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- I have a healthy emergency fund that I'm unlikely to ever need, so I've been asked a lot recently if I plan to invest that money and take advantage of dips in the stock market.
- The answer is no — for three reasons.
- Timing the market is never a good idea, for one thing, and if there's ever a time I'll need my emergency fund, it's right now during a global pandemic. I have a long-term plan, and I'm sticking to it.
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I have a three-fund portfolios and robo-advisers over stock picking, I'm in it for the long haul. While I'm intrigued by the idea of buying more stock while the market is down, I have no idea if it's down temporarily, or if we're heading for another dip and deeper recession.
2. If I've ever needed an emergency fund, it's now
An emergency fund is built for unexpected expenses and needs.
Its job is to protect against uncertainty, and if there was ever uncertainty in the world, it's now.
Using my emergency fund to invest right now would be kind of like selling a lifeboat on the Titanic right as the captain of the vessel is yelling, "Iceberg!"
Sure, I could probably get an amazing rate, but that's because the probability of needing the lifeboat now is higher than ever.
I'm not saying that the current market is the Titanic, and I'm certainly not a proponent of selling any equity or bonds during this time. I just don't see a reason to sell my lifeboat right now, no matter how attractive it might seem.
3. Sticking to my long-term plan
At the end of the day, nothing has really changed in regards to my financial plan.
I'll admit, a plan does need to be flexible. But, when I built this plan, I figured there would be years when the market would drop by 30%. I also hoped there would be years when the market would rise by 30%.
My long-term plan takes into account extreme volatility that averages out over the long run. For the time being, I'm willing to ignore the short-term market swings and contribute my monthly savings as I always do.
For now, my emergency fund is here to stay.
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