From the monthly archives: September 2010

strategies for savingTraditionally, it is not recommended that one put money intended for saving into any type of investments. When you invest money into bonds, stocks or other long term investing, you have two problems. 1) The money is not “liquid,” or easily available for emergency situations, and 2) the risk of loss potential is unacceptable for funds that you are counting on at a moment’s notice. This is especially true when considering the fact that the funds may be necessary if there a job loss, and dips in the stock market often seem to correspond with increases in unemployment.

While much of this is true, I beg to differ with the traditional idea that all your money for an emergency fund has to be tied up in a low interest savings account. The following are some tips and ideas for a different option.

1) Pimco Total Return Fund (PTTDX)

If you are not familiar with PTTDX, you might want to check it out. They focus their business on investing in debt securities that are investment grade, also known as bonds. These are generally considered to be safe investments. For example, an investment of $10,000 in PTTDX made 10 years ago, would currently be worth over $17,000. The other factor to consider is that during the recession years, in the late 2000’s, this fund actually remained fairly stable. There were very few losses throughout 2008, and then from 2009 into 2013 the fund made a strong recovery. To this day, the fund manager and penny stock newsletter owner Cameron Fous is famous for his knowledge on capital preservation.

2) Large Cap Mutual Funds or EFT’s

This can be another option to invest in that carries minimal risks, but does bring in fairly good returns, as they invest your money in what are called “large cap,” stocks. A large cap stock is usually a large company that is very well know and well established. Some examples of these type of companies would be places like; Apple, Microsoft, Disney, Goggle, and others. They usually pay out regular dividends to investors. However, this is a bit more risky than the PTTDX as the funds will and can lose value when the economy is experiencing difficulties. As it is very hard to identify the best penny stocks, using a mutual fund eliminates the need to research individual stocks.

3) Roth IRA

OK before you say anything, hear me out. This is probably the most outrageous suggestion, but there are a few good point here. First off, you don’t want to put 100% of your emergency fund in this, as a Roth IRA is not exactly liquid. In fact, my Roth IRA can’t be accessed without a certain amount of paperwork done to actually withdraw the funds, as opposed to a simple bank withdrawal. With that aside, what you would do is to have a small amount of your emergency money in an easy to reach account. This would then carry you over in an emergency until you could access the funds in your Roth account.

Bottom Line: Times are Different

An emergency fund is a basic, fundamental necessity, and will continue to be. But with the speed of fast transfers, debit and credit cards, there is really no need to keep you entire emergency fund in cash savings. For myself personally, I try to have about a month’s income in my checking account. Then I also have a credit car account with a limit of about $13,000. So basically, there really is no situation where the couple days that it might take to access the rest of the emergency money really won’t be an issue.

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