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Discuss Latest POF Blog Post: The Emergency Fund: It’s Still Useless!

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  • Discuss Latest POF Blog Post: The Emergency Fund: It’s Still Useless!

    After a year in which job losses ran rampant, goods became more expensive, and medical bills piled up for many, ... Read more

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    Helping those who wear the white coat get a fair shake on Wall Street since 2011

  • #2
    Obviously putting the money in stocks is going to preform better over the long term compared to a safe asset. There is an opportunity cost for not having that money invested. But for a High income professional the opportunity cost of 20-30K sitting in a safe asset is really minimal compared to the rest of the portfolio.

    There is an opportunity cost for having insurance. That is money that could otherwise be invested and it is unlikely that you would ever need the insurance. The E fund is just another form of insurance and it is quite cheap and useful in comparison.

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    • #3
      I've genuinely never understood the concept of an emergency fund for physicians. Though, I strongly agree with having a specific emergency plan.

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      • #4
        The emergency fund is probably pointless if the market goes up. The problem is, when the market goes down , sometimes everything else happens bad for a while. Once your NW gets to a certain point it probably does not matter that much. But a 30-40% drop in the market lasting for a few years, losing your job or having some sort of illness and not being able to work, you may think different.

        I like using my fund to pay for a car, or other problems in life like a new roof, heat system. It is a lot easier to take $50,000 out of there , than to sell some stocks and pay a capital gain or worse yet , sell and incur a loss in order to fix a roof.

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        • #5
          the math makes sense, the problem is that money isn't just math....there are emotions involved. tough to quantify that. you have an emergency fund to balance out your emotions during the time

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          • #6
            Originally posted by Random1 View Post
            The emergency fund is probably pointless if the market goes up. The problem is, when the market goes down , sometimes everything else happens bad for a while. Once your NW gets to a certain point it probably does not matter that much. But a 30-40% drop in the market lasting for a few years, losing your job or having some sort of illness and not being able to work, you may think different.

            I like using my fund to pay for a car, or other problems in life like a new roof, heat system. It is a lot easier to take $50,000 out of there , than to sell some stocks and pay a capital gain or worse yet , sell and incur a loss in order to fix a roof.
            I agree that using the fund for other less then emergency but time sensitive issues is a benefit of having the cash sitting around. Someone pulling in 200K+ a year should not need to fiddle around with loans and selling stocks to pay for a new car. Ideally you can save up for it but if it is more urgent than tapping your fund and replenishing it is reasonable.

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            • #7
              My emergency fund is also my fund for various things I have needed or will need cash for immediately. Like buying a car if mine breaks down. Or if a real estate syndication come along I want to invest in. Or home repair or renovation. Etc. Theres always something that seems to be coming up that I need cash for. Then I just replenish reserves. I suppose I could sell from my taxable acct, but that just seems like too much effort dealing with taxes and a little risk.

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              • #8
                I really don't get these people who are high income but can't temporarily cover emergencies with their cash flow float, pending income and 3-4 weeks of credit card float. Those above posting that you find it useful to keep a segregated cash fund, can you give me some real life examples of when you've needed to use it that could not have been covered by my trifecta?

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                • #9
                  Originally posted by Shant View Post
                  I really don't get these people who are high income but can't temporarily cover emergencies with their cash flow float, pending income and 3-4 weeks of credit card float. Those above posting that you find it useful to keep a segregated cash fund, can you give me some real life examples of when you've needed to use it that could not have been covered by my trifecta?
                  Well...not really emergencies, but sometimes stuff just comes up. Yes, I can cashflow a Macallan 25, but a 40 would be tough unless it is a month with a quarterly bonus coming in.

                  But more concretely: some of those completely unpalatable days at work--becoming more frequent--I wonder if the emergency fund is, in fact, my protection for the sequence of returns risk. If you catch my drift.

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                  • #10
                    If sequence of returns is spelled starting with an eff, then I believe I do!

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                    • #11
                      I never have had <100K in emergency fund. Sometimes I keep 500K or more in money market funds for investments. I also invest outside of stocks and ready cash is the king there.

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                      • #12
                        My EF helps me sleep at night, I’m fine with working a few extra months for the tradeoff.

                        Everyone likes to pretend like the corona bear was a breeze in hindsight, it’s really odd.

                        People were predicting the end of the world as we know it. Breakers were getting tripped and the stock market was frozen. Businesses were shuttered and physicians were being furloughed or taking pay cuts. Everyone was scrambling for toilet paper and N95 masks.

                        To stay calm during that time was not that easy. To have to withdraw from equities during that time to cover expenses would have been a portfolio disaster.

                        The article title was click bait and the content was unfortunately, not much better.

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                        • #13
                          I go back and forth on emergency funds for high income professionals. I think around these parts they’re more for psychological benefit than financial. Physicians can easily cover what the average American deems an emergency…car repair, having to replace an appliance, insurance deductible, etc. There’s very few reasons why you’d need $50k or $100k in cash same day and I think most reasons involve nefarious characters from old East Bloc nations.

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                          • #14
                            Originally posted by Kamban View Post
                            I never have had <100K in emergency fund. Sometimes I keep 500K or more in money market funds for investments. I also invest outside of stocks and ready cash is the king there.
                            $100k to $500k is not an Efund. What you are saying you keep dry powder. When is the last time you had a $400k emergency or $100k?
                            Since you have $10k-$50k easily covered, why bother.

                            Efund and liquidity are all related to specific purposes. Starting out, you need to save for things like vacations and cars and roofs. Everyone has a comfort liquidity level that makes a specific Efund obsolete.

                            The only exception is really a loss of income. Some may feel a need for additional cash if their liquid comfort level is insufficient. Specific emergency plan is probably not Efund,more like Plan B.

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                            • #15
                              Originally posted by TheDangerZone View Post
                              My EF helps me sleep at night, I’m fine with working a few extra months for the tradeoff.
                              This to me is the only legitimate reason for a high income person to hold more than their needed working capital in cash. Psychological comfort is worth paying for. Although I would look into cheaper ways to get that same comfort. There may not be for you personally.

                              Originally posted by TheDangerZone View Post
                              Everyone likes to pretend like the corona bear was a breeze in hindsight, it’s really odd.
                              Well, it was a breeze compared to other bear markets I've lived through that lasted for years with complete political gridlock unable to address it.

                              Originally posted by TheDangerZone View Post
                              People were predicting the end of the world as we know it. Breakers were getting tripped and the stock market was frozen. Businesses were shuttered and physicians were being furloughed or taking pay cuts. Everyone was scrambling for toilet paper and N95 masks.
                              ​​​​​​​
                              Serious medical issues to be sure and I am glad I didn't have to resort to using the shower as a tp replacement, but relatively temporary issues financially. The worst case alternative was always going to be let the virus run wild and the bodies fall where they may, not permanent shutdown. As with any recession the pain is not distributed equally. People always say "tHiS tImE iS dIfFeReNt" but the one time that actually might have been different was the '08-'09 one when the financial system literally ground to a halt because financial institutions were unwilling to deal with the other financial institutions, no payments, no deals, no velocity of money at all.

                              Originally posted by TheDangerZone View Post
                              To stay calm during that time was not that easy. To have to withdraw from equities during that time to cover expenses would have been a portfolio disaster.
                              ​​​​​​​
                              ​​​​​​​Well, would it though? If you had held your emergency fund in the market for just 2-3 years prior you would still have been ahead at every point as long as you only cashed out what you actually needed to spend.

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