Ok to keep emergency fund as tax exempt bonds?

[Raddoc123]

Slav4ikMD wrote:

StarTrekDoc wrote:

IIRC, you have a sizable pension.  Take this in mind too.  I count our pension as the bond equivalent bucket to counter stocks balance for equities; with diversification into real estate as the counter.

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Yes that is correct, and has been one of my reasons to have no bonds.  I am still not convinced either way.  But I still feel like I should maybe have SOME just because.  I am looking at the NY tax exempt munis and they show a return rate of 5.75% since inception, which tax free looks pretty good to me – so I was thinking of having some of that…

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You should look at current yield not prior returns which happened in VERY different environments.  Right now yields on interm. to long muni funds at Vanguard are in the range of 2-3% which is the expected return.

Also 1.35 taxable at say Amex savings versus 1.07 muni mm is not a huge deal for most of us given the size of typical cash reserves.  Simplicity is also worth something.

[rb6p]

DMFA wrote:

Some of it should be immediately available as cash. Those bonds/funds can take several days to liquidate. I know most expenses can be put on credit so you can have some time on hand, but some things require straight cash, right now. So maybe have $10,000 there and the rest in munis.

I’ve p much got 3 tiers to mine: cash in savings, munis in taxable, and then a 50/50 fund which is more play-money than an emergency fund.

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Just curious - under what circumstances do you foresee a need for the immediate cash?  I'm personally of the opinion that anyone with a sizable taxable account doesn't need an additional emergency fund.

Since I am in a high marginal tax bracket, a large portion of the fixed income part of my portfolio is in tax-exempt municipal bond funds in my taxable account anyway.  And any emergency purchases can be put on a credit card just like nearly all of my non-emergency purchases.

What emergencies necessitate straight cash, right now?

 

[Slav4ikMD]

"What emergencies necessitate straight cash, right now?"

I think that for most, the primary concern would be a short-term disability or lasting through the elimination period of long-term disability.

Personally, I don't think of things like a 3k urgent car repair as an emergency (I did of course in say college, but luckily now that sort of a matter would not break the bank).  So emergencies different depending on your specific situation.

But other unexpected things do come up anyway... It may also be a close family member's emergency where you need to lend them say 10k... who knows.  I think that having 3 months worth of living expenses somehow readily available (not today, but say within a week) is wise anyway.

[StarTrekDoc]

rb6p wrote:

DMFA wrote:

Some of it should be immediately available as cash. Those bonds/funds can take several days to liquidate. I know most expenses can be put on credit so you can have some time on hand, but some things require straight cash, right now. So maybe have $10,000 there and the rest in munis.

I’ve p much got 3 tiers to mine: cash in savings, munis in taxable, and then a 50/50 fund which is more play-money than an emergency fund.

Click to expand…

Just curious – under what circumstances do you foresee a need for the immediate cash?  I’m personally of the opinion that anyone with a sizable taxable account doesn’t need an additional emergency fund.

Since I am in a high marginal tax bracket, a large portion of the fixed income part of my portfolio is in tax-exempt municipal bond funds in my taxable account anyway.  And any emergency purchases can be put on a credit card just like nearly all of my non-emergency purchases.

What emergencies necessitate straight cash, right now?

 

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True; BUT you imagine having tens of thousands to liquidate stocks that just took a beating the weekend before for whatever reason---AND pay capital gains on that while accessing.

That's the reason we have the HELOC as a short term buffer to allow floating on the cheap in case the emergency is short term where cash flow will handle it swiftly or need to access taxable accounts.

Diversity further minimizes the impact.   The point is that in a time of crisis, one would want something that's reliable, readily available, and not take much thought to access to determine since you're already dealing with a presumed crisis.  ---deciding which fund to liquidate while under duress isn't recommended.