It is personal finance dogma to maintain a liquid (i.e. cash) emergency fund which would be expected to cover three to six months of living expenses in the event of job loss, illness, or other personal or financial catastrophe.
While this is considered by many to be the first thing that you do in your financial plan, before contributing to 401(k) accounts or 529 plans, many are woefully unprepared for what life throws at us on a fairly regular basis .
We had countless friends in “good, stable jobs” that lost these “good, stable jobs” and witnessed the financial and personal carnage that this wrought upon them.
Do you really want to be forced to tap your Roth IRA when the S&P 500 fund in it is down 50%? Or sell your house or investment property when no one can get a mortgage loan to buy it? Both are great ways to lock in a loss.
The gist is that if you have enough saved to live in retirement, reduce the risk you take with your portfolio, especially later in life and as you approach retirement.
. As interest rates go up, the value of your bond holdings will decrease. In this environment, is it really crazy to have a chunk of your fixed income allocation where there is no interest rate risk, in a savings account?