emergency fund: bond etf's vs savings account (cash, fees, investment)
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does anybody use bond etf's as an alternative to a savings account for an emergency fund? i currently have an ally savings earning .87% interest. ive been doing some research and i think this might be a legitimate option with returns of around 2-4% after the nominal fees of .05-.15%.
i would use this fund primarily for short term savings of 6 months to 5 years for cars, vacations, unexpected expenses, etc. basically a rainy day fund.
Do not use a bond fund, you could take heavy losses when rates rise. Plenty of online banks have rates closer to 1% cit bank and American Express are both 0.9-0.95
I have no idea why people consider a bond fund in this era of low interest rates. The fund's yield will drop as Interest rates rise, which is about the only way they can go at this point. You might get some income from interest pay-outs, but effectively with the drop in yield, you are losing principal.
Another option is a TIPS or I Savings bond, which is a good inflation hedge.
capital gains are why . rates have fallen after a knee jerk reaction and may fall further. the long treasury bond is up 11% ytd. my income mix is up 2x my equity mix this year.
ater looking like the red headed step child bonds were the asset everyone loved to hate . so far they have once again plowed ahead and shown they still have life left .
i wouldn't use them for an emergency fund stash but as part of my investment plan ? u-bet.
bonds provide pretty good fighter cover if the markets take a hit as well as controlling volatility.
if i want to control volatility in my portfolio and don't use bonds which tend to go up when markets crap out i have to hold a whole lot more cash instead to achieve that balance.
bonds allow me to keep less powder dry and allow me to put more money into equities for the same volatility level.
sometimes less is actually more as the rise of the greater allocation of equities in up markets easily offsets any drops in bonds if rates rise.
it is not always about the biggest bang for the buck, it can also be about the biggest bang for the buck at a given volatility level.
does anybody use bond etf's as an alternative to a savings account for an emergency fund? i currently have an ally savings earning .87% interest. ive been doing some research and i think this might be a legitimate option with returns of around 2-4% after the nominal fees of .05-.15%.
i would use this fund primarily for short term savings of 6 months to 5 years for cars, vacations, unexpected expenses, etc. basically a rainy day fund.
I would only use a short term bond ETF and I would not put all of my emergency savings in such a fund. But a short term bond ETF is not going to pay much more than Ally Bank.
it is not always about the biggest bang for the buck, it can also be about the biggest bang for the buck at a given volatility level.
I agree it is not always about biggest bang for the buck. The OP did not say he is looking for an investment strategy, just a better return on his cash then the miniscule amount a bank gives these days. I have no problems with bonds, in fact I suggested a couple. Bond funds are not bonds though, and have risk associated with them. It appears to me the OP is not seeking an investment with risk.
I agree it is not always about biggest bang for the buck. The OP did not say he is looking for an investment strategy, just a better return on his cash then the miniscule amount a bank gives these days. I have no problems with bonds, in fact I suggested a couple. Bond funds are not bonds though, and have risk associated with them. It appears to me the OP is not seeking an investment with risk.
On the savings side there are a few places that are around 1% which beats most places and all you have to do is park the money. Thanks to this site I found a few places that have rewards checking accounts which pay 3-4% on cash balances between 0-10k/15k to qualify you usually have to uses your debit card 10 times a month and either have direct deposit or use their bill pay, have emailed statements and login online once a month.
I agree it is not always about biggest bang for the buck. The OP did not say he is looking for an investment strategy, just a better return on his cash then the miniscule amount a bank gives these days. I have no problems with bonds, in fact I suggested a couple. Bond funds are not bonds though, and have risk associated with them. It appears to me the OP is not seeking an investment with risk.
nothing is without risk. cash instruments are a guaranteed loss after taxes and inflation.
through in a loss of purchasing power on your personal cost of inflation and you can really take a hit
If it is truly an emergency fund, the ONLY safe place is a savings account.
I always consider the SHTF (not the prepper version, the real world version) scenario when dealing with emergency money.
Such as:
1) Car breaks down and need to pay for a new one.
2) Sudden loss of two key appliances (fridge and hot water tank OR range)
3) Any scenario where you would need access to cash RIGHT NOW. Not a week from now, nor a day, THIS SECOND.
Then comes the loss of your job. The rule of thumb is keep up to a year's savings, at least four months, of expenses should you lose your job.
All of the above are scenarios where I would not consider anything more than a CD that doesn't have a major penalty if you withdrew early.
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