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High Yield Bond Fund instead of money market or cash

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  • High Yield Bond Fund instead of money market or cash

    Wondering if any of you have or would consider putting your emergency cash into high yield bond funds for more return than what you get on cash/money market. With Fidelity, you get 1.5% give or take on money market and with HY bond, you get obviously get more... but is the risk not considered appropriate for your emergency money/cash on hand. Curious what people do? Thanks in advance!

  • #2
    In appropriate, interest rate risk is rather significant on high yield. Reaching for yield is not a good strategy for emergency funds.

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    • #3
      agree
      choose an appropriate level for your emergency fund needs, choose an appropriate overall asset allocation, take your risk on the equity side

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      • #4
        You could mix some in.

        But as said above, this is straying further from cash or cash equivalent.

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        • #5
          Mix would be a short term duration bond fund, i.e. cash equivalent. You could do a MM based on government bonds.

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          • #6
            Or you could take the approach of do you really need an E Fund? I mean, with the monthly float on the CC, the AR coming in as a delayed income, and trying not to squeeze out every dime from my checking account...if still needed, then I could raise cash by liquidating something out of my taxable (stocks, bonds, treasuries, "spend"). Oh, yeah, also big fixed expenses are already paid.

            But the answer to your question is No.

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            • #7
              Take your risk in equities, not in bonds.

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              • #8
                High yield means junk.
                Not for emergency fund.

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                • #9
                  You might be better off with municiple funds if you are in a high tax bracket. Not as safe as MM or bank account, but returns might be high enough to take a little risk.

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                  • #10
                    I have some of my EF in municipal bond funds. With the way I am paid, I have about one month worth of salary (not expenses—that would be about 3+ months of barebones expenses) that would be owed to me if I stopped working tomorrow. I have another 2 months of barebones living expenses in a savings account and then close to 6 months of living expenses in municipal bond funds. If crap hit the fan I could sell some of those muni bond funds and convert to cash with minimal to no tax hit. And that isn’t even counting my credit cards or home equity LOC I could theoretically tap in the case of an emergency.

                    is this more risky than having it in a savings account? Probably. Is it a bunch of extra money coming my way? Not really. Is it worth it? Maybe.

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                    • #11
                      Ultra short term bond fund is about as risky as I’d get for money I am saving for something with a short horizon or might need immediate access to.

                      My attitude towards an E fund has changed completely over the years from a bucketized approach to one much more malleable. For example, using cash flow and shutting off savings/investing, using a credit card, using money in taxable (sell lots with minimal to no gains if not at a loss), etc.

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