Ask HN: How do you protect your emergency fund from inflation?

You don&#x27;t. Emergency funds are for emergencies.<p>Higher yields are possible with various different investments but they all come with additional risk. You do not want to have an emergency fund they may drop in value during a period which you may need to draw on your emergency fund, such as a market downturn that leaves you unemployed.<p>Similarly, you want to be able to access emergencies funds quickly. Emergencies are generally unexpected. If you need to wait for funds to unlock or for sales to settle, then it could possibly be too late.

When you say emergency fund, I expect you want as little investment risk as possible.<p>In that case, I do not believe there&#x27;s any options that are better than a savings account in terms of reduced risk and immediate availability of the money when needed.<p>In theory, you could say that a higher return is the risk premium you demand. Turning that around, higher returns means the product is more risky, and thus a bad fit for an emergency fund. Even with inflation a lot lower in the past years, a savings account still didn&#x27;t exceed inflation in terms of return.<p>Traditionally, stocks have been a good hedge against inflation, but especially in the current market there&#x27;s a lot of volatility which is not a good fit for emergency funds.<p>I have personally reduced my emergency fund to a level I&#x27;m still comfortable with, with the rest of my savings in investments. And frankly, my emergency fund is just a small part of my total net worth, it&#x27;s OK if that part loses some purchasing power over time because it&#x27;s optimized for other goals, like immediate availability, and a more predictable loss of value over time.

I personally keep it as FD ( <a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Fixed_deposit" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Fixed_deposit</a> ) in different reputed banks. Might sound a bit extreme to divide money into multiple banks but during mid of 2020 in India one of the major banks had stopped its customers from withdrawl of money for period of time (<a href="https:&#x2F;&#x2F;www.businesstoday.in&#x2F;industry&#x2F;banks&#x2F;story&#x2F;yes-bank-customers-unable-to-withdraw-cash-at-atms-online-transfer-net-banking-services-251584-2020-03-06" rel="nofollow">https:&#x2F;&#x2F;www.businesstoday.in&#x2F;industry&#x2F;banks&#x2F;story&#x2F;yes-bank-c...</a>). 2020 was already an year of crisis and such kind of limitation by the banks had created a lot of problems for the people.<p>Stocks are not a good option obviously. Current situation is a testament of that. We can see the situation in Russia now where the stock market itself is shutdown (obviously these are exceptional circumstances) but people loose total control over their investments for unknown period of time.

Best spot for actual emergency fund if you have a mortgage is in said mortgage redraw account. Most mortgages these days have free online redraw so it offsets the interest you are paying while being completely safe with zero risk and only your local currency volatility.

My emergency fund is set for 12 months. I keep 1&#x2F;4 in a savings account for a quick access and 3&#x2F;4 in government retail bonds which in my country (Poland) are inflation adjusted after first year and I’m able to withdraw any time I wish so. The capital is guaranteed no matter when you withdraw and if the withdrawal happens before expiration, 2 PLN are subtracted from interest per each 100 PLN. This obviously assumes that government won’t default but it’s a safe bet in my opinion.

Speaking of things that could keep up with inflation, such as stocks, gold, real estate, Treasury bonds, etc, stocks are by far, the most liquid one, with T+3 days of cash out time. Look for unit trusts (index funds), if you don&#x27;t fancy picking the stocks.<p>That said, these troubling times are even more riskier to invest. Perhaps, the best you could do is to prepare for potential supply chain issues with gasoline, LPG, etc.<p>I happen to stay in Sri Lanka nowadays, where the inflation crossed 16%, and the there are many issues with lack of essentials. Supermarkets don&#x27;t sell more than 5kg of sugar, me having to drive 20km because the three gas stations I drove past didn&#x27;t have petrol, and soaring prices of pretty much everything.<p>I thought to stock up the essentials to last a couple months or so, expecting the imminent worse conditions.<p>In Europe, though, I don&#x27;t think things to get this extreme, but my suggestion would he to stock up. Not hoarding piles of toilet paper, but make sure to have a reserve can of petrol, extra medicine, and the essentials to last a month or two. Food prices went up about 20% in just last month here, and that annualized return of 240% I&#x27;d much better than the appreciation of gold, real estate, stocks, etc.

Don&#x27;t over think it. It&#x27;s an emergency fund, just top it up out of income or divert money that otherwise would&#x27;ve gone to investments to it.

I used index funds. For me - huge emergencies were so unlikely that I would lose a lot of money by keeping it in cash. Yes, having $50k+ in cash is nice but it also does lose value by sitting in that account every year. Kept it in index funds instead and would withdraw in $10-20k lump sums as needed. Never saw a loss - and there were significant market downturns when I had to use this.<p>I think the advice also depends on your own personal scenario. In my case - I have to save extra money on top of 401k, Roth IRA, etc. in order to retire. (Social security plus that isn’t anywhere near enough) So, can use that brokerage account as an emergency fund as well. Which is more or less what I do now, tbh. The assets are all mixed. It’s mostly irrelevant.<p>I still keep 20k cash in my account but I try to not keep more. (Sometimes I have $10k bills in a month or what not - like having the buffer and like being able to divest an entire month or two of paychecks to just do all 401k in that time)

For emergencies I got myself a line of credit from my bank using my stocks as collateral. Currently the line of credit amounts to apox. 20% of the values of my stocks, which is far below the possible maximum, just to be sure in case of a falling market. The interest rates for such a credit are modest, because there is a collateral.<p>I can recommend to anybody who ownes stocks to ask your bank about such a line of credit, because it has no costs as long as you do not need the credit, but if you need money you can immediately draw a flexible amount of cash for exactly the time you need it.

Could you transfer your portfolio into bonds during market instability (#BIL specifically), so it stays flat during most draw downs vs falling down, then switch out when markets return to normal?<p>I created an account this week with <a href="https:&#x2F;&#x2F;beta.getquantbase.com&#x2F;" rel="nofollow">https:&#x2F;&#x2F;beta.getquantbase.com&#x2F;</a><p>I have not invested yet...

It probably depends greatly on your personal circumstances but if you are already investing, or have a Home Equity Line of Credit available, or good credit so that you can get credit cards, then it&#x27;s quite possible that an emergency fund is just not required (or in other words you keep your emergency fund invested) <a href="https:&#x2F;&#x2F;earlyretirementnow.com&#x2F;2021&#x2F;05&#x2F;26&#x2F;the-emergency-fund-is-still-useless&#x2F;" rel="nofollow">https:&#x2F;&#x2F;earlyretirementnow.com&#x2F;2021&#x2F;05&#x2F;26&#x2F;the-emergency-fund...</a><p>I think younger folk or those in a less financially secure position could be better off holding cash rather than investing their fund, but those people will also have more frequent use of an emergency fund (i.e. an emergency to a young person could be significant car repairs of $1500 where someone who&#x27;s 25 years into their career could more likely take that in their stride)<p>So basically, my cop-out is &quot;it depends&quot; but as a rule of thumb, stocks are normally ok during inflation as you are owning a slice of the economy that is undergoing inflation.<p>The best security against economic changes is to try to keep a large gap between spending and earning; I think the question of &quot;where to put your rainy day fund&quot; is then less relevant.

How big should an emergency fund be? In my case it would be so small that even inflation wouldn&#x27;t justify having it somewhere that is not my savings account.<p>Everything that is not an emergency fund is in stocks&#x2F;etfs.

Cap notes. Relatively stable, decent yields and easy to sell when you need to.<p>Do your research on which is the best yielding. In Australia, at least when I last checked, it&#x27;s LFSPA.

The most straightforward way is inflation-linked bonds. It will pay a coupon linked to inflation.<p>Obviously these must have gotten more expensive since inflation rose. But it will protect you against higher inflation. You&#x27;ll lose in case of deflation&#x2F;lower inflation.<p>Be sure you understand the product before getting into it.

Some brokerages let you have a debit card and&#x2F;or checking account, and you can borrow on margin from invested funds.

When you don&#x27;t have a emergency fund you don&#x27;t have to worry about how to manage it.

crypto

Don&#x27;t take financial advice from HN.

If you can move money to Cambodia, banks give 3.50 interest on a 1 year fixed deposit in USD and 6.50 in KHR.

Diversify. Buy some crypto. Some Swiss francs. Emergency food stash. Get some cash. Diversification is protection.

Find something you can buy for cheap and successfully resell for more without issue. Use the profits from that to help subsidize the cost of inflation.<p>Probably not the solution you are looking for, but it should work...<p>Otherwise, I don&#x27;t know.

Right now the two alternatives are PHYSICAL gold(massively undervalued) and BTC. ECB won&#x27;t really increase interest rates as the last time they did it (11 years ago) half of Southern Eurozone almost went bankrupt. Out of the stock market - probably energy and defense stocks. Also food production and commodities.<p>To be honest I am seriously considering a move to say South America. Even if we don&#x27;t end up in a hot war, the persepectives for freedom in Europe are very bleak.