# Emergeny fund vs. Fixed income allocation



## christinad (Apr 30, 2013)

Do people consider their emergency fund as part of their fixed income allocation? I do, but i'm wondering if i should save additional FI.


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## tkirk62 (Jul 1, 2015)

What is your emergency fund in? Just a savings account? 1.1% or something? I don't think I would consider that fixed income. Yes it's income, and yes it's relatively fixed, but I still wouldn't.


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## gibor365 (Apr 1, 2011)

> Do people consider their emergency fund as part of their fixed income allocation?


 We don't have specific emergency fund. we have FI and Equities. FI is 90% HISA and GIC 



> 1.1% or something?


 My HISA gives me 3% now and average annualized interest around 2.7%
GICs (1-3 years max) are in range 2.25 - 2.45%


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## cainvest (May 1, 2013)

I don't have specific money set aside as an emergency fund but always have a small balance in my bank account (enough to eliminate fees) if I need cash. After that it goes on my CC or LOC and I'd withdraw from fixed income assets first to repay.


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## GalacticPineapple (Feb 28, 2013)

christinad said:


> Do people consider their emergency fund as part of their fixed income allocation? I do, but i'm wondering if i should save additional FI.


No because it's not an investment. It's an emergency fund. All you want to do is protect the sum from inflation. Its objective is theoretically distinct from a fixed-income investment since the latter would aim to do more than guard against inflation. One would hope.


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## mf4361 (Apr 11, 2015)

I don't consider emergency fund as part of fixed income investment. Mostly because it is meant to be used when something bad suddenly happens (loss of job, house repair, medical, whatever it might be) and you need cash right away. As for fixed income part of portfolio has a set time horizon for a specific purpose (retirement, house purchase, etc)
I put my emergency fund in a normal saving account (not even HISA) with the bank I use so I can get fund transfer to my chequeing acc instantly.


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## gibor365 (Apr 1, 2011)

GalacticPineapple said:


> No because it's not an investment. It's an emergency fund. All you want to do is protect the sum from inflation. Its objective is theoretically distinct from a fixed-income investment since the latter would aim to do more than guard against inflation. One would hope.


Just curious what is your objectives for fixed-income investment ?!


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## cainvest (May 1, 2013)

mf4361 said:


> I put my emergency fund in a normal saving account (not even HISA) with the bank I use so I can get fund transfer to my chequeing acc instantly.


This is one part I never really understood, why does anyone need the emergency money instantly. Extracting from one's fixed income assets, or even equities for that matter, is only T+1 up to T+3 ... so is a three day wait really bad for some reason?


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## GalacticPineapple (Feb 28, 2013)

gibor said:


> Just curious what is your objectives for fixed-income investment ?!


Protection of capital with distributions north of what I could get in a savings account.


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## GPM (Jan 23, 2015)

christinad said:


> Do people consider their emergency fund as part of their fixed income allocation? I do, but i'm wondering if i should save additional FI.


I do, but also consider cash as an asset class as well, so it could be set aside to purchase bargains in a market drop, household items on sale, or just purely for job loss, etc. I've always been a wealthy barber fan and don't keep an emergency fund. My wife and I can survive on one salary for quite a while and then use a LoC if necessary. We've done it before. Never made it to LoC, but shut down investments. I just can't stand seeing money idle.

I refuse to keep money in an account for "free" banking. I actually bank free for real at a Credit Union.


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## jargey3000 (Jan 25, 2011)

gibor - just curious - where do you have your HISA? thanks.


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## gibor365 (Apr 1, 2011)

jargey3000 said:


> gibor - just curious - where do you have your HISA? thanks.


I have HISA accounts in 3 different online banks + CIBC, now all my HISA in Tangerine who pays 3% interest until end of December, before (until Jul 1) all my HISA money were in PCF who paid 2.6% interest... if there is no promos from both those banks , I keep all money in Peoples Trust, also all my GICs in PT, they have the best interests for GIC.
P.S. With PCF and Tangerine, I'm comfortable to keep more than 100K (sometimes much more) as both belong to CIBC and BNS , with PT I never exceed 100K per account


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## jargey3000 (Jan 25, 2011)

Thanks for the info.! (any promos on the go anywhere right now?)


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## gibor365 (Apr 1, 2011)

jargey3000 said:


> Thanks for the info.! (any promos on the go anywhere right now?)


Check Tangerine... I think they still have one.
If you want to open account there, PM me and I'll give you Orange key, so both of us can get $50


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## Soon Forget (Mar 25, 2014)

We keep our emergency fund (6 months of expenses) in cash separate from our portfolio. Also currently at Tangerine 3%.

We're a young family with a fat mortgage still, so the wall of cash really does provide a level of comfort that we're prepared for whatever comes our way without having to tap into the funds that are intended for long term investment. Yes the cash is creating a drag on overall returns, but the alternative of having to cash out investments at the wrong time could be far worse.

Also, if interest rates do start ticking upwards even the bond fund portion of our portfolios could be sitting in a capital loss position for many years. Do you really want to be cashing them in if an emergency came up?


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## GPM (Jan 23, 2015)

Soon Forget said:


> We keep our emergency fund (6 months of expenses) in cash separate from our portfolio. Also currently at Tangerine 3%.
> 
> We're a young family with a fat mortgage still, so the wall of cash really does provide a level of comfort that we're prepared for whatever comes our way without having to tap into the funds that are intended for long term investment. Yes the cash is creating a drag on overall returns, but the alternative of having to cash out investments at the wrong time could be far worse.
> 
> Also, if interest rates do start ticking upwards even the bond fund portion of our portfolios could be sitting in a capital loss position for many years. Do you really want to be cashing them in if an emergency came up?


I am impressed with your saving! Now don't get me wrong, I'm no financial advisor by any means. But this sounds Suzy Orman, American style. No social safety net - EI, Welfare. I had friends use both when necessary. Young people can recover, even refinancing your mortgage if you are young. Seems like a boatload of money sitting around. Just some life experience - I've had surgeries, my wife's mat leaves (no benefits because self employed), quit my job with no prospects (boss stealing from me), and a catastrophic event, but never came near 6 mo expenses. Cancelled investing and other non essentials. We just...survived. Just a second opinion. Each person needs to feel safe, and require different cushions - no criticism intended. Just observing. I've struggled with the emergency fund for > 25 years! Might want to concentrate on paying the mortgage before investing. Everyone needs a roof over their heads. You will get better advice on this from more experienced people than me on the forum though.


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## christinad (Apr 30, 2013)

Thanks for the replies. I think what i need is some fixed income in my rrsp but it is not a high priority as i have to get tooth implants.


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## james4beach (Nov 15, 2012)

GPM said:


> Each person needs to feel safe, and require different cushions - no criticism intended. Just observing. I've struggled with the emergency fund for > 25 years!


Yes I think everyone's needs are different. My emergency fund (cash) target is 2 yrs living expenses ... currently 2.5 years living expenses. I'm single, so I don't enjoy the diversity benefit of 2 people. I also work in a boom and bust field with periods of high income followed by stretches of zero income.


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## HaroldCrump (Jun 10, 2009)

I do not consider emergency savings as part of FI allocation, or even cash allocation within investment accounts.
Emergency fund is completely outside of investment accounts and sits in plain HISA account earning 1% or so these days.
I do not need the emergency fund to earn any return.

FI and cash within investment accounts is part of asset allocation.
That being said, I have very little FI these days, but cash component is high.

Similar to James4Beach above, my target is 2 yrs. of core living expenses as well and currently tracking close to it.


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## GPM (Jan 23, 2015)

Wow HaroldCrump. Impressive, but why,so high of emergency fund, if you don't mind me asking? None of my business if too private! James4Beach reason makes sense.


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## capricorn (Dec 3, 2013)

one year living expense. I wish it was two but I am just not able to come anywhere close to that target. only one person in household works so want some stability. I keep my emergency fund in cash. Maybe I will look into HSIA now.


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## CalgaryPotato (Mar 7, 2015)

I wouldn't really consider it the same. If you are keeping a fixed income portion in your portfolio, it should be part of your rebalancing strategy. If you do that, you can be cutting into your emergency fund just to rebalance. 

On the flip side, if you have an emergency you are going to wreck the balance of your portfolio.

That said, I don't keep a big emergency fund saved up. I have a HELOC with lots of room available if an emergency arises. I can then look at my portfolio and rebalance slowly to take funds out to repay it if I need too...


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## HaroldCrump (Jun 10, 2009)

GPM said:


> Wow HaroldCrump. Impressive, but why,so high of emergency fund, if you don't mind me asking? None of my business if too private! James4Beach reason makes sense.


Similar reasons as J4B, and I have additional liabilities (mortgage payments).

Our original target was 1 yr. living expenses, but we decided to gradually increase to 2 yrs. after the 2008 crisis.
I work in the financial sector, and given what happened in 2008/9, I am sensitive to the volatility & risk in my sector.
I have no qualms about cash earning "only" 1% in a HISA.
That is offset by slightly aggressive/active equity investing.


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## christinad (Apr 30, 2013)

My emergency fund makes up 30% of my total savings (including investments) which seems high. Still, as my investments increase in value i will add fixed income.


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## enriquegill012 (May 10, 2015)

I always make sure that my emergency fund should only be used for emergency purpose only for better financial management which is actually a good thing.


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## GreatLaker (Mar 23, 2014)

christinad said:


> My emergency fund makes up 30% of my total savings (including investments) which seems high. Still, as my investments increase in value i will add fixed income.


I consider my emergency funds a different category, separate from my investments. My investments have fixed income allocation aligned with my risk tolerance. But then my emerg funds are a small % of my total assets.

But in the case of emerg funds being 30% of total savings, I might think about it differently. Look at the issue another way: Asset allocation between equity and FI is used to control portfolio risk and volatility. If you consider emerg funds as part of your fixed income allocation, and then an emergency comes up and you have to use them, your equity allocation will be higher than you want, until you can rebuild your emergency stash. That's probably not something retired person would want, but for a young person with years to go before retirement would probably be OK with it.

If you can handle the thought of digging in to your emerg stash in the event of an urgent need for money, then consider it part of FI. If it would worry you or stop you from sleeping at night then don't.


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