Gordon Pape advises a reader on managing emergency funds.
Q – Can you advise on emergency funds? It would be nice to have about $10,000 stowed away, however, I don’t like the idea of keeping it in cash. What are your thoughts on keeping it invested in a few large caps or ETFs with good downside protection? If a major emergency occurred, like a major market pullback, and I needed funds, would this be too risky? If so, what would you advise? – Aaron
A – The key word here is “emergency”. That means you need the money immediately and it must be highly liquid and risk-free. That translates into cash. Even the most carefully constructed stock/ETF portfolio is not immune from a market crash. Look what happened in 2008. Everything in the market went down, including the blue chips. I understand you don’t want to hold cash. But if it’s a true emergency, that’s where you want your money. – G.P.