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You can find out more information by listening to episode 11 of this podcast.
Emergency Fund Show Outline
Emergency Fund Sizing:
- Recommended Size: 1 year
- Mainstream Alternatives:
- 3 months
- 6 months
- $1,000
- $10,000
Why?
- Liquidity is all-important for investors
- Value investing requires managing risk and accepting volatility
- Lack of liquidity can cause you to sell investments when your stocks are undervalued and priced too low
- A strong emergency fund protects you from this possibility
You should maximize the safety of your emergency fund. Don’t worry about maximizing the rate of return you receive.
Where should you store it? (Hint: Maximize Safety)
Store your emergency fund in a government guaranteed account. This can be with either an FDIC-insured savings account. I believe Ally Bank is a good option.
A great alternative is TreasuryDirect.gov where you can lend money directly to the US government. Emergency Fund money would obviously need to be invested only in short-term government bonds. (3 months or less to maturity)
