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Commodity Emergency Fund

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June 03, 2009 – Comments (4) | RELATED TICKERS: GSG , GSP

Until now, I've held my emergency fund in a "high-yield" online savings account at ING Direct.  This emergency fund is mainly to shield myself from a layoff, deal with a car breakdown, or something else major.  It will not be spent.  Due to the low interest rates, I only get 1.50% APY.  I plan on increasing the size of it because it's not big enough for these economic times, but it pisses me off to get such a low yield. 

Enter the commodity emergency fund.  I plan on leaving about $3,000 in cash and moving the rest into an ETF tracking the GSCI commodity index.  Yes, that means my "emergency fund" can go down unlike a savings account, but at least it won't be getting a pathetic 1.50% yield.  The possible loss of some money won't be too big a factor, since commodity prices will generally go up with a weakening dollar and inflation.  I do also plan on adding a lot of money to my new fund, since I'm much more willing to buy a basket of commodities than add to a 1.5% emergency fund that will most likely not be used. 

Pointless post to anyone who reads this, but I'm quite proud of myself for realizing I could do this.  I guess I've read too many personal finance sites, where they only invest with index funds and keep their emergency funds in online savings accounts.  I'd be fine with an online savings account in other times, but not with this massive soon-to-come inflation and (some) bargains in the stock market to be had. 

4 Comments – Post Your Own

#1) On June 03, 2009 at 3:49 PM, Option1307 (29.75) wrote:

True and I mainly agree, but you are now basically gambling with your "emergency" fund.

This obviously depends heavily on your exact financial situation, but I would not think it wise for anyone to place their emergency fund money into anything where it is not completely safe, ie a savings account.

 

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#2) On June 03, 2009 at 4:01 PM, TMFBabo (100.00) wrote:

I agree that I just took on a lot more risk, but here's my reasoning: I am only satisfied with a HUGE emergency fund, since those little measly numbers thrown at you in personal finance columns wouldn't last more than a few months if a layoff were to occur.  Because of that, I've decided to have a much, much bigger emergency fund.  Problem? I would then have a large sum of money gaining a paltry 1.5% when I know I could beat that in my sleep investing in something else. 

I figure the buffer for me is that at the same time that I've decided to put most of it into the commodity index, I've also decided to increase the size of the fund by quite a lot.  I'm only willing to increase the size of the fund by so much since I'll actually get a return on it.

Something else I could do is buy something like LQD and get a 5% or higher return.  I prefer the commodities though, since I think inflation is coming and I think bond prices are likely to move down when the inflation does hit.  Again, I am increasing the size of the fund considerably in addition to the extra risk I'm taking.

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#3) On June 03, 2009 at 5:17 PM, tonylogan1 (28.15) wrote:

also, you can bury PM's as your emergency fund.

they will have the added benefit of tax preference and if you do have a major problem, it is unlikely they get seized in bankruptcy.

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#4) On June 16, 2009 at 9:52 AM, TMFBabo (100.00) wrote:

I have since scrapped this idea in favor of hedging my taxable portfolio with short positions.  I also like DBC as a better basket of commodities than the listed tickers above.

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