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Ask The Advisor - Emergency Fund

Ask The Advisor - Emergency Fund

April 10, 2024

Emergency Fund

Life is full of unexpected events like a job loss, car repairs, or medical bills. An emergency fund can provide a buffer to absorb these shocks without resorting to debt or compromising your investments. Your emergency fund should be able to cover at least 6 months of living expenses and be funded before exploring investment opportunities.

 Below are reasons to consider an individual or family emergency fund:

  • Peace of mind: Knowing you have readily available funds for emergencies reduces stress and allows you to focus on long-term financial goals like investing with a clear head. You won't be tempted to panic-sell investments during market downturns to cover unexpected expenses.
  • Preserves investment growth: Tapping into your investments to cover emergencies often incurs penalties or taxes, disrupting your portfolio's compounding returns. An emergency fund prevents this, allowing your investments to grow undisturbed in the long term.
  • Debt avoidance: When faced with unexpected expenses, people without an emergency fund often turn to high-interest loans or credit cards, accruing significant debt and hindering their financial progress. This debt can eat into your investment returns and take years to pay off.

Starting an emergency fund is easy: transfer money into a savings account at your bank or buy a money market fund within your brokerage account for liquidity and easy access. An IRA or bank CD are not suitable options for an emergency fund vehicle. If the balance is sufficient to cover 6 months of living expenses for your household, you can begin to explore longer-term investment opportunities like a 401(k) or IRA.

 Having an emergency fund established before investing is crucial for financial security, peace of mind, and optimized investment growth. It acts as a safety net during difficult times, allowing you to make sound financial decisions and stay on track towards your long-term goals. Consult with a financial advisor on how to best establish your emergency fund.

Important Information:

The views expressed in this publication are those of the author and do not necessarily reflect the views and opinions of Cetera Advisor LLC or Burrows Capital Advisors LLC. The information provided in this publication is for informational purposes only and is not intended as legal, financial, investment, tax, or professional advice. Nothing in this publication constitutes a solicitation, recommendation, endorsement, or offer by Burrows Capital Advisors LLC or any affiliated entities. This publication is based on research and analysis conducted under specific circumstances and may not be applicable to all situations. It is recommended that investors conduct their own analysis or seek professional advice before making any decisions based on the information provided in this publication. The authors and publisher do not guarantee the completeness or suitability of the information contained herein and disclaim any liability for any direct, indirect, or consequential loss or damages arising from the use of, reliance on, or interpretation of this information. Any links to external websites provided in this publication are for informational purposes only and do not imply endorsement or approval of the linked content. All rights are reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the authors and publisher.

Investments in securities do not offer a fix rate of return. Principal, yield and/or share price will fluctuate with changes in market conditions and, when sold or redeemed, you may receive more or less than originally invested. No system or financial planning strategy can guarantee future results. Securities and advisory services offered through Cetera Advisors LLC, member FINRA/SIPC, a broker/dealer and a Registered Investment Adviser. Cetera is under separate ownership from any other named entity. Burrows Capital Advisors, LLC, 2450 South Shore Blvd., Suite 220 League City, TX 77573.