keeping cash on hand for emergency


D

DC

Most financial advice says to keep some cash on hand for emergencies,
somewhere between 3-12 mos spending. My question is, can a bond ETF like AGG
be considered as "emergency cash"? It's definitely very liquid, and there's
no penalties for early withdrawal like CDs, only a very minimal commission
fee.

Performance-wise, it's pretty unlikely to lose value (unlike stocks). Even
worst case, it could probably only lose 5% in a year. If I remember
correctly, the Lehman Aggregate index has only been negative twice in the
last 20 years or so, and the worst was only -3%.

In my thinking, I'd rather have my emergency cash invested in a bond ETF
rather than sitting in a pitiful bank account. But I just want to check with
other people out there if I overlooked something.
 
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R

Rich Carreiro

DC said:
Most financial advice says to keep some cash on hand for emergencies,
somewhere between 3-12 mos spending. My question is, can a bond ETF like AGG
be considered as "emergency cash"? It's definitely very liquid, and there's
no penalties for early withdrawal like CDs, only a very minimal commission
fee.
Most early withdrawal fees on CDs are 3-6 months of *interest*, so you
won't lose any principal.
Performance-wise, it's pretty unlikely to lose value (unlike stocks). Even
Disagree that it is unlikely for it to lose value, especially in
today's interest rate environment.
worst case, it could probably only lose 5% in a year. If I remember
Well, the duration of the find is 4.21 years. So if 5-year interest
rates climb 1%, you should expect the fund to lose about 4% of
principal value. If rates climb 2%, you should expect around an 8%
loss of principal value. Though offsetting that is the income yield,
which is currently 3.08%
In my thinking, I'd rather have my emergency cash invested in a bond ETF
rather than sitting in a pitiful bank account.
Look beyond your own bank. For example, ING Direct (www.ingdirect.com)
offers a no-fee, no-minimum, FDIC-insured savings account that currently
yields 2.25%.
 
J

John A. Weeks III

DC said:
In my thinking, I'd rather have my emergency cash invested in a bond ETF
rather than sitting in a pitiful bank account. But I just want to check with
other people out there if I overlooked something.
I believe that unless you are very wealthy, you cannot afford to have
cash sitting around doing little or nothing. Everything you have has
to be working as hard as it can. At the same time, if you don't have
money available, Murphy's law is going to repeatedly visit you at the
worst possible times. As a result, it is good to have cash available
but still working hard. Your plan is reasonable, in my opinion.

-john-
 
E

Elizabeth Richardson

DC said:
Most financial advice says to keep some cash on hand for emergencies,
somewhere between 3-12 mos spending. My question is, can a bond ETF like AGG
be considered as "emergency cash"? It's definitely very liquid, and there's
no penalties for early withdrawal like CDs, only a very minimal commission
fee.
We keep some money in a savings account, some in Vanguards Short-Term Bond
fund. We've gone to the cash account a couple of times for more than
ordinary home repairs, but never need to access the bond account, which pays
a higher return. Spreading out your risks, even in your emergency fund,
might be wise.

Elizabeth Richardson
 
B

Brent D. Gardner, ChFC

Rich Carreiro said:
Look beyond your own bank. For example, ING Direct (www.ingdirect.com)
offers a no-fee, no-minimum, FDIC-insured savings account that currently
yields 2.25%.
ING has been tops a while, but one just topped them - Virtual Bank's 2.30%
eMoney Market:

http://www.jdoqocy.com/click-1604247-10310026

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/
http://www.topgunproducers.com/

Si vis pacem para bellum!

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.
 
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Z

ztip guy

Most financial advice says to keep some cash on hand for emergencies,
somewhere between 3-12 mos spending. My question is, can a bond ETF like
AGG
be considered as "emergency cash"? It's definitely very liquid, and
there's
no penalties for early withdrawal like CDs, only a very minimal commission
fee.
One option that hasn't been mentioned is a margin account. If you shop
around, some vendors offer them for as little as fed funds + 1.5%, which
should equal roughly 6.75% (based on 5.25% fed funds rate).

As long as the amount of 'emergency cash' needed is relatively small in
proportion to the size of the portfolio, this is an excellent option, and
generally will not cost you commissions to draw upon, nor to repay.
 
Z

zxcvbob

ztip said:
One option that hasn't been mentioned is a margin account. If you shop
around, some vendors offer them for as little as fed funds + 1.5%, which
should equal roughly 6.75% (based on 5.25% fed funds rate).

As long as the amount of 'emergency cash' needed is relatively small in
proportion to the size of the portfolio, this is an excellent option, and
generally will not cost you commissions to draw upon, nor to repay.

I have a bond ladder of 3-month T-Bills for my emergency cash. One of
them comes due every month and is immediately reinvested. I can use
credit cards to get by for a few weeks to a month while waiting for a
bond to mature.

I *just* started buying 6-month T-Bills because they are paying .5%
better than the 3-months. When I get 6 of 'em, I may start rolling the
3-month bills into them for the better interest rate.

Bob
 
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C

chip

Recently retired, I am building a new smaller house and selling the old big
one. I want to do a straight cash transaction as I will have more than
enough equity from the sale of the old house. However, I will need a short
(one-two months) $150K bridge to close the new one before closing on the old
one. One way is to get a home equity loan, but I also have enough in
company stock options or 401k to cover. Which will be the best in regards
to the lowest cost (interest), taxes, and hassle?

Chip



--
 
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