I am just getting started investing and am wondering if a MMa is the best place for my emergency funds.
Any ideas would be greatly appreciated
Answers
699 points
7million7years answered one year ago …
Best place for your emergency fund is to use it as a deposit on a property (or use it to pay down a mortgage, as long as you don't break the "20% Rule": http://7million7years.com/2008/04/11/applying-the-20-rule-part-i-your-house/ ) ...
... take out a HELOC (Home equity 'line of credit' loan) for the same amount as you require as an emergency fund .... don't use it unless in an emergency (then pay it back asap).
Put your money to work for you .. safely, but hard, at all times!
2709 points
Oldman answered one year ago …
I disagree with 7x7's response...your emergency funds must be LIQUID! and not tied up in any real or securitized form.
If you need an emergency treatment at an E.R., they won't want to wait for a rental payment to clear...or a HELOC payment to clear...they want a check or credit/debit card deposit IMMEDIATELY.
7x&'s response is o.k. if you already have a superfluous cash holding, and you want to invest it. And, at present, your value decreases over time as the dollar loses purchasing power vs other currencies or gasoline, but that's not what an emergency fund is for...It's to pay for a replacement tire, or a plumber or a ...and it won't wait for a 3 day settelement of some security trade!
MMA's are not insured against losses, nor are they FDIC-insured (unlike bank savings and checking accounts). MMA's may pay a bit higher interest than the local bank or credit union, but that's where you start...where you know where your $ are to be found, and the personnel at the local branch know you.
. After you have a 3-6 month fund of cash for "emergencies", then you can shop for a higher interest rate on deposits with a MMA at a large brokerage, and begin to accumulate funds to invest.
2709 points
Oldman answered one year ago …
I just received the April28th-May 5, 2008 issue of "U.S. News & World Report" magazine, which has a series of articles that apply to your situation, starting on page 51 and continuing for several additional topics. Their web site is -
http://www.usnews.com
and perhaps you may be able to read the articles, online.
Good luck.
699 points
7million7years answered one year ago …
Well, I disagree with Oldman ... conventional wisdom, sometimes, is ... well, conventional ... but, not necessarily right. If you have plenty of equity in your house you can write a check on your HELOC as easily as cash. If you MUST have some cash, fine, but there's no need to have 3 - 6 months 'dead money' lying around.
Look, here's the fallacy with emergency funds: you have cash sitting around so that you can solve an emergency that MOST PROBABLY WILL NEVER HAPPEN to ...
... create a financial shortfall @ retirement that with 100% certainty (if you live that long) WILL HAPPEN.
It just doesn't make sense, now, does it?!
