Small Things: Why You Need An Emergency Fund

The Abnormal Is Normal

     I have been largely absent from the EAF blog for a while now. I plan to be back to posting more information and my current yields within the next week or so. During this time I have been extremely busy and part of that has had an impact on the portfolio so I thought I'd share it.

10% Allocation: Savings Account

     My time away was for the most part caused when I ran into a few emergency expenses that reinforce my allocation of cash for the portfolio and why it is so important to have liquid funds constantly available. Very urgent and expensive fixes were needed to my house, which is a significant investment itself that needs to be protected. Had I sunk all of these funds in other investments I would have risked possible scenarios where I couldn't access that money.


     United States Savings Bonds for instance have a one year minimum ownership time before they can be redeemed. The money in these that hasn't hit the one year mark yet would be completely unavailable to me. Lending Club's loans would have been difficult for me to quickly liquidate on the secondary market potentially also stopping me from liquidating them completely. Having investments blocked from liquification is a risk that we make with these types of invesments although it is a rarer byproduct of the EAF portfolio.


      Loss of capital is the more common occurrence when having to liquidate investment holdings. For instance there have been some swings in the stock market of over 1% in the past weeks due to the financial situation in Greece and the stock market freeze in China. Some of my stock holdings dropped from being profitable to being "in the red" as a result. Had I needed to liquidate those stocks to get the much needed money for fixing the house I could have taken an up to 5% loss on that money. I also may have possibly had to wait several days or longer for that money to first clear the brokerage, then the bank, and finally make it to the repair people to get the job done. In this case having cash saved me from taking a loss and having to wait to use the money after the loss. Imagine if your emergency fund was in stock and the market dipped heavily. If you need the money right at that moment you could have taken heavy losses or not had enough value in the stocks to cover the emergency costs at that moment. Having cash ensures that you have a solid dollar number available at all times.

     More posts will come soon but until then you may want to take a few moments to look at your liquid cash holdings and ensure that you have enough available to be confident in your ability to handle the unknown.