Usually we all create an emergency fund to deal with unexpected situations and it provides a safeguard for long-term investments. However, recently I came across a debate on the subtle difference between emergency fund and investment. The main point here is that although investment and emergency fund are two different purposes, there are different opinions on whether they can be helpful to each other. The main point was that even if a person has a fully prepared emergency fund (equivalent to 4-5 months), if an unexpected situation arises where the money in the emergency fund is insufficient to deal with the situation, can he use some of his investment to deal with the situation?
So lets start by understanding that emergencies varies! In any scenario that is very important and necessary and will also cost more than what someone has kept for emergencies then carefully evaluate and see which of his investment he can use to cover up the problem, thats if he has a diversified portfolio.
Diversifying your portfolio is very important, especially when you do it in different markets or fields in a scenario like this you can easily know which has minimal impact on your investment goals and it will help you choose wisely.
Id like to give an example, for instance if an unexpected emergency occurs to someone whom invested in bitcoin and lets say real estate and his emergency funds cant cover the cost of that emergency then he has options to chose from which investments hell cashout to sort his emergency.
If for the time that emergency arise, lets say were in a bull market and hes in profit and his real estate investments might depreciated a lot if hes selling at that exact time, then its totally fine if he sells part of his bitcoin holdings to sort out the emergency. Same goes for when were in a bear market, hell weigh and see which has lesser impact and then sell part of that to sort the emergency.
Quote from: Cgrexp
In this case, I think when a person finds himself in such a situation, the first thing that comes to his mind is to deal with the situation.
In this case, can using some money from investment be a realistic decision?
Thats a sure Yes..In this case, can using some money from investment be a realistic decision?
Whats the point of having money if it can solve your emergencies?
Quote from: Cgrexp
But the reason for the debate here is, if he has to use money from investment, does the real purpose of the emergency fund fail?
No! The real purpose of keeping the emergency funds didnt fail instead it just shows how life can be very unpredictable.
What if the emergency funds could cover the emergency situation and you deemed keeping the funds not worthy? You see why it is still necessary and important.
Quote from: Cgrexp
So, would you label such a situation as a failure, or would you consider it the right decision to deal with the situation from investment depending on the situation?
It isnt failure, thats part of life and depending on how important and necessary the emergency might be, solving it is a priority.
