Skip to main content

Should I invest my emergency savings in the stock market?

broke no more 2

How much of your emergency savings should be held in a savings account instead of the stock market or other account that has higher returns with various risks?—Mary

There's no question you should always have some money tucked away for emergencies.

Most financial advisers recommend keeping three to six months' worth of expenses for emergencies, but where's the best place to keep the money? Experts usually recommend a plain-vanilla savings account. But in a low interest environment, it can be frustrating to watch your money earning nothing. Here are some ways you can get a better return on your money without taking on too much risk.

Online savings accounts

If you're a super saver, you may not be satisfied with the .01% interest your local bank offers you. Instead, consider an FDIC-insured online bank, says Tammy Wener, a financial adviser from Illinois.

"They generally pay higher interest rates than local banks and can be easily linked to a checking account," Wener says.

For example, Ally Bank and Discover have online consumer accounts that have no transaction fees and no minimum balance, and offer approximately 1.2% in annual interest. This still may not seem like a large return, but having access to the money when you need it allows it to serve its purpose, according to Wener.

"While holding the funds in a savings account provides very limited growth potential, the peace of mind is more than worth it," Wener says.

Money Market Accounts

If you're open to performing savings transactions with a bank that may be a great distance away, a money market account may be another safe bet for your emergency fund. Money market accounts typically offer similar interest rates to online savings accounts, but some also come with additional liquidity by allowing you write checks from the account -- like Sallie Mae, which offers 1.30% APY, with no minimum balance or maintenance fees.

Because access to your funds in times of emergency is the primary function of emergency savings, Oklahoma-based certified financial adviser David Bize suggests keeping all of your money in a secure and liquid account.

"100% of emergency savings should be in checking, savings, money market account," Bize says. "These are 100% liquid and never decrease in value."

Mutual funds

If you're still worried about having such a large chunk of your money sitting in an account, there are times when it may be appropriate to consider a balanced mutual fund that could provide better opportunities for savings, says New York-based financial adviser Byrke Sestok.

In order to determine which fund to use, he recommends looking at how a fund performed during the Great Recession, one of the greatest stock market declines.

"If you could tolerate a loss of a similar percentage to your emergency fund that occurred in that period then you may have a good fund to use," he says.

Stock market dangers

In theory, you could keep part of your emergency savings in the stock market. However, Arizona-based financial adviser Dana Anspach notes that market declines often go hand-in-hand with layoffs and recessions.

"That means at exactly the time a big stock market decline occurs, you could be out of a job," she says. "If your money is invested in the market, which could mean it is worth 40-50% less at the time you need it most."

Investing your emergency savings in the stock market exposes it to risk, and makes it less accessible to you. For that reason, most advisers recommend keeping your emergency fund out of the market.

"Doesn’t put money in riskier investments until you have an adequate emergency fund tucked away somewhere safe and sound," Anspach says. "You want to know what your emergency fund will be worth should an emergency occur."

Popular posts from this blog

Services Offered of Bellmore Group Management Services, Tokyo Japan

Benefits of Bellmore Group

Bellmore Group’s long-term accomplishment is founded on our custom-fitted set of solutions for every particular client. The solution to each financial challenge is the product of a sound, well-ordered process.

Brokerage

The asset management capability of Bellmore Group has been developed over many years. Our financial approaches combine convention and creativity. Refined methods with a long-term perspective and a traditional color focus on stability and control. Most of all, we aim to deliver the requirements of our clients.

What do we provide?

1. Reasonable and dependable indication of markets, securities and other investments.

We stand firmly on the platform of reliability & market awareness.

2. Advanced Investment Opportunities.

We chart our investments through meticulous planning, market scrutiny and investment indicators.

Bellmore Group is an autonomous brokerage and investment banking company that offers an assortment of financial services and products.

Our …

Bellmore Group Management Services, Tokyo Japan’s Privacy Policy

This Privacy Policy governs the manner in which Bellmore Group collects, uses, maintains and discloses information collected from users (each, a "User") of the website ("Site"). This Privacy Policy applies to the Site and all products and services offered by Bellmore Group.

1. Personal and Non-personal Identification Information

We may collect personal identification information from Users in a variety of ways, including, but not limited to, when Users visit our site, place an order, fill out a form, and in connection with other activities, services, features or resources we make available on our Site. Users may be asked for, as appropriate, name, email address, mailing address, phone number. Users may, however, visit our Site anonymously. We will collect personal identification information from Users only if they voluntarily submit such information to us. Users can always refuse to supply personally identification information, except that it may prevent them from en…

How to save for retirement on a tight budget

To the average American, saving money is a mythical topic. In a recent CareerBuilder report, 78% percent of full-time workers said they live paycheck to paycheck, up from 75% in 2016.
Retirement savings can seem unnecessary when you're barely getting by. That said, you and your spouse will need about $1 million to live comfortably during your golden years, and waiting for a financial windfall isn't the best use of your time.
Take these steps to prioritize savings with the resources you have.
Trim your spending
It's not easy or fun, but cutting unnecessary spending is the most effective way to take control of your finances. The good news: According to a study by Hloom, 8 out of 10 Americans admit to wasting money, so there's a decent chance that you're not as broke as you feel. Start small by eliminating things that aren't overly painful, and work your way up to making significant cuts across the board. An efficient budget will help you form better savings habit…