The Emergency Account

  • It must be liquid, which means you can get the money quickly without paying penalties.  With all of the funds stated below this can be done in two ways. You can write a check that you can use whenever you need the money (they must be written for $250 or above). You can also transfer funds (at no cost from Vanguard) to your checking or savings account. All of this can be done online or by a phone call, your choice.

 

  • As you reach for return, you will be required to take more market risk. Do not let this scare you. Inflation risk is shrinking your money every day it sits in the bank. Understand all types of risk as you select where to place your savings.

 

  • Be watchful of the economy and interest rates. There may be times where a money market fund, or a bond fund would be your best option. Pay attention to the current situation and choose wisely based on getting a real return (return after inflation) on your money that is 0% or higher. Here is one option. If you can get 4% in a money market fund, go there. If not, select a bond index fund of your choosing.

 

  • Here is a list of places where you could put your emergency money. You can go to vanguard.com to learn more.

 

  • Mattress/Sock Drawer/Safe: Plenty of risk of losing your money to a multitude of catastrophes

 

  • Checking Account/Savings Account: No risk of losing money (FDIC insured up to $250,000)

 

  • Money Market Account: No risk of losing money at the bank (FDIC insured up to $250,000)

 

 

 

 

 

  • I have taken information shown below from the Vanguard website. You can go directly to vanguard.com and do your own search of these funds to verify what you see below. I encourage you to educate yourself on all of your options and select the right option that fits your goals, risk tolerance and time horizon. The risk level you see ranges from a low of 1 to a high of 5. You make the call.

 

  • Prime Money Market Fund: This fund seeks to provide current income and preserve shareholders’ principal investment by maintaining a share price of $1. As such it is considered one of the most conservative investment options offered by Vanguard. Although the fund invests in short-term, high-quality securities, the amount of income that a shareholder may receive will be largely dependent on the current interest-rate environment. Investors who have a short-term savings goal and seek a competitive yield may wish to consider this option. Risk Level: 1

 

  • Short-Term Bond Index Fund: This index fund offers a low-cost, diversified approach to bond investing, providing broad exposure to U.S. investment-grade bonds with maturities from one to five years. Reflecting this goal, the fund invests about 30% of assets in corporate bonds and 70% in U.S. government bonds within that maturity range. A key risk of the fund is the fact that changes in interest rates can eventually lead to a decrease in income for the fund. Investors with a short-term savings goal who are willing to accept some price movement may wish to consider this fund. Risk Level: 1

 

  • Inflation-Protected Securities Fund: This fund is designed to protect investors from the eroding effect of inflation by investing in securities that seek to provide a “real” return. The fund invests in bonds that are backed by the full faith and credit of the federal government and whose principal is adjusted quarterly based on inflation. In addition to typical movement in bond prices, income can fluctuate more in this fund because payments depend on inflation changes. Investors with long-term time horizon may wish to consider this fund as a compliment to an already diversified fixed income portfolio. Risk Level: 2

 

  • Total Bond Market Index Fund: This fund is designed to provide broad exposure to U.S. investment grade bonds. Reflecting this goal, the fund invests about 30% in corporate bonds and 70% in U.S. government bonds of all maturities (short-, intermediate-, and long-term issues). As with other bond funds, one of the risks of the fund is that increases in interest rates may cause the price of the bonds in the portfolio to decrease-pricing the fund’s NAV lower. Because the fund invests in all segments and maturities of the fixed income market, investors may consider the fund their core bond holding. Risk Level: 2