Apr 28, 2019
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You can find out more information by listening to episode 11 of this podcast.
Emergency Fund Show Outline
The full show notes for this episode are available at https://www.diyinvesting.org/Episode24
Emergency Fund Sizing:
- Recommended Size: 1 year
- Mainstream Alternatives:
- 3 months
- 6 months
- $1,000
- $10,000
Why?
- Liquidity is all-important for investors
- Value investing requires managing risk and accepting volatility
- Lack of liquidity can cause you to sell investments when your stocks are undervalued and priced too low
- A strong emergency fund protects you from this possibility
Where should you store it? (Hint: Maximize Safety)
You should maximize the safety of your emergency fund. Don't worry about maximizing the rate of return you receive.
Store your emergency fund in a government guaranteed account. This can be with either an FDIC-insured savings account. I believe Ally Bank is a good option.
A great alternative is TreasuryDirect.gov where you can lend money directly to the US government. Emergency Fund money would obviously need to be invested only in short-term government bonds. (3 months or less to maturity)