I thought I had written everything I wanted to write about emergency funds. Especially why I don’t like them! For example:
- Our emergency fund is exactly $0.00
- Top 10 reasons for having an emergency fund – debunked (Part 1)
- Top 10 reasons for having an emergency fund – debunked (Part 2)
But this topic just keeps coming back. Most recently in the ChooseFI podcast episode 66 and the discussion that ensued afterward. One unresolved issue: the pros and cons of investing the emergency fund in the stock market. As I’ve mentioned before, I am not against having an emergency fund. Quite the contrary, if you’re on your path to Financial Independence (FI) you strive to accumulate 25 years (!) (or better 30+ years) of expenses – much more than the 3-6 or even 8 months of living expenses normally recommended to keep in the emergency fund. In other words, I view our entire portfolio as one giant emergency fund invested in productive assets (mostly equity index funds) and I don’t see the need for keeping a separate bucket of money in low-risk assets. One could view this as having an emergency fund that’s invested in stocks! 100%! How crazy and/or how irresponsible is that? That’s the topic for today’s post. Let’s look at the numbers and quantify the tradeoffs…
Continue reading “How crazy is it to invest an emergency fund in stocks?”