how many dual income families manage to get by on single incomes.

I am not dictating a specific # of months as mandatory cash savings.
All I am saying is that depending on personal situations, _some_ level of cash savings is required.
But IMHO, it should be at least 2 - 3 months of normal household expenses.


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## Eclectic12 (Oct 20, 2010)

favelle75 said:


> Exactly. If you are sufficiently diversified, there will ALWAYS be an equity or ETF that is available to sell.


Hmmm ... so if you look at your portfolio in Feb/Mar 2009 - are they any equities you would have been happy to sell to raise emergency cash?
I can recall several in the summer/fall of 2008 that would have been great to sell but few in early 2009.

Granted ... it is an exceptional time but then again - that's also likely a time when a layoff is more likely to happen.




favelle75 said:


> Its not like you need to put it in an RRSP where there would be a penalty.
> Just in your regular stock account, always there if you need it, but not sitting idley by while you don't.


What are you thinking is the penalty for the RRSP?

Should one need to withdraw, one pays the withholding tax and when the tax return is filed - pays the income tax due based on the yearly income. If the income has dropped due to say a layoff - then there will be a refund.


Keeping that same money in a taxable account is likely to increase one's taxes when it is sold for emergency purposes, even if cash payments during the year (ex. dividends, interest, capital gains) have not already done so. I suppose if one sells for a capital loss (CL), taxes won't go up but unless it's a nominal CL, one probably won't be happy about it.

For me, the priority would be use the TFSA first for emergencies as any growth is tax free, as is almost all cash payments and there's no tax hit if emergency money is needed from liquidating investments.


Cheers


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## MoneyGal (Apr 24, 2009)

But do you (general "you," not HaroldCrump in particular) see how this discussion is focusing on (in my opinion) the wrong issues? AndrewF pointed to this in his reference to solvency, not liquidity. 

The vast majority of households (with and without children) in Canada are dual-income households (see for example this link: http://www4.hrsdc.gc.ca/[email protected]?iid=37 ). If the problem were are solving for is that "many people" (?) are living paycheque to paycheque, and that they have no room to withstand one person out of the paid labour force for a few months (or possibly that their combine needs new wheels, a very common thing I am sure for many Canadians :chuncky: ) _the problem may just be that they are spending both of those incomes_. 

And if all of these people who are so close to financial ruin which could come at any moment cannot live without earned income for two or three months, _where are the funds for the emergency fund supposed to come from? _


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## Eclectic12 (Oct 20, 2010)

MoneyGal said:


> What's the actual likelihood of an economic downturn (requiring you to "sell stocks in a down market") coinciding with a personal emergency that requires cash?
> Some of you sound like Doomsday preppers sometimes. :chuncky:


I get the point but there's also the flip side - what's the chance of being layed off & not being able to find another job when the economy (and likely investments) are booming?

The two more somewhat in step so there is some risk there. 




MoneyGal said:


> If you are going to tell me: job loss, I will say: two incomes, we live on less than one, both highly employable, in the country's largest job market. Plus, I guess, EI, right?
> 
> 
> IMO, it's an individual thing - where people seem to love taking the general advice and making assumptions without checking how much or little applies to their situation.
> ...


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## Four Pillars (Apr 5, 2009)

MoneyGal said:


> What rankles for me is the prescriptivist nature of these posts. (You know I work in financial services too, right? And did so through 2008? And was actually laid off from my job as a direct result of 2008?) YOU SHOULD DO THIS NO MATTER WHAT, the only point of disagreement is the number of months required in the emergency fund: is it 6, 12, 24, or 3,000?
> 
> I'd just like some agreement (although it is clear that not everyone actually agrees with the "prescription" so I should probably just untwist my undergarments) that there are multiple ways to skin this cat.


Absolutely - the type of people that moronically insist that EVERYONE should have a huge emergency savings fund are generally prescribing bad advice for most. I see now that I actually misread your post a bit. I kind of thought you were arguing that most people don't need a fund, but in fact were just talking about your own situation as an example of a family that has no use for an emergency fund.

Yes, I know you work in the financial services. I didn't know you got laid off.


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## MoneyGal (Apr 24, 2009)

I should drape myself in VICTIM banners more often. 

My flight is still delayed. I think I'm going home. I'm getting loopy on Porter lounge caffeine.


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## Eclectic12 (Oct 20, 2010)

Four Pillars said:


> No, it's an individual thing.
> 
> Some families/individuals are better suited to ride out harder times than others ... Be that as it may, if you have a family where there is one breadwinner who's a bit older (not me) and that breadwinner gets laid off - they could easily be looking at a situation of long-term unemployment and can't employ the same financial strategies that you can.


This is a good point.

I know in my family, if what happened to my relative happened - part of options for dealing with emergencies would include help from the rest of the family, over & above whatever else was on the plate. For my relative, his side of the family operates solo so he had to live with what he plus his wife had only.




MoneyGal said:


> Zero arguments with your post, none at all.
> 
> What rankles for me is the prescriptivist nature of these posts ... YOU SHOULD DO THIS NO MATTER WHAT, the only point of disagreement is the number of months required in the emergency fund: is it 6, 12, 24, or 3,000?
> 
> I'd just like some agreement ( ...) that there are multiple ways to skin this cat ....


I thought there was at least a line of this with:


> ... Whether the right number is 3 months of income, or 6 months of income, or 1 year+ of income is dependent purely on personal financial situation, job security, risk tolerance, etc.
> We can debate that all night long ...





> ...
> I don't get the extremes, ... I believe in balance...


 ... which is a lot more flexible views that most previous threads I've read that covered this ground.

Of course those with strong views on either side may have drowned out the point. :rolleyes2:


Cheers


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## the-royal-mail (Dec 11, 2009)

Wow, quite a debate going on here. In life, S happens. Harold is right and I can share similar stories as his regarding layoffs in the early 2000s. Sometimes it takes you a while to bounce back into a good job. When times are tough it could easily take months to find new work. Being overconfident "I am well networked and could have a new job tomorrow if I wanted one" is bad policy, as is defaulting to credit to protect you from the numerous potholes along the road of life.

Emergencies *will* happen. It's not a question of if, but when. There are two approaches you can take:

1. rely on someone else to take care of you, whether it's the bank, friends, family, spouse etc and promise to "pay back" all of these creditors when you get back on your feet

2. been smart about it and saved up the cash in advance and had it ready to deploy, without adding to the stress of the situation by fretting over the value of an investment at the moment the time is needed. the cash should be there, able to be easily transferred to your POSA if necessary and without some sort of fee or penalty. you may end up using up your entire reserves and still go into debt via LOC (if the emergency is prolonged such as a disability or health issue) but at least you will have minimized the effect with your first two tiers and will have that much less debt to pay off when things eventually improve

It's scary to me that so many people seem so opposed to the concept of keeping cash on hand and at the ready for their own protection. How much money do these folks spend in insurance every year? I would argue that costs a heck of a lot more than some silly lost "opportunity cost" to protect yourself against the worst situations life throws your way!


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## Sampson (Apr 3, 2009)

I keep an emergency cash fund in case any family members get into gambling debt with gangsters and I need to save a limb or two - good enough reason?


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## Sampson (Apr 3, 2009)

Oh, I also keep a real emergency cash fund - in the case there is a significant decline in the economy, equity market, or housing market. That way I have money to invest.


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## Toronto.gal (Jan 8, 2010)

Sampson said:


> cash fund - in the case there is a significant decline in the economy, equity market, or housing market. That way I have money to invest.


^^ appreciate the sarcasm, BUT that's what cash is for also; after all, it's an investing forum.

Those cashing stocks purely for emergency cash purposes, really don't understand the long-term consequences.


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## andrewf (Mar 1, 2010)

the-royal-mail said:


> It's scary to me that so many people seem so opposed to the concept of keeping cash on hand and at the ready for their own protection. How much money do these folks spend in insurance every year? I would argue that costs a heck of a lot more than some silly lost "opportunity cost" to protect yourself against the worst situations life throws your way!


TRM, in my example above, someone with $80k ATI spending $7500 in 'liquidity insurance' is non-trivial. It is just shy of 10% of income. That's a huge waste of resources.


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## andrewf (Mar 1, 2010)

Toronto.gal said:


> ^^ appreciate the sarcasm, BUT that's what cash is for also; after all, it's an investing forum.
> 
> Those cashing stocks purely for emergency cash purposes, really don't understand the long-term consequences.


Having a cash allocation in your investment account is NOT an emergency fund. Relying on that is *exactly the same thing as using your portfolio as an emergency fund*.


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## MoneyGal (Apr 24, 2009)

With post #35 I think we've officially hit Poe's Law territory. The "silly lost opportunity cost" phrase is a nice touch.


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## Sampson (Apr 3, 2009)

andrewf said:


> Having a cash allocation in your investment account is NOT an emergency fund. Relying on that is *exactly the same thing as using your portfolio as an emergency fund*.


I think it really depends on how you slice it. An over allocation to cash would be an emergency fund.

I also have a big problem with the prescription of "you need X". If we were hit with an emergency, job loss/inability to work, repairs, health issues etc, I know we could instantly cut our spending by 30-50%. So a metric like 6 months income, or 6 months total expenses is also not accurate.

I also find the argument:
"you won't be forced to sell at a loss"
rather weak. If there is a real pressing emergency that could not be handled with reserve cash, then I wouldn't mind liquidating at a loss if it meant some form of medical treatment, life saving procedure not covered by health care etc. It would have significant impact on the long term goals of that money, but when crisis hits, take care of the crisis first and worry about your retirement later.

We keep cash for liquidity, everything else is viewed in my eyes as sitting, waiting for opportunities.


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## favelle75 (Feb 6, 2013)

the-royal-mail said:


> Wow, quite a debate going on here. In life, S happens. Harold is right and I can share similar stories as his regarding layoffs in the early 2000s. Sometimes it takes you a while to bounce back into a good job. When times are tough it could easily take months to find new work. Being overconfident "I am well networked and could have a new job tomorrow if I wanted one" is bad policy, as is defaulting to credit to protect you from the numerous potholes along the road of life.
> 
> Emergencies *will* happen. It's not a question of if, but when. There are two approaches you can take:
> 
> ...


I think this is missing the point though. The OP was not advocating NO emergency fund per se....it was mainly about not having that emergency fund sitting in CASH. To me, that is far different than no emergency fund at all. If we look at the opportunity cost of having cash lying around, its ugly. Gotta figure on a 6% average return on a decently indexed portfolio. You are getting what, 1.5% interest in a savings account? So your opportunity cost is 4.5%. Jesus, my LIFE INSURANCE isn't even that expensive. Actually, all my insurances combined (pet, life, disability, car, house) are not that much.

I just find it odd that we are willing to accept a 4.5% loss on having a super-liquid emergency stash when funds are readily available that can actually make you $$.


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## favelle75 (Feb 6, 2013)

Sampson said:


> Oh, I also keep a real emergency cash fund - in the case there is a significant decline in the economy, equity market, or housing market. That way I have money to invest.


Heh heh, now THAT is the kind of emergency fund I can appreciate!


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## peterk (May 16, 2010)

Depends totally on the position in life you're at. Single income late 30s one income family with 3 kids and minimal retirement savings? Holy crap I hope you have some cash available for your kid's sake. Same family with 1 million invested and a mostly paid house? who cares if you have to withdraw 30k for an emergency in a down market...

As a 26 year old with no obligations, what do I need more than a few grand in cash for? If I lose my job I will go get a new one within 6 months to 1 year. If need be I could rent a room in someone's house for $500 and live off $200 for food.

If I get fired, ruin my professional reputation becoming unemployable, break my leg, need a new roof, and get 2 girls pregnant, all during an economic downturn, is it really going to matter if I have 100k instead of 10k in cash? :rolleyes2:


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## favelle75 (Feb 6, 2013)

andrewf said:


> (CC, this is not aimed at you, I'm just using your post as a jumping off point)
> 
> An emergency fund is just insurance. It has a real cost, just like insurance. The cost is the opportunity cost between holding cash at 1.35% and expected return on a balanced portfolio of, say, 6%. That's 4.65% times the size of the fund. If you are in the doomsday prepper camp and have 2 years of income on your after tax income of, say, $80k. That's $160k*4.65% = $7,440. So that warm and fuzzy comfort blanket costs you $7500 a year. Maybe that's reasonable, but some of the advocates of large emergency funds are the same people who freak out about expenses 1/100th the size of this...
> 
> ...


+100. And that's a great point at the end. We are willing to take a 3.65+% loss EVERY year we an emergency fund, but we're not willing to sell some stocks at a 0.5% loss if in fact an emergency arises? Huh?


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## Toronto.gal (Jan 8, 2010)

andrewf said:


> Having a cash allocation in your investment account is NOT an emergency fund. Relying on that is *exactly the same thing as using your portfolio as an emergency fund*.


I said 'cash', not 'emergency cash', and it had been in response to Sampson's funny/sarcastic: *'real emergency cash',* for you know, those emergency type scenarios in the investment world, that are also 'real' [note that I quoted post #37, not #36]. 

I was mostly critical of this comment made by the OP = 'Why not just sell some stocks?'.


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## My Own Advisor (Sep 24, 2012)

"It's scary to me that so many people seem so opposed to the concept of keeping cash on hand and at the ready for their own protection. How much money do these folks spend in insurance every year?"

Bingo.


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## MoneyGal (Apr 24, 2009)

Not a hell of a lot, actually. Nowhere near the cash drag required to keep two years of my INCOME in non-reg funds, never mind the tax drag.


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## james4beach (Nov 15, 2012)

For what it's worth I wrote "My target is to have 2 years worth of expenses in cash" not 2 years of income

My annual expenses are not that high so this is not as onerous as it may sound


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## MoneyGal (Apr 24, 2009)

S'all good; my arguments are largely straw man arguments but to be fair this whole concept is so full of hay I'm sneezing just reading it.


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## My Own Advisor (Sep 24, 2012)

To answer a previous question, I don't care so much about income replacement as I do to cover expenses and not take on more debt.


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## andrewf (Mar 1, 2010)

MoneyGal said:


> Not a hell of a lot, actually. Nowhere near the cash drag required to keep two years of my INCOME in non-reg funds, never mind the tax drag.


+10

I do NOT spend anywhere approaching $7500 on insurance each year. I self insure where it makes sense and insure what I must.


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## mrPPincer (Nov 21, 2011)

Turns out I have 3.6 years worth of expenses in cash right now, but I don't see this as an opportunity cost at all.
It's earning 1.9% & 3% (tfsa portion) atm, and it's guaranteed not to lose value except possibly to inflation, unlike the equity or bond portion of a portfolio which fluctuate in value and makes them potentially less ideal to dip into in an emergency situation.

Could be argued that real opportunity cost would be in not having anything in ready cash for downturns in the market.
That said, if the market did do a 55% drop from present I would be going close to zero cash, but as it continues to go up I systematically increase cash allocation to a greater percentage of the overall portfolio, just my method, to each his/her own.

If/when circumstances arise that I do have to dip into the cash allocation of the portfolio I consider it a loan to myself to pay back and count the loan as cash so that it doesn't have an effect on other allocations.
Oh yeah, I do keep a small slush fund in my bill-paying account which I don't consider part of the portfolio, but again, it too is in a no-fee hisa earning 1.9% at present.

If interest rates rose to the point where bonds look attractive to me I'd consider moving some cash into bonds (or GICs) but it just doesn't seem to make sense right now.


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## Hawkdog (Oct 26, 2012)

My thoughts are it would depend on the type of saver/spender.
This is a general rule aimed at the masses who have big mortgages, car payments and credit card payments in which case 6 months plus is a minimum time frame IMO,
for most of the members of this forum I would guess a six month emergency fund for the masses would cover 6 years of expenses.
I keep mine in an ING account, which at least pays some interest and the rates should start climb.


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## Rusty O'Toole (Feb 1, 2012)

I believe everyone should save and invest but keeping large amounts of money in cash "just in case" does not make much sense.

1) OK keep a few hundred, or a few thousand in the house in cash for emergencies.

2) Have a credit card, or HELOC available for unforseen expenses (car breaks down, etc).

3) Have paid up Insurance in case the roof blows off the house or similar.

The rest should be invested in something that pays a return of some kind. Whether fixed income, stocks or what have you. In an emergency these can be liquidated in a few days at most.

"What if it goes down" well what if it does? That is the chance you take with any investment. If you lose your job you will have at least 6 months of unemployment insurance time to figure out what to do. For everything else there is insurance and credit cards. 

If it does so happen you lose your job, your car blows up, your unemployment runs out, JUST as the stock market bottoms, sucks to be you. This is no excuse for keeping your savings in silver dollars tied up in an old sock under the bed. Unless that is the best place you can find for your savings.


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## andrewf (Mar 1, 2010)

Now, I'm not anti-cash. I have about $12k in cash right now (I'll be making a contribution to my non-reg account soon). It tends to vary between $3k and $15k, because I have some lumpy expenses. I like to have at least $3k for liquidity reasons. I do have some cash in investment accounts, as well.


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## james4beach (Nov 15, 2012)

mrPPincer said:


> Turns out I have 3.6 years worth of expenses in cash right now, but I don't see this as an opportunity cost at all.
> It's earning 1.9% & 3% (tfsa portion) atm, and it's guaranteed not to lose value except possibly to inflation, unlike the equity or bond portion of a portfolio which fluctuate in value and makes them potentially less ideal to dip into in an emergency situation.
> 
> Could be argued that real opportunity cost would be in not having anything in ready cash for downturns in the market.


That's the way I see it too. I don't know where all this talk of big opportunity costs comes from. Like you, I have cash amounts earning high interest. How much 'performance' am I really missing out on?

XIU's web page reminds me that 3 year returns were 4.3% and 5 year returns were 0.3%. You have to remember this is calculated (now) at quite a high level so that's pretty much the best it gets. And there were not just one but *two*periods of -50% declines just in the last 13 years. Yes I know that a historical expectation may be 6% but over the last decade or so? I have not suffered an opportunity cost from having so much cash... certainly not when adjusted for risk and volatility.

Really one's perspective of "opportunity cost" comes down to what you expect the stock market to return going forward and how volatile you expect it will be. Based on my own expectations, I don't feel that I'm facing a significant opportunity cost in HISAs


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## Plugging Along (Jan 3, 2011)

favelle75 said:


> I don't get it? What are these crazy situations where people need instant cash? They say you should have 6 months of income saved up for a "rainy day"? Why cash though? Why not just sell some stocks? Surely if you are diversified enough, selling some of the stuff that is higher than what you bought it for better than pulling cash deteriorating in a savings account. Why the need for cash instantly? Don't people have credit cards or LOC's? That's instant cash, then pay it back with the equities you sold.
> 
> Never understood that. I'd rather:
> 
> ...


Back to the OP. This is really based on a personal situation/circumstance and what people define as emergencies.

I define emergencies as large, unpredictable events and impacts. My car breaking down, or something in my house replacing, I usually have the cash lying around. To me those are just the facts of life. Something in the house will need replacing, I don't know what, when, or how much, other than it will. I keep that in my operating cash. It's high enough, that I don't have to allocate it to anything. If I have a big expense, I just spend less on other things.

For bigger things like replacement vehicles, vacations, I save for that... and in cash because it's usually short term. 

For the job lost where we have to keep a float, I have cash to last me a minimum 3 months set aside for this, which is how I am able to cover off the break downs listed above. I also have money that I usually have sitting for when a good investment comes in. If I add that all together, I about a years worth of expenses covered IN CASH. Other than the min 3 months, which is my buffer that I never go below, the rest of cash sits until I have use for it whether it be unknown expenses, replacement vehicles, or investments. I don't have a big emergency fund, but I do have a large cash reserve. 



james4beach said:


> 2008 is a perfect example. Say someone lost their job in 2008; they lost their job because the economy was collapsing. Now they desperately need some money (for food, rent, children, etc). When they liquidate some of their stock holdings, right at the low, they are causing enormous damage to their portfolio's long term returns.


This is exactly what happened to us. But also add a mat leave that started in December 2008, and started to really invest my cash reserves into the stock market in May of 2008 (at the height) because I didn't want to have money losing investing opportunities. My spouse got laid off. We were fine, because I still had cash reserves, but I would have taking a 60% lost on my investments if I HAD to sell. 



favelle75 said:


> Again, you misunderstand. Its not about going into debt. Its about not watching some emergency savings deteriorate at 1 or 2% while it COULD be generating real money. I'm not saying "don't have an emergency fund". I am saying, "why have your emergency fund in ever-decaying CASH?".


It also COULD be losing money too. That's the problem with an emergency, if I took a 60% lost in only 12 months since I started putting my cash in investments, how long would that have taken. Now, my emergency cost me more. Also, I had a low LOC, but didn't want to take any debt out while both us not working, that was just a comfort choice. I don't like debt, but would have before I sold my investments at that big of a lost. 



favelle75 said:


> Exactly. If you are sufficiently diversified, there will ALWAYS be an equity or ETF that is available to sell. Why park cash only to see it deteriorate and miss the opportunity of actually making you money if you don't currently need it. Its not like you need to put it in an RRSP where there would be a penalty. Just in your regular stock account, always there if you need it, but not sitting idley by while you don't.


Wrong, I was well diversified, and lost close to 60% of portfolio. That was just my timing though, but having good e-fund, there were only paper loses, and I ended up making money when I was able to sell. 



MoneyGal said:


> What's the actual likelihood of an economic downturn (requiring you to "sell stocks in a down market") coinciding with a personal emergency that requires cash? Some of you sound like Doomsday preppers sometimes. :chuncky:
> 
> Example: I had to do some emergency repairs to my roof this summer. I'd just replaced all the knob-and-tube wiring and taken the whole family on a cross-country vacation. I didn't have any spare cash!
> 
> ...


I think I must have had bad luck. I didn't have to sell in 2008,. but our two incomes actually 4 (we both had two income sources) went dry because it was all related to the poor economy. I don't consider small things emergencies. For us, I consider pretty much job loss or illness as the big emergencies, and job loss is correlated to the stock market. 


Both my spouse and I are considered highly employable, and we got hit on all fronts. That's being said, like you, we don't normally spend both our incomes. 



andrewf said:


> (CC, this is not aimed at you, I'm just using your post as a jumping off point)
> 
> --Some here express an unwillingness to take a hypothetical loss liquidating savings (stocks) in the event of an emergency + an inability to finance with low-cost debt. So in avoiding that loss (say, selling stocks at a 50% drawdown) time a low probability of the event occuring (say 1%), you're looking at an expected loss of 0.5% per year on the amount you would need in the emergency. To combat this, they lose an expected 3.65% on the amount they might need in an emergency. This is probably being generous, as what are the chances of an emergency that requires exactly the amount of your e-fund and no more?


I don't think you can use 0.5%, that is over an average perhaps. Stocks are volitile and you have to look at the potential swings for both the upside and the down side. 



favelle75 said:


> +100. And that's a great point at the end. We are willing to take a 3.65+% loss EVERY year we an emergency fund, but we're not willing to sell some stocks at a 0.5% loss if in fact an emergency arises? Huh?


You make the assumption that at the time you want to sell your stock it is only at a 0.5% lost. That is very unlikely. What is the opportunity cost of selling a stock at a lost when forced? I know in 2008, my stocks were down on average 60%, I didn't have to sell, I sold them last year when it went recovered and double from my cost. So based on that, if my stock price when I bought was $100, I would have had to sell at $40, but ended up selling at $210, the opportunity cost of the efund was a much better investment.

I am not trying to convince anyone, these are just my experiences. Really how much of an efund some has is up to their own situation. What they put it in to,is personal. This is all about risk probability, impact, expected monetary values. And that will be based on your own assumptions. All I know do know is the people that seem to require a cash reserve the most, don't have it.


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## ideasonfinancing (Sep 10, 2013)

You cannot assume that everything will be the same in the next few days or months and that is the main reason why you need an emergency fund. All the other expenses that you mentioned look better but you can only benefit from them in the meantime. You cannot liquidate them and use them to pay your hospital bills in case you will meet one.


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## andrewf (Mar 1, 2010)

james4beach said:


> XIU's web page reminds me that 3 year returns were 4.3% and 5 year returns were 0.3%. You have to remember this is calculated (now) at quite a high level so that's pretty much the best it gets. And there were not just one but *two*periods of -50% declines just in the last 13 years. Yes I know that a historical expectation may be 6% but over the last decade or so? I have not suffered an opportunity cost from having so much cash... certainly not when adjusted for risk and volatility.
> 
> Really one's perspective of "opportunity cost" comes down to what you expect the stock market to return going forward and how volatile you expect it will be. Based on my own expectations, I don't feel that I'm facing a significant opportunity cost in HISAs


Wrong, james. You're cherrypicking performance time frames. 5 years just happens to be from just before the market fell off a cliff. And a diversified portfolio <> TSX. Wait 1 year and the 5 year returns will look great.

James, you seem to accept CAPE as an estimate of stock returns. A CAPE of 16.5 is consistent with 10 year real returns of 5%. Current bond yields are consistent with a 10 year real return of 0.5%.


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## andrewf (Mar 1, 2010)

Plugging Along said:


> I don't think you can use 0.5%, that is over an average perhaps. Stocks are volitile and you have to look at the potential swings for both the upside and the down side.


Expected values work this way. What value would you pick, and how did you arrive at it? If in any year there's a chance of a 50% decline in value, and there's a 1% chance you'll need your entire fund in that year, the expected cost each year of having to withdraw all your savings is 50%*1%=0.5%




> You make the assumption that at the time you want to sell your stock it is only at a 0.5% lost. That is very unlikely. What is the opportunity cost of selling a stock at a lost when forced? I know in 2008, my stocks were down on average 60%, I didn't have to sell, I sold them last year when it went recovered and double from my cost. So based on that, if my stock price when I bought was $100, I would have had to sell at $40, but ended up selling at $210, the opportunity cost of the efund was a much better investment.


Re-read my post. This is not at all what I assumed.



> I am not trying to convince anyone, these are just my experiences. Really how much of an efund some has is up to their own situation. What they put it in to,is personal. This is all about risk probability, impact, expected monetary values. And that will be based on your own assumptions. All I know do know is the people that seem to require a cash reserve the most, don't have it.


I think people need *savings*, not necessary a big pile of unproductive cash.


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## Plugging Along (Jan 3, 2011)

andrewf said:


> Expected values work this way. What value would you pick, and how did you arrive at it? If in any year there's a chance of a 50% decline in value, and there's a 1% chance you'll need your entire fund in that year, the expected cost each year of having to withdraw all your savings is 50%*1%=0.5%
> QUOTE]
> The problem with expected value is that it is rarely right on a single data point. Also, to agree what the probability is without a full similation is all subjective. I would say that the probably of me have to sell my investments at a lost is much more than 1% for my scenario.
> 
> ...


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## andrewf (Mar 1, 2010)

Plugging Along said:


> So in my case, I view the probability of selling my investments at a 50% lost at the time I need it to cover an emergency is a 1 in 2, therefore I look at my expected monetary value for the even is actually .5*.5 or 25%. For me, I am okay have more cash so that doesn't happen. It's not for everybody. I also changed my efund based when I took some of it out to pay off my mortgage faster. Being mortgage free though having lower efund, reduced my perceived risk.


So you're saying you have an emergency that requires you use your entire emergency fund every other year? I'm allowing a 100% probability that when you need to use your emergency fund that it has declined by 50%.

25% is absurd. Imagine insuring a house that had a 25% of burning to the ground each year.


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## Plugging Along (Jan 3, 2011)

andrewf said:


> So you're saying you have an emergency that requires you use your entire emergency fund every other year? I'm allowing a 100% probability that when you need to use your emergency fund that it has declined by 50%.
> 
> 25% is absurd. Imagine insuring a house that had a 25% of burning to the ground each year.


You missed the part where I said in the events that I would HAVE to sell my investments in order to fund the emergency is really two scenarios that I have identified, the probability is high that at that time there would be a lost. This is not the probability of me having an emergency that requires a large amount of funds.


To your insurance example, I am not saying I will need to have an insurance claim every two years, but rather in the true cases I have to claim insurance, the claim will be large. If I get a little damage on my house, will probably just pay for it most times, the only times I would use my insurance in major disasters. So I guarantee that my house claim will be large.


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## MoneyGal (Apr 24, 2009)

Plugging Along said:


> So in my case, I view the probability of selling my investments at a 50% lost at the time I need it to cover an emergency is a 1 in 2, therefore I look at my expected monetary value for the even is actually .5*.5 or 25%.


This isn't...how probability works.


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## CanadianCapitalist (Mar 31, 2009)

andrewf said:


> Wrong, james. You're cherrypicking performance time frames. 5 years just happens to be from just before the market fell off a cliff. And a diversified portfolio <> TSX. Wait 1 year and the 5 year returns will look great.


If memory serves right the five year returns of the TSX leading up to the crash of 2008 was close to 20 percent. If all you want to look at are past five year returns, you would have concluded in the late summer of 2008 that the best place to be was Canadian stocks. Oops.


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## Plugging Along (Jan 3, 2011)

^ it's how I decide how much I want to put aside or me. That's all.


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## snowbeavers (Mar 19, 2013)

favelle75 said:


> Again, you misunderstand. Its not about going into debt. Its about not watching some emergency savings deteriorate at 1 or 2% while it COULD be generating real money. I'm not saying "don't have an emergency fund". I am saying, "why have your emergency fund in ever-decaying CASH?".


Well considering in your post you said


> Don't people have credit cards or LOC's? That's instant cash, then pay it back with the equities you sold.


 then it would seem that you are implying going into debt (and then selling equities). Well, this is a problem as already mentioned as you could very well be selling low.


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## MrMatt (Dec 21, 2011)

andrewf said:


> Expected values work this way. What value would you pick, and how did you arrive at it? If in any year there's a chance of a 50% decline in value, and there's a 1% chance you'll need your entire fund in that year, the expected cost each year of having to withdraw all your savings is 50%*1%=0.5%
> 
> 
> 
> ...


Expected value is a good way to think of it if you're an actuary.
When you are experiencing the events, you have to consider the risk to you.

Lets say you have a $10k event, if you have the cash, you're down $10k, if you have stocks that declined 50%, you just had a $20k event, ouch.

Now lets say your stock return is 10% (doubling in 7 years), and your cash return is 0% and 1 event happens in 10 years, you start with 20k,
Let me get sloppy with the math and an overly contrived example
$10k event, if you're 100% stock, it's a $20k even because you've got bad luck and the market crashed.
Year 1
20k stock- Wiped out
10k/10k cash/stock - left with 10k stock!, good
Year 7 Breakeven
40k stock - down to 20k stock, not bad
10/20k cash/stock - left with 20k stock, exactly the same.
After this, you're ahead going stock

In that scenario, it's clear that the timing of the even has a large effect, and I think it's easy to see that the cash emergency fund is a good idea.
If the events happen more frequently, or the stock return is lower, cash emergency funds are a better idea.
If the events happen less frequently, or the stock return is higher, the invested portfolio is a better idea.
If the stock doesn't fall 50%, you're of course in better shape.

I think you should focus on having a cash fund for "more frequent or likely" emergencies. I don't think it's a planning failure if an unlikely event happens to set you back significantly.


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## andrewf (Mar 1, 2010)

But then no emergency fund is big enough, right?

Smaller, frequent 'emergencies' you should self-insure. Big, very infrequent ones you will never have a cash pile big enough.


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## favelle75 (Feb 6, 2013)

snowbeavers said:


> Well considering in your post you said then it would seem that you are implying going into debt (and then selling equities). Well, this is a problem as already mentioned as you could very well be selling low.


I suggested the LOC or credit card if you needed "instant cash" because you couldn't liquidate fast enough to make whatever emergency payment you needed to. I never said to go into DEBT over the emergency.


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## MrMatt (Dec 21, 2011)

andrewf said:


> But then no emergency fund is big enough, right?
> 
> Smaller, frequent 'emergencies' you should self-insure. Big, very infrequent ones you will never have a cash pile big enough.


If it's small & frequent, self insure and pay the expected value yourself, and allocate resources to accommodate it.
- Think surprise car repairs.

If it's large and rare, get insurance pay the expected value + administration & overhead. 
- Think life insurance.


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## Cal (Jun 17, 2009)

I don't mind keeping a few thousand dollars on hand, but to save over a years expenses and have it sit in a HISA is not the best use of my capital.

The amount of expenses needed to save really would vary, as if you still need to make mortgage payments, you may want to keep a little more of a safety net.....


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