Dave Says: Think of it as Murphy insurance

Dear Dave,

I was thinking about putting my emergency fund savings into a balanced mutual fund. Would this be a good idea?

Trey

Dear Trey,

You should never put your emergency fund into anything that can go down in value, or anything that charges penalties for early withdrawals. I recommend putting it into a good money market account with check-writing privileges.

Remember, your emergency fund is insurance. It is not an investment. That three to six months of expenses you’ve saved has one purpose and one purpose only—to protect you, your family, and your stuff against the unexpected. You know how Murphy’s Law says anything that can go wrong will go wrong? Think of your emergency fund as Murphy repellant.

That’s one of the reasons an emergency fund is so important. If you don’t have one, and something unexpected happens, you’re likely to end up borrowing money from the bank, or cashing out retirement savings to fix things. So, don’t worry about investing this money. Just park it, and think of it as an insurance policy for when Murphy comes knocking at the door!

—Dave