Hacker News Reader

Comment by UncleOxidant | Hacker News Reader

I always try to have at least a year's worth of living expenses in my emergency fund. And that's in cash not in stocks or index funds - a lot of people on places like reddit criticize this ("You're missing out on much higher returns you'd get if you had it in the market!") but on days (weeks) like this I'm glad it's in cash.

Beyond that, I tend to live by this maxim: "When times are good prepare for them to be bad. When times are bad prepare for them to be good."

So the question to ask soon is how will you prepare for the post-recession recovery? Asking this will keep you from despairing. Yes, this recession could last a while and be quite nasty, but it won't last forever.

View on HN

> So the question to ask soon is how will you prepare for the post-recession recovery?

This bears repeating.*

If you're asking "how are you preparing for a recession," (1) it's too late, and (2) you don't—either your system is well designed and accommodates this, or it doesn't (echoing what others have said).

*no pun intended, but probably should have been

Yes indeed, it is too late to prepare for a recession when a recession is at the door. You have to have been preparing when times were good - by saving up the excess. Sure you can (and probably should) cut expenses now, but that's not going to get you through if you don't have a solid emergency fund already saved up.

> So the question to ask soon is how will you prepare for the post-recession recovery?

I have decided to put every penny that I don't need for another 10 years into a handful of accumulating ETFs (and 3 stocks I personally believe in), every single week, for at least the next 12 months and, if possible (i.e., for as long as I have surplus money), for the whole next 10 years.

If this time is anything like 2000 or 2008 was, then I will be buying relatively cheap for the first part of these 10 years, and will see a solid return in the second part. How long the first part and the second part will be, this I don't know.

My bet is that after 10 years, this won't have mattered that much.

Would love to hear what HN thinks about this.

You should do some reading about balanced portfolios and risk tolerance. Putting everything into ETFs (you didn’t say which ones, so I’m assuming stock-based ones) is very high risk. Target date funds are good to look at since they automatically adjust risk based on your age.

Many people think this approach is not exciting, but you can see what the past week has brought for people who think like that.

Understood, and thanks for your feedback!

Some more details. This is my most risky investment approach, by design. I only put in money that I'm sure I won't need for at least another ten years. Not that it wouldn't really badly suck, at least psychologically, if I'd loose all that money (I'm not rich or anything), but I don't need it to "survive".

"Don't need" means that it is the money that remains after all my expenses, and after keeping my emergency fund in good shape (which is currently good for at least 6 months of emergency).

Also, this is not my retirement portfolio. It's a bet to multiply money I can risk.

For actual "at least I'm not going to end up poor" retirement stuff, I'm paying into the German state pension, "Riester" and other non-state pension products, and by holding real estate.

ETFs are tracking MSCI World, DAX Performance, EURO STOXX 50, MSCI USA, STOXX Europe 600 Personal & Household Goods, FTSE China 50, Healthcare Innovation.

A small part goes into Gas & Oil ETFs and FTSE MIB.

Why not government bonds? Unless your country's government crashes, you're guaranteed to have your money back.

Good point. I do have some in US iBonds. Some of those are yielding in the 4% range but those were bought quite a while back now.

> Unless your country's government crashes

To be perfectly honest, I think there's a high enough chance that this will happen (although still a low chance) that I have to take it into account in my emergency plans.

If your country collapses to the point where it can't return your bonds, your money won't be worth anything anyway :p

Exactly. That's the problem BitCoin solves.

Except bitcoin is speculation, not investing.

But "you're missing out on higher returns" is true. Unless you stashed all your savings in stocks for the first time two weeks ago, you'd probably still be better off having your money invested. We've lost a lot of the gains over the past ten years, but we've still kept most of them.

Sure, but the old "you can't time the market" maxim goes both ways. How would I have known to get my emergency fund out at exactly the right time? Remember, this is my emergency fund. I've got other investment money earmarked for investing. But for emergencies it's cash in the bank. That way I'm not having to pull money out of the market when the market is down. And it's when the market is down that you're more likely to lose your job, for example.

The point is that even pulling out at the worst possible time is still better than having never been in it.

Again: This is my emergency fund. This is my "the shit has hit the fan and it's all gone to hell" (like with a global pandemic, for example) fund. I'm not gonna gamble with the emergency fund. You may. I do not. We have no idea how bad this could get. As I mentioned above, I have other money that I do invest in the market, but I keep a year's worth of expenses in cash (edit: and some in iBonds, but most of that was put in years ago when the yields were higher.)

That point is absurd. You can easily lose everything you invested.

> That way I'm not having to pull money out of the market when the market is down.

If your money had been in the market, it would have gone up and then down. You might end up with more money in the end than if you had never invested.

They didn't say they never invested. They said they don't invest their e-fund. That's a very different thing and it's dishonest to try and conflate the two ideas.

> They didn't say they never invested. They said they don't invest their e-fund. That's a very different thing and it's dishonest to try and conflate the two ideas.

I never said otherwise and you should retract your accusation of dishonesty.

Quoting you:

> You might end up with more money in the end than if you had never invested.

My reading of your comment was perhaps too harsh, but your statement implied to my initial reading as if the parent said they never invested. Which is not at all what they said, but rather that they kept cash in the bank and a separate amount invested. The cash is to avoid the risks of market timing (you can't do it, basically). People are getting lucky that right now they're still ahead on their investments. But there's no guarantee that will remain true over the next month or two when the money is actually needed.

And if you look at the S&P and Dow, the past 2 years are basically all lost if you had to sell right now. There was a dip in early 2019, but most of the past two years were above today's prices for both indexes. So you can plan on being lucky, or you can set aside a relatively small amount and actually plan.

You replied to my comment with the least charitable interpretation of what I wrote, which is against the guidelines. You also accused me of dishonesty.

People who say your emergency fund should be in the markets don't have any realistic life experiences. You're doing the right thing by leaving it in cash.

I'm guessing most people who say the emergency fund should be in the market are under 40.

I say this because it's been over 10 years now since the last recession and a lot of folks under 30 haven't experienced one since they've been out on their own. They haven't experienced a prolonged bear market. Folks over 40 can remember the tech wreck (2001-2003ish) the housing bubble implosion (2008-2012ish). Folks over about 55 can recall how bad the late 70s, early 80s were.

And then there's just stuff that's not related to the economy. Life happens. Emergency appendectomies. A family member gets diagnosed with cancer. You burn out on your profession. The longer you live the more of this kind of stuff you've experienced.

I'm guessing you have no basis for this comment, and are just trolling age discrimination.

My understanding of investing savings is that it is still diversified, not all in on the S&P500.

Something like the golden butterfly with a cash component, would allow you to spend the cash first. Then you could choose if you want to deplete an asset that hasn't plummeted, or withdraw from each category equally.

https://portfoliocharts.com/portfolio/golden-butterfly/

You could also use something like a Line of Credit against your stock. Both Schwab and M1 offer it. That way you can spend in an emergency, and hopefully your growth rate offsets the interest rate.

https://www.schwab.com/public/schwab/banking_lending/pledged...

https://www.m1finance.com/articles-1/portfolio-line-of-credi...

"With M1 Borrow, you can borrow up to 35% of your invested portfolio at a 3.50% interest rate instantly (2.75% if you are using M1 Plus). There's never been such a low cost, convenient, and flexible way to borrow money."

I can move my money out of the market in approximately 3 days. Exactly which life experience is going to teach me I need quicker access than that?

As for volatility of the market I accommodate for that by having well over twice as much as I need in investments that I can liquidate.

The end result if I project using historical data is that I'm much wealthier.

If the market crashes to the point people aren't buying S&P500 index funds I highly doubt people with money in the bank are going to be in any better of a position than myself.

If it continues on trend, I'll stand to do better than them though.

How much money are you moving out of the market in 3 days? If you invest your e-fund, you've lost value over the past couple of weeks. And removing it now means, especially if you've been investing over the past couple years, selling at a loss. It's better to let that money ride so it can recoup value when the markets recover, and use cash (hopefully not sitting under a mattress) to cover emergencies.

The actual ways to use cash are to find high-yield savings accounts (over the past few years some online accounts have hit 2.5-3%, though that's not common), CDs (which again you've had to go with online-only accounts to get decent returns), or some forms of bonds. These offer guaranteed returns (or at least guaranteed not to lose you anything) which is exactly what you want for your e-fund.

Absolutely invest the rest and reap the rewards (or losses, but over a couple decades should be rewards). But it's a good idea to leave the e-fund in a more stable form. Don't be like my colleague in 2008/2009 who went from being worth almost a million to being worth 200k and needing the money. He couldn't let it sit and recoup value, he just lost. His retirement was pushed out years as a result.

Admittedly, his retirement still would've been pushed 1-3 years anyways due to the financial need at the time. But he used almost half his investment's value at that point ($100k), which in a few years would've been back to $500k or so in value. If he'd even had $50k in cash (less than his annual net income), he would've only lost a quarter of his investments instead of half.

> How much money are you moving out of the market in 3 days?

It's an emergency fund - likely not much. Maybe a few grand at most in that amount of time?

> and needing the money.

Unless the market cuts in half over-night I'll have the money. That's why I have twice as much as I need in that bucket.

I've not really heard any compelling reason why I should move to a savings account. Yeah I might make more if the market takes an unprecedented long term decline, but realistically I'll make well over twice as much returns as I would that savings account.

I'm in my 40s. My "emergency fund" was up like 200% then back down 15% of that high. Selling now at the bottom I'm still way, way ahead of where I'd be if I just had it in a savings account. I'd have to go calculate how far back I'd have to go to have beaten interest rates, but it's probably not more than 2 years or so.

Putting the emergency fund in equities really undermines the premise of having an emergency fund. A primary purpose of having an emergency fund is so you won't get caught in a liquidity crisis and be forced to sell assets when prices are low to raise cash, thereby losing money. The probability of this happening skyrockets if you invest your emergency fund in stocks because chances are the time when you will need your emergency fund is when you are laid off or facing financial hardship. This is frequently during a recession when asset prices are low and you don't want to sell. I'm somewhat concerned about my own cash reserves right now as it happens, and I wish I'd kept more cash on hand.

> And that's in cash not in stocks or index funds

When you say cash it's money in the bank or bills under the mattress ? (I'm not an American)

> but on days (weeks) like this I'm glad it's in cash.

this is bad market-timing.

S&P 500 lost 20% in the past month, but it up compared to a year ago, up 50% since 5 years ago. You lost a bundle compared to being in the stock market and selling it all now after a sudden 20% loss.

What if this market rout is just getting started? Given the mix of problems at hand (not the least of which is a global pandemic) it definitely can get a lot worse.

So? I have an emergency fund that I keep in a high yield savings account and don’t touch except in the event of... an emergency.

I’ve missed out on some money by not having that in the market, but during this time I’ve also been working and investing my income so like... I’ve still made money?

Why the greed, man? I can keep a bulk of money for retirement, long term planning, et al. in the market _AND_ keep a small amount of funds wholly liquid in case shit hits the fan without seriously impacting my quality of life.

Reply on news.ycombinator.com