# Do you include your Emergency fund as part of your fixed income allocation?



## tlar (Dec 3, 2012)

Currently my emergency fund (in an ING investment savings account) is 30% of my total portfolio, as a young investor I was planning on investing 15% of my portfolio in fixed income and I was about to purchase TDB909 when I realized I might already have enough in fixed income if you include my emergency fund. Any thoughts on if I should include my emergency fund in my asset allocation calculations or ignore it completely?


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## lonewolf (Jun 12, 2012)

If someone is recieving monthly income from GICs well above thier living expenses I dont think they need an emergency fund. If in the future the financial instutions are @ risk that is another story.


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## Jungle (Feb 17, 2010)

I would not include emergency fund in portfolio. They are for two different things. 
If you drain your emergency fund, the portfolio allocation will change.


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## HaroldCrump (Jun 10, 2009)

I do not include emergency fund as part of portfolio or asset allocation decisions.
I do not have any return expectation from it either.


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

Why do you need such a big emergency fund? Beyond a few hundred, or maybe $2000 for current expenses, why do you need an emergency fund at all? If you get in a jam, use your credit cards or line of credit. If you must raise money you can liquidate stocks, bonds, ETFs, and mutual funds in minutes and have the cash the next day. For a real disaster, you have insurance.

I'm 62, have had a few disasters, but never needed to keep thousands or tens of thousands of $$$ of cash on hand. It just is not necessary.

If you want to, put 15% of your assets in fixed income and call that your emergency fund. There is no reason to let it sit idle.


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## jnorman5 (Aug 21, 2011)

Rusty O'Toole said:


> Why do you need such a big emergency fund? Beyond a few hundred, or maybe $2000 for current expenses, why do you need an emergency fund at all? If you get in a jam, use your credit cards or line of credit. If you must raise money you can liquidate stocks, bonds, ETFs, and mutual funds in minutes and have the cash the next day. For a real disaster, you have insurance.


I completely agree with Rusty here. I think there are two schools of thinking. I absolutely hate credit card debt or owing money on my LOC, but the opportunity cost is too great for me to have $10-$15K in a cash account for an emergency that may never happen. I am more than comfortable having that money in my couch potato ETF portfolio in my TFSA (with 10-15K in fixed income), use the HELOC for an emergency, and pay it off later in the week when I cash out my investments in my TFSA. This mindset may also have to do with both my wife and I having very good job security and a low loan to value ratio on my home, but either way, I feel confident in my decision.

Some people feel much more comfortable having that cash sitting in their account in case they need it, and I can see why. For me, the opportunity cost trumps the emotional security factor... darn economics prof did end up teaching me something lol 

Have a great weekend all!


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

"for a real disaster, you have insurance"

Like this?

http://www.cbc.ca/news/canada/british-columbia/story/2013/01/04/bc-snowbirdinsurance.html


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## donald (Apr 18, 2011)

I think your at risk of developing money hoarding(your way out there)how cant you see it?(question was funds inside a portfolio,that is generating $)


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## MoneyGal (Apr 24, 2009)

The insurance pointed to in the link doesn't really fit the classic definition of insurance, as it is underwritten post-claim. This means there is no agreement on the part of the insurer to take on the risk unless they enter into that agreement after a claim is made. 

In both cases in that article, the people filling out the forms *agree* that they filled them out incorrectly. 

Insurance contracts are governed by the legal doctrine of uberrima fides ("utmost good faith"). This means that both parties are obliged to disclose all material facts in the process of arranging the contract, which is why the policies for these contracts are lengthy. If one party to the contract does not disclose all material facts ("I didn't think that taking medication to prevent a recurrence of a condition constitutes 'treatment' for that condition" is not a sufficient response; materiality is a condition of fact, not opinion), the contract is void.


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## marina628 (Dec 14, 2010)

I am going on a cruise in April and previously my insurance cost were about $100.In October I went into a full Diabetic Shock and blood sugar 71 with no previous issues with Diabetes.I filled out my insurance forms and gave them full details even had the last 3 blood test results included.Although my blood sugar is now normally 4.7 -7.2 my insurance for this trip is $574.They told me it will gradually go down as long as I have no hospitalization for minimum of 3 years.You must disclose every single thing to them to protect yourself ,I have disclosed all my medications , dosages and blood sugar readings for past 60 days and will continue to track that until we are on the cruise.
We all know about emergency funds now ,I keep cash on hand even $1 and $2 coins in case we ever go through a power outage .There is only so much cash we need in emergency fund ,I think people should focus on saving for the rainy day and not worry so much where they are keeping that money.My emergency fund is kept in a Select Service Account and HISA ,I just took $51,000 and dropped on my mortgage which cost me 3.69% interest.So big deal I am down to 2 month-3 months expenses as I have piles free on my credit line and can log in and transfer that money in 5 seconds to my chequing.


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

jnorman5 said:


> I completely agree with Rusty here. I think there are two schools of thinking. I absolutely hate credit card debt or owing money on my LOC, but the opportunity cost is too great for me to have $10-$15K in a cash account for an emergency that may never happen. I am more than comfortable having that money in my couch potato ETF portfolio in my TFSA (with 10-15K in fixed income), use the HELOC for an emergency, and pay it off later in the week when I cash out my investments in my TFSA. This mindset may also have to do with both my wife and I having very good job security and a low loan to value ratio on my home, but either way, I feel confident in my decision.
> 
> Some people feel much more comfortable having that cash sitting in their account in case they need it, and I can see why. For me, the opportunity cost trumps the emotional security factor... darn economics prof did end up teaching me something lol
> 
> Have a great weekend all!


It may comfort you to know that if you do have to use your LOC for an emergency, the interest you pay on $10,000 for one week is $7.67. I base this on my LOC which is 3.99%.

So, if you get in a jam that costs $10,000 and you have to use the LOC until you sell your investments, you are risking $7.67.

I'd be more worried about the $10,000.


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## uptoolate (Oct 9, 2011)

MoneyGal said:


> The insurance pointed to in the link doesn't really fit the classic definition of insurance, as it is underwritten post-claim. This means there is no agreement on the part of the insurer to take on the risk unless they enter into that agreement after a claim is made.
> 
> In both cases in that article, the people filling out the forms *agree* that they filled them out incorrectly.
> 
> Insurance contracts are governed by the legal doctrine of uberrima fides ("utmost good faith"). This means that both parties are obliged to disclose all material facts in the process of arranging the contract, which is why the policies for these contracts are lengthy. If one party to the contract does not disclose all material facts ("I didn't think that taking medication to prevent a recurrence of a condition constitutes 'treatment' for that condition" is not a sufficient response; materiality is a condition of fact, not opinion), the contract is void.


+1. 

Come on. Taking a medicine to prevent a flare up of a previously diagnosed chronic bowel disease. These companies play hard ball. They are in business after all. The woman's mistake I could potentially see the misunderstanding but you have to know they are going to come after you if there is a claim so why risk it. She should have signed up for the insurance in November instead.


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## jslmsca (Aug 26, 2012)

I was convinced that I didn't need an emergency fund. But after reading Burton Malkiel's, "A Random Walk Down Wall Street", I decided to set one up. It was actually his suggested first step before investing. I've put aside four months living expenses in an ING savings account, do not plan to touch it, and do not include it as part of my fixed-income allocation. It's all about what let's you sleep at night.


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

What if you invested your emergency fund in some income producing asset? What harm would it do?

By the way I have read A Random Walk Down Wall Street, in fact I read it when it first came out and reread it again a year or 2 ago.It sounds fine in theory but the markets are not as efficient as he claims. Markets are not only inefficient, they are manipulated every day.


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## scomac (Aug 22, 2009)

I maintain approximately two years of expenses in the form of cash held in an HISA. Dividends and interest are swept into this account on a regular basis and then withdrawn periodically when funds are needed. The reason for this is that as a semi-retired individual, I do not want to be in the position where I am forced to sell investments to raise cash at the worst possible time. I do not want to have to rely on debt just to live as that can have unforeseen consequences, but, then again, the 70's and 80's are still fresh in my memory.


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

If you want to keep an emergency fund why not keep it in silver and gold? I have some PMs in a safe deposit box in case of disaster which I suppose you could call an emergency fund. Last year they gained 8% to 10%, as they have for over 10 years. I regard this as a better, safer investment than any bank account at less than 1% or any fixed income paper.


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## jcgd (Oct 30, 2011)

In a disaster you'd really want a hunk of metal? I think I'd go for a few other items first. Maybe water, non perishables, candles, other things I'll need when my money is worth nothing. I guess you could throw your gold as someone to try and take their water. :tongue-new:


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## My Own Advisor (Sep 24, 2012)

To answer the original question, nope.


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

jcgd said:


> In a disaster you'd really want a hunk of metal? I think I'd go for a few other items first. Maybe water, non perishables, candles, other things I'll need when my money is worth nothing. I guess you could throw your gold as someone to try and take their water. :tongue-new:


I live in the country. I already have my own water system with a well I can get water out of with a bucket and a rope if the electricity fails. I also keep canned goods, beans, rice, flour, sugar and other staples on hand, safely stored in glass or metal containers. I have a wood stove, a wood lot, plenty of warm clothes, oil lamps, battery powered electric lamps, Coleman stove, propane stove with extra propane tanks, propane heater that does not need electricity to work.

Have a fully equipped workshop with welding equipment (gas and arc) and quite a stock of spare parts. Carpenter tools, a cement mixer, car, truck, trailer, and hoists.

I also have a couple of large, friendly dogs who are not so friendly if someone threatens a family member. Guns too but I regard them more as hunting weapons than self defense.

In addition I have some cash on hand (not too much) gold and silver locked away, real estate investments, and am working on learning about the stock market.

Your move.


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

As far as gold and silver being a lousy investment, that will never be accepted as money or barter. I hope you are right. Nothing would please me more than for precious metals to be "barbarous relics" as Keynes called them.

All it would take is for the world's governments to stop swindling their citizens and establish an honest currency, and honest rules for businesses and banks to follow.

In the meantime, gold is up 140% since 2009 and silver has tripled.

I'm sure looking forward to the day when I can dump the precious metals and put my money into something more productive. In the meantime it helps me sleep better knowing I have it.


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## DanFo (Apr 9, 2011)

I aways have at least 10K usually 15 set aside for emergencies.. I don't include this money when i assign assest alocations as it is just there in case i need it..as in last year when i needed to replace my roof...was no real hassel and the money is already built back up in that account...anything over that i will invest..I have no other debts other then regular utility payments


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## Assetologist (Apr 19, 2009)

Emergency Funds:
Life and disability insurance
LOCs
Invested income-producing assets
Cash awaiting deployment


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## longinvest (Sep 12, 2012)

No, I don't consider my EF as part of my portfolio.


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## RedRose (Aug 2, 2011)

I keep 20K as EF and do not count it in with my portfolio.

Suze Orman recommends 8 months living expenses in the EF.


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## Eclectic12 (Oct 20, 2010)

jcgd said:


> In a disaster you'd really want a hunk of metal? I think I'd go for a few other items first. Maybe water, non perishables, candles, other things I'll need when my money is worth nothing. I guess you could throw your gold as someone to try and take their water. :tongue-new:


Depends on the disaster ... those who became refugees were happy to take all of the above on the road to a new home. Fortunately for us, these aren't the type of disasters we tend to experience.


Cheers


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