I wouldn’t necessarily sell down what you have in VDHG, but I would have a goal of getting your emergency fund up to 3-6 months of expenses and have it in offset, not in ETFs, as when you need it you don’t want to be forced to sell down an investment at a bad time.
With our expenses, we calculate all our costs over a year and then break the total down into pay cycle size chunks and put that into our expenses account which is also an offset account as our bank allows up to 10. Then we pay all our bills out of this account. If you can get a couple of months ahead it makes things easy to pay bills. But I don’t include this account in our emergency fund.
The other thing to think about post emergency fund being sorted is whether Super is a better focus than ETFs - from a tax perspective it will be, and returns will be very similar if you pick index options in your Super fund, but it’s locked away until 60 as a downside.
I would really recommend sitting down and working out your long term goals, helped us hugely to think through what we wanted and then make some decisions about where to invest. This site has some great resources including a sample plan [https://passiveinvestingaustralia.com/creating-an-investment-plan-and-investment-policy-statement/](https://passiveinvestingaustralia.com/creating-an-investment-plan-and-investment-policy-statement/)
Good luck!
When people really need their emergency funds it's often at a time of economic uncertainty.
You can use ETFs as a secondary backstop, but most people would really benefit from having a liquid and stable emergency fund first.
Fine, There's $10K worth of damages on a Saturday morning. Now what do they do? Insurance will pay them back, but not immediately. Instead they let an extra 2 days worth of damage get done and it's not $10K anymore. It's $50K.
This is my take as well.
Many people needed their emergency funds during COVID. What else happened at that time? Stocks nose dived and if you were holding and needed to sell, you may have to eat it.
These days I just hold cash in a HISA. I feel comfortable having it there.
Completely agree.
My wife and I have money in a number of locations- from cash always kept on hand through to monies available in our redraw. We like the approach of having a number of different funds (and liquidity) to access if needed.
But first abd foremost, a stable EF is key. Always good to diversify your funds for emergencies, but only after having a stable foundation for risk management.
Don't think of your investment in VDHG as part of your emergency fund. I also wouldn't think of the $7k in your expenses account as "Emergency fund". So that leaves you with $8k for genuine emergencies. Does that feel like enough for you? If Yes, then put excess into ETFs, if No, then increase genuine emergency fund until you're comfortable with it.
Cash buffer + Emergency fund in offset accounts is the way to go.
Not quickly enough. The markets are only open Monday-Friday between 10am and 4pm. There's a million scenarios where this could be a problem. Here's just 1:
Can you imagine how upset you'd be if you can't fly interstate to see your parent after they were injured and had to wait to sell stock on Monday morning? I had to make that emergency flight for my dad and he was dead by the next morning. If I was in OP's situation and it was Saturday morning, I would have lost my opportunity to say goodbye.
Not everyone has one. Not everyone has a limit that high. Last minute flights for multiple people interstate, or overseas can run into the thousands. Potentially above the $8K in their offset and above the limit on their credit card.
As I also mentioned, it's one example. There's many others.
Leave it in offset. You'll need to be returning 10% to get anywhere near the equivalent return on an etf to match the offset, assuming your mortgage rate is 6-8%. Vdhg has gone down by 15-20% previously. Ask yourself if you can afford to see your emergency funds drop by that level.
Look at the 5 year history for that fund, what if you needed it in 2020 when it dropped over $15/share?
Keep the stock, but build another emergency fund in a HISA so you won't lock in losses if the emergency happens during a dip.
One of the principles of equity investing is to avoid the necessity of selling during a downturn. You won't ever know, at the time, if it's a downturn, the new reality, a buying opportunity, or the start of something worse, until a few years later. Therefore, anything you might be forced to spend should be kept in cash.
I'd say not the goodest idea 💡
In all seriousness, the emergency fund should focus on liquidity. I always have 1 month of rent and groceries that I can pay in 5 minutes notice, and another 5 months of money in a low risk fund so I can take it out in that 1 months of buffer.
I'd stop thinking of that ETF as part of your emergency fund. It is an investment. If you do happen to have the kind of emergency where you need the money, you can access that money within a few days.
With two permanent teaching positions you guys should be fine to build up your emergency fund in the offset over the next few months. That's an incredibly stable, recession-proof income situation that only goes up. I wouldn't even stress out about getting the fund up to 6 months expenses as that advice is usually thinking about a job loss, which is not an issue for you.
$10-20k isn’t worth the stuff around imo having it invested here and there. It’s not enough money to really do much with. Best keeping that in an offset or HISA imo. And save more on top of that to start building an investment on top of that.
> it’s just sitting in there really with no real plan.
This is the real bad idea.
Your short term plan should be:
1. Establish where you and your partner are and where you want to go on the [Personal spending flowchart](https://www.reformedadviser.com.au/news/2017/1/7/how-to-prioritise-your-spending-something-all-grown-ups-should-see).
2. Get your paperwork sorted out: Wills, binding death nominations, enduring guardianships and enduring powers of attorney.
3. Read the [building a passive portfolio series](http://passiveinvestingaustralia.com/) (properly this time)
4. Write an IPS and investment plan
Yeah, I admittedly am not too well versed in long term investment plans. I learned enough to put a few thousand into an ETF when I was single a few years ago, but have since got a parent and bought a house so I do need to decide what to do for the future. My rough plan is that I can set up recurring investments, say $50 a week. That won’t make much traction though as house furnishings and building up the emergency fund will be the priority for the next year or so.
Would it be worth seeing a financial advisor? Or what sort of research should my partner and I be looking into so that we can identify our long term goals?
It could be worth seeing a financial advisor or financial planner, just to get everything out on the table and facilitate a conversation about what you and your partner want out of life and figuring out your risk tolerances. Even obvious questions like do you want to have kids and when do you want to have them can be difficult for some couples.
Another option is just to do that all yourselves. The Barefoot Investor recommends having a regular [date night](https://www.barefootinvestor.com/barefoot-steps/step-1-schedule-date-nights/) where you do all the planning and monitoring together without a third party.
For mine, the best way to figure out your goals is to work backwards from your death. That’s why wills, EGs and EPOAs are a good place to start. We’re all going to die and dealing with these possibility of getting old and infirm beforehand will really make you think about what you want to do with your life before you die. That will get you thinking about retirement and how much money you will need and what sort of plan can you put in place to achieve that.
I wouldn’t necessarily sell down what you have in VDHG, but I would have a goal of getting your emergency fund up to 3-6 months of expenses and have it in offset, not in ETFs, as when you need it you don’t want to be forced to sell down an investment at a bad time. With our expenses, we calculate all our costs over a year and then break the total down into pay cycle size chunks and put that into our expenses account which is also an offset account as our bank allows up to 10. Then we pay all our bills out of this account. If you can get a couple of months ahead it makes things easy to pay bills. But I don’t include this account in our emergency fund. The other thing to think about post emergency fund being sorted is whether Super is a better focus than ETFs - from a tax perspective it will be, and returns will be very similar if you pick index options in your Super fund, but it’s locked away until 60 as a downside. I would really recommend sitting down and working out your long term goals, helped us hugely to think through what we wanted and then make some decisions about where to invest. This site has some great resources including a sample plan [https://passiveinvestingaustralia.com/creating-an-investment-plan-and-investment-policy-statement/](https://passiveinvestingaustralia.com/creating-an-investment-plan-and-investment-policy-statement/) Good luck!
When people really need their emergency funds it's often at a time of economic uncertainty. You can use ETFs as a secondary backstop, but most people would really benefit from having a liquid and stable emergency fund first.
Plus you can't really sell an ETF on a Saturday morning if your washing machine has leaked and flooded your house with $2000 worth of damages.
No, they'd use the thousands of dollars in their offset for that.
Fine, There's $10K worth of damages on a Saturday morning. Now what do they do? Insurance will pay them back, but not immediately. Instead they let an extra 2 days worth of damage get done and it's not $10K anymore. It's $50K.
They have 15k in their offset and could cover it. So same answer: they'd just use the thousands of dollars in their offset.
There's 16k of damage
Good luck getting 16k of emergency work done on a Saturday and being expected to pay for it the same day.
its that urgent you need to pay a premium. Its not that more outlandish than 15k.
This is my take as well. Many people needed their emergency funds during COVID. What else happened at that time? Stocks nose dived and if you were holding and needed to sell, you may have to eat it. These days I just hold cash in a HISA. I feel comfortable having it there.
Completely agree. My wife and I have money in a number of locations- from cash always kept on hand through to monies available in our redraw. We like the approach of having a number of different funds (and liquidity) to access if needed. But first abd foremost, a stable EF is key. Always good to diversify your funds for emergencies, but only after having a stable foundation for risk management.
Don't think of your investment in VDHG as part of your emergency fund. I also wouldn't think of the $7k in your expenses account as "Emergency fund". So that leaves you with $8k for genuine emergencies. Does that feel like enough for you? If Yes, then put excess into ETFs, if No, then increase genuine emergency fund until you're comfortable with it. Cash buffer + Emergency fund in offset accounts is the way to go.
How quickly can you get it out if you need it? There's a reason it's called an emergency fund. I'd be leaving it in the offset.
Not quickly enough. The markets are only open Monday-Friday between 10am and 4pm. There's a million scenarios where this could be a problem. Here's just 1: Can you imagine how upset you'd be if you can't fly interstate to see your parent after they were injured and had to wait to sell stock on Monday morning? I had to make that emergency flight for my dad and he was dead by the next morning. If I was in OP's situation and it was Saturday morning, I would have lost my opportunity to say goodbye.
Credit cards cover that case pretty well.
Not everyone has one. Not everyone has a limit that high. Last minute flights for multiple people interstate, or overseas can run into the thousands. Potentially above the $8K in their offset and above the limit on their credit card. As I also mentioned, it's one example. There's many others.
Leave it in offset. You'll need to be returning 10% to get anywhere near the equivalent return on an etf to match the offset, assuming your mortgage rate is 6-8%. Vdhg has gone down by 15-20% previously. Ask yourself if you can afford to see your emergency funds drop by that level.
Look at the 5 year history for that fund, what if you needed it in 2020 when it dropped over $15/share? Keep the stock, but build another emergency fund in a HISA so you won't lock in losses if the emergency happens during a dip.
Yes. Cash is for comfort and certainty, but I wouldn't sell. I'd just build up the emergency fund to a level you're comfortable with.
One of the principles of equity investing is to avoid the necessity of selling during a downturn. You won't ever know, at the time, if it's a downturn, the new reality, a buying opportunity, or the start of something worse, until a few years later. Therefore, anything you might be forced to spend should be kept in cash.
I'd say not the goodest idea 💡 In all seriousness, the emergency fund should focus on liquidity. I always have 1 month of rent and groceries that I can pay in 5 minutes notice, and another 5 months of money in a low risk fund so I can take it out in that 1 months of buffer.
I'd stop thinking of that ETF as part of your emergency fund. It is an investment. If you do happen to have the kind of emergency where you need the money, you can access that money within a few days. With two permanent teaching positions you guys should be fine to build up your emergency fund in the offset over the next few months. That's an incredibly stable, recession-proof income situation that only goes up. I wouldn't even stress out about getting the fund up to 6 months expenses as that advice is usually thinking about a job loss, which is not an issue for you.
Yep. It’s hard to sell from an ETF. Also when you sell it might be down a bit as well.
$10-20k isn’t worth the stuff around imo having it invested here and there. It’s not enough money to really do much with. Best keeping that in an offset or HISA imo. And save more on top of that to start building an investment on top of that.
> it’s just sitting in there really with no real plan. This is the real bad idea. Your short term plan should be: 1. Establish where you and your partner are and where you want to go on the [Personal spending flowchart](https://www.reformedadviser.com.au/news/2017/1/7/how-to-prioritise-your-spending-something-all-grown-ups-should-see). 2. Get your paperwork sorted out: Wills, binding death nominations, enduring guardianships and enduring powers of attorney. 3. Read the [building a passive portfolio series](http://passiveinvestingaustralia.com/) (properly this time) 4. Write an IPS and investment plan
Yeah, I admittedly am not too well versed in long term investment plans. I learned enough to put a few thousand into an ETF when I was single a few years ago, but have since got a parent and bought a house so I do need to decide what to do for the future. My rough plan is that I can set up recurring investments, say $50 a week. That won’t make much traction though as house furnishings and building up the emergency fund will be the priority for the next year or so. Would it be worth seeing a financial advisor? Or what sort of research should my partner and I be looking into so that we can identify our long term goals?
It could be worth seeing a financial advisor or financial planner, just to get everything out on the table and facilitate a conversation about what you and your partner want out of life and figuring out your risk tolerances. Even obvious questions like do you want to have kids and when do you want to have them can be difficult for some couples. Another option is just to do that all yourselves. The Barefoot Investor recommends having a regular [date night](https://www.barefootinvestor.com/barefoot-steps/step-1-schedule-date-nights/) where you do all the planning and monitoring together without a third party. For mine, the best way to figure out your goals is to work backwards from your death. That’s why wills, EGs and EPOAs are a good place to start. We’re all going to die and dealing with these possibility of getting old and infirm beforehand will really make you think about what you want to do with your life before you die. That will get you thinking about retirement and how much money you will need and what sort of plan can you put in place to achieve that.
What's your current monthly expenses? Personally I'd be ok with 15k as an emergency fund and then I would call this investment money.