[imtringued]

You have $100k. Put 80% of it in the stock market. The stock market drops by 40%, your investment is worth $48k and you withdraw nothing but spend your entire emergency fund. The market recovers and now your portfolio is worth $80k.

You have $100k. Put all of it in the stock market. The stock market drops by 40%, your investment is worth $60k and you withdraw $20k. The market goes back to 100% and now you have $67k in your portfolio.

If the market dropped by 80% your portfolio would be gone entirely. Meanwhile if you had enough emergency funds you would have kept everything.

The worse the emergency, the higher the ROI of the emergency fund. Since there is no upper bound for how bad an emergency can be the theoretical ROI of an emergency fund is also unbounded.

In this comment the definition of an emergency is a stock market drop combined with unexpected unemployment.

[Moodles]

You've just given a cherry picked example to show that yes, withdrawing during market downturns is bad. I don't disagree with this? I'm merely saying that, on average, over the long-term, it makes more mathematical sense to ditch the EF if you're a high net worth individual. For example, you have literally just picked the worst case scenario and used that to justify why the strategy is bad. What about all the times your emergency doesn't coincide with a total market crash? My all stock "emergency fund" will actually grow larger than yours, on average. You probably have several emergencies over the course of your life.

Honestly your example is about as useful as me saying investing in stocks in general is bad, because sometimes, they go down. So what? We're talking about broad long-term averages here, nothing more.

It's fine to argue about personal psychological preferences, but as I say, this purely a mathematical statement I am making here. It should not be controversial, but it always is.

[paulpauper]

in theory, all your money should be in the market if the market is efficient and has a positive drift

[Moodles]

Yeah, I mean there's also some practicalities involved like having cash to withdraw from an ATM or paying rent, but yeah pretty much I'm fully invested.

[hanoz]

That's all for an emergency on day one! If the stock market goes up 70% before your emergency, you'd have been better off with the all in strategy.

[Moodles]

I know. I get the exact same push back every time I mention this. I don't know why? I'm literally saying, on average, over the long-term, it's mathematically better to ditch the EF. This is a mathematical statement, but always someone says ""but what about 2008!?" as if I havn't considered it. It's quite bizarre. I suppose an EF is an emotional issue for a lot of people maybe.

[sokoloff]

That’s another use of margin. Invest 100% (but not more). Emergency hits and you can withdraw cash without selling stocks (up to a point).

[Moodles]

I mean honestly, using a credit card for a month before interest hits is usually fine too? My credit limit is like 50k or something ridiculous across all my cards. Not to mention when all in on stocks you can sell for better long-term capital gains tax treatment or even tax loss harvest losses too, which you can't do with a savings account. And ETFs are actually pretty liquid: I can sell and withdraw in a few days if I wanted to anyway.

[sokoloff]

Yes, but then you need cash to pay off the credit card, which is cheaper to pull from your margin available than to let the credit card charge you interest.

[Moodles]

I'm not suggesting to pay credit card interest. I'm saying you can cover any emergency expense with a credit card which buys you a month, and then you might have ordinary salary or time to sell your stocks before interest is due.

No offense but I'm pretty surprised you commented what you did. Literally my first sentence says "... before interest hits...".

[sokoloff]

I’m perhaps equally surprised that you’d consider anything an emergency that would covered by your ordinary salary within a month’s time. I mean, that’s just normal credit card use, right?

[Moodles]

Maybe we’re talking cross purposes here because I generally save a large % of my paycheck. So if an emergency came up (and I was still employed) I would just save a smaller % of it.

But regardless I’m just saying you can use a credit card to buy time interest-free before you pay off the emergency with your salary/stocks/whatever. It’s better than taking a margin loan, no?