How to Think About Emergency Cash

As we close out the 3rd quarter of 2020, markets have continued their rebound since the public health and economic shock we all experienced this year. We have no crystal ball into the future (nor does anyone else). Political, economic, and public health uncertainty remains high and markets have experienced volatility as a result. We don’t expect that to change anytime soon. However, if this year has taught us anything, the adage “save like a pessimist, invest like an optimist” is the best advice in uncertain times.

Below are the topics for this weekend’s reading.

How to Think About Your Emergency Cash in a Low-Rate World (Fisher Investments)

One consequence of the Federal Reserve’s policy actions starting in March was a major reduction in interest earned on all types of fixed income investments, including cash and other money market instruments. As a result, people have been hesitant to hold emergency savings paying little interest. On the flip side, the Federal Reserve’s actions have lowered mortgage rates (as well as other borrowing) to historic lows, so anyone with outstanding debt would find this environment ripe for refinance.

This article makes a very valid point regarding emergency savings. It is not meant to be a driver of returns to begin with. So, whether it earns 1.0% or 0.1%, an emergency fund should be viewed strictly as a buffer in the event of a major life event. The interest earned on that buffer should not have an impact on a long-term financial plan. If you have any questions as to how much cash you should be holding, please feel free to reach out to our office to discuss further.

Will Housing Save The US Economy? (The Capital Spectator)

Amazingly, the housing market has experienced a rapid expansion this year, despite the sharp drop in economic activity resulting from the pandemic. Many attribute the housing boom to low interest rates, urban flight, and pent up demand among millennials. Whatever the cause, the housing market has been robust. In August, sales of existing homes jumped to a 14-year high.

The author suggests that the housing market may be a proxy for the general economy. This makes intuitive sense, as home purchases have a ripple effect in the economy – building material, home furnishing, electronics, etc. We are optimistic this is the case. Ultimately, job and wage growth will have to continue their respective rebounds for the housing boom to sustain.

We hope everyone has a happy and safe weekend. Please give us a call if you have any questions.

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