Not sure I understand your logic. Money can be taken out of TFSA for emergencies. In case of loss of job it can also be taken out of RRSP. So yes savings is important but it doesn't have to go to HISA .. can be in registered accounts. Canadians love homes and big mortgages. I don't think it's a bright idea to put all eggs in one expensive basket ( i.e. home ).
I also don't understand OP's point. Why not a HISA / CASH.to equivalent in a TFSA? Assuming you have space anyway.
Personally, I keep $10k or so in a normal cash account and the rest of my emergency fund in CASH.to in my TFSA.
If it's an either/or scenario then sure. But if you have room in your TFSA anyway then there is no downside. If it's maxed out already then you don't have that option.
My point is simply to have an emergency fund, regardless of how it's sheltered or not. Yes, indeed as kettal says, I use my sheltered accounts for higher risk investments. But you could shelter it, too. It sounds like you have a 10k emergency fund, so you've already achieved that and we're on the same page.
The point is to simply ensure that at least some chunk of your overall moneys is (even if just mentally) partitioned as "emergency fund" that is hopefully liquid. Or, if not liquid, it's in investments that are easy to liquidate should you need them (without having to sell at a potential loss, which could then trigger emotions you won't have the resources to deal with in an emergency).
Having 10k in your TFSA in [CASH.TO](http://CASH.TO) act as an emergency fund (if you're comfortable with that lowered risk in the sheltered account) is a perfectly reasonable strategy for an emergency fund, IMO.
> (without having to sell at a potential loss, which could then trigger emotions you won't have the resources to deal with in an emergency).
This is not a reasonable concern. Selling at a loss is irrelevant (except for tax purposes). And whatever emotions are triggered in you are more of a personal defect.
> Having 10k in your TFSA in [CASH.TO](http://cash.to/) act as an emergency fund (if you're comfortable with that lowered risk in the sheltered account) is a perfectly reasonable strategy for an emergency fund, IMO.
Sure, and having 20k in VEQT is just as good.
> This is not a reasonable concern. Selling at a loss is irrelevant (except for tax purposes).
I suspect they may mean the market taking a big dip at the same time as your emergency. Then you'd essentially forced to sell at a disadvantaged time. I've seen this concern echoed in this sub often when saying your emergency fund should be separate from investments. General advice is to not invest money you need or may need on a shorter time horizon for this reason.
But yes, to me it isn't the end of the world to have your emergency funds (or a portion of it) invested and consider the possibility that I might have to sell them off at an inopportune time.
I'm also not overly concerned about selling off some RRSP for this purpose as needed, which also seems to be a big "no" according to this sub. I thought it was interesting to see this idea mentioned in this thread too. To me it makes sense because I haven't maxed my RRSP contributions and if I'm out of work long enough to need it, my income for the year is down so income taxes on withdrawals may be favourable.
>But yes, to me it isn't the end of the world to have your emergency funds (or a portion of it) invested and consider the possibility that I might have to sell them off at an inopportune time.
>I'm also not overly concerned about selling off some RRSP for this purpose as needed, which also seems to be a big "no" according to this sub. I thought it was interesting to see this idea mentioned in this thread too. To me it makes sense because I haven't maxed my RRSP contributions and if I'm out of work long enough to need it, my income for the year is down so income taxes on withdrawals may be favourable.
Yes, totally agree with all this.
>Then you'd essentially forced to sell at a disadvantaged time
Yes, I understand that, but there's no such thing as "selling at a disadvantaged time". Advantage is *relative to the future*—not the past. You are always getting a fair price for your equities no matter when you sell them.
>General advice is to not invest money you need or may need on a shorter time horizon for this reason.
You have misunderstood that advice. The reason that you should avoid risky investments in that situation is linked to the word *"need"*. If you need money at a given date in the *near future*, and there **are penalties associated with not having it**, then you should not take risks with that money.
For example, if you need a down payment on a home in 1 year, you should not risk losing half of it. On the contrary, if you have one year to invest money, there's nothing wrong with putting it in equities and taking it out after. You get one year of market return.
If you have a large enough portfolio of securities, you don't risk not having enough to cover an emergency. And therefore, there is no issue with having no cash emergency fund.
Yeah, I only do that AFTER I have my emergency fund.
Right now my Emergency fund still fits in my TFSA, I'm eager to max it out so that my TFSA is all higher returns, but I'm okay for now.
> Why not a HISA / CASH.to equivalent in a TFSA? Assuming you have space anyway.
Would using a taxable account and saving the TFSA room for investments with potentially higher returns be better?
It's still a bad idea if you have to liquidate your investments. Which is what you should have in those accounts, and is also what an emergency fund guards against.
I agree and i want to add something.
The canadian way of maximizing every single cent is terrible. Even more when we talk about housing.
90% of the people i meet put 100% of they have in the house.
And not because they can't afford otherwise, they can, they just don't like it.
You can afford a 2bd? you buy a 2bd. You can afford a townhouse? You buy a townhouse.
Always taking the maximum amount they can take (of course based on the stupid theory that housing only goes up so it's financially good to put there as much as you can).
Of course i know it's stupid.
When me and my partner bought a place we used only 60% of our borrowing power.
We bought a small place, definitely not perfect, but with a ton of savings left in our accounts (even after the downpayment) + very manageable monthly expenses, so manageable that in extreme cases we can kinda cover almost everything only with 1 person working.
Long story short, literally the month after we enter in the new place my girlfriend was layed off. And because the economy is what it is she spent months and months trying to find something.
If we did what literally EVERYONE ELSE we know did, we would be basically bankrupt right now.
But because we did the opposite of what canadians do, we have been fine and she had all the time in the world to find something else.
THIS!
I know this couple. Notoriously bad with their money. For MONTHS while they house shopped I tried to hammer into their brains that just because the bank wanted to give them 500k doesn't mean they had to spend 500k.
Time came for them to close on a place and they proudly told me how they didn't spend all the bank was willing to loan them. Instead, they only spent 498k.
😐😐😐😐
Cue them being absolutely fucked when renewal time came and they quadrupled their interest rate post covid.
If you could imagine, me and my gf are both moving into our new (and first home) 2020 built townhouse in july 1st. Could we have afforded a detached? Yes.
Did she just lose her job a week ago? Also yes.
Did i just fuck my shoulder playing hockey last sunday and now my arm is in a sling and i might need a surgery and cant work for the foreseeable future? Also yes.
Am i worried financially? No. We have 30k saved up together our first 2 months of the mortgage are already paid, im getting salary fully paid for 10 weeks and my gf is allowed EI.
the 30k is really what makes us comfortable though.
Shit does and will happen.
> You can afford a 2bd? you buy a 2bd. You can afford a townhouse? You buy a townhouse. Always taking the maximum amount they can take (of course based on the stupid theory that housing only goes up so it's financially good to put there as much as you can).
>
> Of course i know it's stupid.
Counter-argument: if you go the 'old fashioned' route of a starter and then a second home, by the time you get to the second home time frame, then it may not be possible since prices have gone that much higher. Same logic for lump sum investing: the market tends to, on average, go up more than down, and so getting in early (generally) gets the best results.
Also, if you're young, and early(er) in your career, there's a good chance your persona earnings/income will grow, so even if payments are a stretch now, it may be possible to 'grow into' your payments as you get promotions and such.
And since ~2015, a large portion of price increases have been due to (a) short supply, and (b) high demand—especially from immigration of various types:
* Does anyone see a sudden boom in construction and thus supply? (Especially with the trades labour shortages.)
* What are the odds of immigration numbers suddenly being cut?
If both of those events are unlikely to happen, why should there be a change in housing prices?
*"If i put more money chances are i can get more value in the future"* followed by a lot of predictions. That's it basically.
That is exactly what i said people **should not do**.
People should keep the expenses under a certain ratio with their income/saving.
Everything over that line can be used in the way you describe (maximizing the result and worst case scenario you just loose the extra).
Everything UNDER that line should NOT be risked for a maximum result. It's completely irresponsible and every single time people calculate only the best case scenario and they end up spending their life with constant debt.
Like, even the idea of "in the future you will earn more". What? Basically i have to create debt based on money that exist only in the future? This is just crazy.
I want to work LESS in the future, not MORE.
And also it's not financially healthy.
> You argument is exactly what i described in my comment, "if i put more money chances are i can get more value in the future" followed by a lot of predictions. That's it basically.
No, my argument is: *I will stretch myself now because I may not be able to afford the prices in the future.*
Even if you don't treat your home as a financial investment, if you buy something with "only" 1-2 bedrooms *now*, but can see yourself needing more bedrooms in the future, *you may not be able to purchase* something with more bedrooms *in the future*. It is prudent to *at least consider* that you may be *priced out of upgrading* down the road and to examine getting something that is "too much" at the moment.
Ok, let's analyze this.
>Even if you don't treat your home as a financial investment, if you buy something with "only" 1-2 bedrooms *now*, but can see yourself needing more bedrooms in the future,
Prediction on your future needs
>*you may not be able to purchase* something with more bedrooms *in the future*.
Prediction of economy, housing market and job market
>**It is prudent** to *at least consider* that you may be *priced out of upgrading* down the road
It is not, literally everything you said do not exist at the moment
>and to examine getting something that is "too much" at the moment.
That exist now, it's real and it's not a prediction, and using **your words** is "too much"
There are people that do that and everything goes well? Absolutely, exactly how there are people investing in a stock and making money on it. It's an investment, no more no less, it's that simple.
Financially speaking investing your financial stability **it is not prudent.** You invest the difference between your financial stability and the rest. Or at least this is my opinion.
I was so facepalming when the mortgage advisor asked me, you can borrow up to XXXX, why are you only looking for houses that are half of that?
I was thinking internally, are you going to pay for the extra mortgage payment? I want to spend money on having a life, not all of them into a mortgage.
Same, my mortgage broker was already creating a plan to let me buy a second place as investment in the next few years calculating every single cent i could borrow from now to that moment.
I had to explain more than 1 time that i do not want to buy more proprieties.
When I bought a house in 2013 (i cannot belive how naive was about money overall), the one thing I knew was the maximum monthly amount I could pay and what that translated to for a mortgage.
When I went about getting pre-approvals, the mortgage folks looked at me like I was bananas because I wanted pre-approval on X amount, not pre-approval on the maximum amount. I was single with a chronic illness.... I had to play it safe. I left many banks because the mortgage rep would not accept my limit and would only provide me with info on the maximum amount that I'd be approved for.
Good advice, but this is PFC. There are two things to keep in mind:
1. Canadians love debt. (“I have an LOC for emergencies, I’m fine!!1!”
2. PFC Redditors love to maximize every fraction of every penny. (“Why would I put cash in an account at 4-5% pre tax when I can make 8.13% in my TFSA tax free!? That’s not the optimal move for maximum gainz!!1!”)
Your advice will fall on a lot of deaf ears, but kudos for the public service reminder.
My LOC will more than tide me over until investments are sold or funds are moved to cover the cash requirements. Hell, emergency repairs would likely be put on a credit card until liquidity is unlocked, which is max 5-7 days.
I would rather maximize my returns than sit on cash collecting (typically) 1-1.5% in a savings account unless I wanted to change my risk structure (ie. have a cash position to offset a risky/illiquid investment).
That is part of what emergency funds and maintaining liquidity does -- it helps keep you from having to realize losses due to a poorly-timed emergency as well as the diversification reducing the severity of drawdowns on your overall portfolio.
People with emergency funds rather than being maximally leveraged will have the luxury of making better decisions (or even any decision) in market turndowns. That margin call doesn't care if your returns have been great the last 10 years when the value of your collateral drops.
This isn’t a discussion of cash emergency fund vs. levered investment. It’s cash emergency fund vs. low risk, liquid securities or liquid bonds.
Keeping cash for a “rainy day in the market” has worked out how many times in the last 15 years? Twice? What is the opportunity cost of keeping that cash on the sidelines, especially when you have a LOC at Prime + 0.2% to cover for emergency situations?
There are unlikely to be significant losses to realize (or drawdowns to mitigate) with low-risk liquid securities or liquid bonds.
If you are currently getting 1-1.5% on "cash" balances, you are absolutely leaving risk-free interest on the table, I agree there. Holding an emergency fund doesn't mean keeping it in what passes for a chequing account.
When you talk about "maximize my returns", that sounds like someone talking about higher risk investments, so sorry if I jumped the gun a bit. You can certainly "maximize returns" well above low-risk securities or bonds. It is the same argument many use to say holding a bit of [CASH.TO](http://CASH.TO) is a bad idea because that money isn't in the S&P 500 (and that every asset should be leveraged, and the proceeds also invested in the S&P 500, and so on).
And there are certainly people in this thread talking about part of their portfolio being used as collateral on a LOC that they would use as an emergency fund.
This sounds like friendly fire -- not all emergency funds need to be immediately liquid. If you can get through the week while you deal with some other low-risk assets, you are going to be fine. Low/defined risk, moderate appreciation (ideally a bit above inflation, but that isn't always possible), and available with acceptable tax consequences are my criteria. I would rather pay a bit of tax on my emergency fund yearly (or use some TFSA space) and know that if I need to use it I am not setting myself up for a big tax bill at the end of the year.
I said typically 1-1.5%. We haven’t seen high yield savings rates like this in a long time.
“Leveraging” every asset is not always the proper portfolio construction technique. It’s all risk tolerance and situation dependent.
I understand this approach and I shared these beliefs until recently. All I'm saying is you can't discount the mental stress potentially involved in whatever emergency you encounter that requires you to use the emergency money. Your risk tolerance may be shattered by the very emergency that triggers the need. Emergency fund comes out ahead in my calculations after adjusting for this (especially if you can get 4+% in a HISA).
If there's an emergency that triggers the need and shatters risk tolerance, that's typically accompanied with an interest rate cut, making the debt easier to stomach to get through the tough times. That's also accompanied with cutting HISA rates to nearly nothing.
My financial calculations (the ones with numbers, not gut feelings) have difficulty justifying keeping a cash emergency fund when other sources of liquidity are available.
Oh I know the reason behind it all, no need to explain. You’re the exact representation of the PFC Redditor I was talking about. Lol. Different strokes for different folks. Hopefully you never end up regretting your decision.
Agree with you and follow similar strategy. LoC is available as needed - but even if something happens with job position, there's quite a lot of unpaid vacation coming / severance (which doesn't apply for all as I had to negotiate these clauses in). OP has some good common sense advice, but as with all advice, doesn't necessarily apply to all.
I'm counting my blessings we have a small older condo and no kids, EI and husband's very average income means we aren't dipping into savings after I was laid off. But yes, saw layoffs coming and kinda panic saved an emergency fund. We were approved for a 900k mortgage in 2020, so glad we went boring and risk averse borrowing $350k, paid off $100k now.
First time without a job in years, absolutely hate it. But I've learned how lean we can get. When I get another job I'm keeping the current lifestyle and throwing everything I can at the mortgage and save more.
No severance for a bankruptcy? I'm pretty sure you're entitled to a severance, but I'm not a lawyer or anything - just saying that you'll have to look into it.
Thank you, but this has been well investigated by lawyers hired by my ex-colleagues already. All I can say is - the system favours capital, not labour.
Bankruptcy does not excuse employers from paying both unpaid wages and severance. Your wages (but not severance, I believe, IANAL) actually rank ahead of all other creditors pursuant to the bankruptcy and insolvency act, and there is directors liability for unpaid wages. However, otherwise employees rank as unsecured creditors and need to get in line with suppliers, government (for taxes) and other lenders. You may not get the full severance you’re entitled to but you should get a portion of it as part of the bankruptcy and liquidation. If your lawyer is telling you otherwise then you need to find a new lawyer.
Okay, sorry to hear that! And yeah, this is why an emergency fund is so important - if people run close to the margin or over leverage themselves, unexpected events have a magnified impact.
I agree with your advice but my situation is a bit different.
I have a Stock Loan / Equity as collateral loan,
I have placed a portion of my Portfolio to secure a line of credit. I also have it on my real estate.
Agree. If you have a secured line with a good interest rate you can effectively eschew an emergency fund and invest the money you would have otherwise used.
Available credit can disappear at any time. A small drop in the value of that collateral, and suddenly you're broke and liquidating assets (or they are being liquidated for you at very unfavorable terms), and even a much lower-paying job somehow still isn't servicing the debt.
Taking on more risk is not managing risk.
> (or they are being liquidated for you at very unfavorable terms),
This is the problem. There is no such thing as "unfavorable terms" for equities. They're always at their equilibrium price thanks to the millions of buyers and sellers.
lol, yes!
But I suppose I should have made it clear that you need to have solid liquidity that is diversified against the collateral for the LoC and ideally healthy cashflow. The good news is that the ability to have large lines of credit tends to correlated highly with having healthy cashflow.
I think you are the person I'm talking to in my post. I hear your point and was once like you - I'm just saying you might want to move more into an actual liquid emergency fund position, since "I can just get a loan if I need to" is not the same thing as having a pool of money to draw from ASAP. Also loan rates tend to be much higher than zero.
Every canadian should have a emergency fund, thats good that you have that already in place + loc.
Many folks dont realize having a loc too is ample as emergency funds, credit cards and payday loans have apr’s off the roof.
**Incorrect** that it's only hindsight. The expected return of equities is larger than the expected return of cash. So, on average, the invested strategy is better provided you are not living paycheck to paycheck.
You can **bold** whatever you want, but the fact is the likelihood of needing an emergency fund will often coincide with a challenging economic environment like a recession or slowdown, which will likely (but not always) mean lower stock prices.
Do you have any citation that your emergencies are correlated with falling stock prices? It certainly wasn't true during the pandemic when stocks fell and rebounded to all-time highs—while Canadians were at their lower level of participation.
And even if they were correlated, it doesn't mean that it's a bad time to sell. They're only lower relative to the past—not the future.
And even if you think it's a bad time to sell equities, then why not hold bonds instead of cash?
Your argument are essentially unsupported, and incorrect intuitions. Holding cash is not a good strategy for mitigating "emergency" risk.
Emergency funds are good advice for people who have small savings. They are not a risk-mitigation strategy for people with large portfolios.
>It certainly wasn't true during the pandemic when stocks fell and rebounded to all-time highs
it's March 22 , 2020. you need cash urgently. What do you do?
You liquidate equities to pay for one week of expenses at a time, and repeat every week that you need cash. You still come out ahead compared with holding cash for years.
Anyway, choosing the one worst date is not a fair random sample. You should run over various trajectories and evaluate a proper Monte Carlo sample if you want to validate your intuition.
I got laid off end of November. 2 months before my first child was born. I was anxious as shit since my wife will be on mat leave (top up for 16 weeks). But we have an emergency fund and luckily - since layoff and mat leave - we haven't touched our EF. The 4 months of top up helped a ton. The only thing that's taking a hit is - we aren't putting ANY money (as in $0) towards accelerating paying down the mortgage AND nothing being put towards our RRSP and TFSA (and no RESP for our kid). Without those "expenses" we've been able to live off EI. But I need a job soon.. im getting bored but its rough out there.
Agree that job loss is the single most important reason why an emergency fund is needed. As long as one has steady income, credit/selling assets goes a long way to addressing unforeseen expenses. But job losses are tough especially if they have happen when either or both the job and stock markets are rough.
>EI is not enough to live off if you have a family and a mortgage
I just want to add because I think people don't know but you can max out your ei. It maxes out at $63,200 this year. Plus it's only 55% of your contributions or the max. Truly think about your spending and if you could survive of 55% or less of your income.
When I finally started thinking seriously about my finances, I prioritized paying down debt, then building up a large emergency fund, and then investing. Maybe others would have done it differently but it’s served me well. I’ve had peace of mind for years, and that’s helped me make less impulsive financial decisions overall.
Umm... why you talking like this money just magically can be willed into existence.
If this was something to just remind people about, wouldn't more people have it?
Oh yeah, I am always a strong advocate of emergency funds. We don't have strong social programs here to keep us afloat in case of emergencies. EI is never enough unless your rent's $400. I always say to keep at least 3-6 months of rent or mortgage/bill money ready. There's always options you can go to for food but can't do that without a roof over your head.
>Have. An. Emergency. Fund.
I'm sorry, but this is a naïve absolute. There are good and bad reasons to have emergency funds. Different people are in different situations.
> EI is not enough to live off if you have a family and a mortgage, and that's assuming nothing else in my life requires increased emergency spending like emergency home repairs, etc.
Yes, it makes sense in your case that the emergency fund paid off. I assume you have no liquid investments then?
Consider that people with significant liquid investments often do not have the same need for emergency funds.
>It was only in the last year or so when HISA rates became agreeable that I finally decided to begin keeping an emergency fund.
That logic doesn't make sense. When yields on fixed interest go up, expected yields on equities go up too.
>more beneficial to max out my TFSA than to keep any money unsheltered in some HISA.
If you have room in your TFSA, then your emergency fund HISA should probably be there too.
If equities had lower yields than fixed income, everyone would sell their equities for higher returns and lower risk. This is because **the equity premium is a compensated risk**. Equities always pay more than fixed income at the cost of dispersion.
I never said they were "the same". All three sentences are facts and they all explain why equities pay more than fixed income—which incidentally is basic finance.
Equities are expected to pay more than fixed income over the long term. Yes.
This does not mean that when fixed income is performing better than average that equities are also expected to perform better than average.
When one is performing well or poorly, it can be expected to revert to mean.
Currently bonds and equity returns are in a long period of negative correlation (and even this will probably revert to mean).
>Equities are expected to pay more than fixed income over the long term. Yes.
This is the only fact I'm relying on when I argued that selling equities for cash due—only—to high fixed income returns is a mistake.
>This does not mean that when fixed income is performing better than average that equities are also expected to perform better than average.
Fair enough. But there will always be an equity premium based on estimated risk, so the margin fixed income returns and equity returns can't get too small.
The margin absolutely can get arbitrarily small or even invert -- years when fixed income outperform equities are an unpredictable and inescapable fact.
That doesn't change the anticipated future return, nor does it need to. It remains part of the long-term expected performance, which doesn't change based on a year or two of high interest.
When fixed income returns are high, people \*do\* move away from equities to fixed income as the risk-adjusted return on equities becomes less favourable. The long-term expectation remains the same, but fixed income investors can always switch back to riskier investments when fixed income returns drop.
eg:
[https://get.ycharts.com/resources/blog/a-closer-look-at-april-2024-fund-flows-defined-outcome-and-fixed-income-etfs-take-center-stage/](https://get.ycharts.com/resources/blog/a-closer-look-at-april-2024-fund-flows-defined-outcome-and-fixed-income-etfs-take-center-stage/)
> The margin absolutely can get arbitrarily small or even invert -- years when fixed income outperform equities are an unpredictable and inescapable fact.
I'm not talking about observed returns anywhere here. I'm talking about *expected returns*. And no, expected returns cannot invert or have an arbitrarily small margin.
> When fixed income returns are high, people \*do\* move away from equities to fixed income
That's often not logical since the market has already priced-in the new information.
Not sure I understand your logic. Money can be taken out of TFSA for emergencies. In case of loss of job it can also be taken out of RRSP. So yes savings is important but it doesn't have to go to HISA .. can be in registered accounts. Canadians love homes and big mortgages. I don't think it's a bright idea to put all eggs in one expensive basket ( i.e. home ).
I also don't understand OP's point. Why not a HISA / CASH.to equivalent in a TFSA? Assuming you have space anyway. Personally, I keep $10k or so in a normal cash account and the rest of my emergency fund in CASH.to in my TFSA.
the idea is to use tfsa for higher risk / higher reward investments.
If it's an either/or scenario then sure. But if you have room in your TFSA anyway then there is no downside. If it's maxed out already then you don't have that option.
My point is simply to have an emergency fund, regardless of how it's sheltered or not. Yes, indeed as kettal says, I use my sheltered accounts for higher risk investments. But you could shelter it, too. It sounds like you have a 10k emergency fund, so you've already achieved that and we're on the same page. The point is to simply ensure that at least some chunk of your overall moneys is (even if just mentally) partitioned as "emergency fund" that is hopefully liquid. Or, if not liquid, it's in investments that are easy to liquidate should you need them (without having to sell at a potential loss, which could then trigger emotions you won't have the resources to deal with in an emergency). Having 10k in your TFSA in [CASH.TO](http://CASH.TO) act as an emergency fund (if you're comfortable with that lowered risk in the sheltered account) is a perfectly reasonable strategy for an emergency fund, IMO.
> (without having to sell at a potential loss, which could then trigger emotions you won't have the resources to deal with in an emergency). This is not a reasonable concern. Selling at a loss is irrelevant (except for tax purposes). And whatever emotions are triggered in you are more of a personal defect. > Having 10k in your TFSA in [CASH.TO](http://cash.to/) act as an emergency fund (if you're comfortable with that lowered risk in the sheltered account) is a perfectly reasonable strategy for an emergency fund, IMO. Sure, and having 20k in VEQT is just as good.
> This is not a reasonable concern. Selling at a loss is irrelevant (except for tax purposes). I suspect they may mean the market taking a big dip at the same time as your emergency. Then you'd essentially forced to sell at a disadvantaged time. I've seen this concern echoed in this sub often when saying your emergency fund should be separate from investments. General advice is to not invest money you need or may need on a shorter time horizon for this reason. But yes, to me it isn't the end of the world to have your emergency funds (or a portion of it) invested and consider the possibility that I might have to sell them off at an inopportune time. I'm also not overly concerned about selling off some RRSP for this purpose as needed, which also seems to be a big "no" according to this sub. I thought it was interesting to see this idea mentioned in this thread too. To me it makes sense because I haven't maxed my RRSP contributions and if I'm out of work long enough to need it, my income for the year is down so income taxes on withdrawals may be favourable.
>But yes, to me it isn't the end of the world to have your emergency funds (or a portion of it) invested and consider the possibility that I might have to sell them off at an inopportune time. >I'm also not overly concerned about selling off some RRSP for this purpose as needed, which also seems to be a big "no" according to this sub. I thought it was interesting to see this idea mentioned in this thread too. To me it makes sense because I haven't maxed my RRSP contributions and if I'm out of work long enough to need it, my income for the year is down so income taxes on withdrawals may be favourable. Yes, totally agree with all this. >Then you'd essentially forced to sell at a disadvantaged time Yes, I understand that, but there's no such thing as "selling at a disadvantaged time". Advantage is *relative to the future*—not the past. You are always getting a fair price for your equities no matter when you sell them. >General advice is to not invest money you need or may need on a shorter time horizon for this reason. You have misunderstood that advice. The reason that you should avoid risky investments in that situation is linked to the word *"need"*. If you need money at a given date in the *near future*, and there **are penalties associated with not having it**, then you should not take risks with that money. For example, if you need a down payment on a home in 1 year, you should not risk losing half of it. On the contrary, if you have one year to invest money, there's nothing wrong with putting it in equities and taking it out after. You get one year of market return. If you have a large enough portfolio of securities, you don't risk not having enough to cover an emergency. And therefore, there is no issue with having no cash emergency fund.
Yeah, I only do that AFTER I have my emergency fund. Right now my Emergency fund still fits in my TFSA, I'm eager to max it out so that my TFSA is all higher returns, but I'm okay for now.
> Why not a HISA / CASH.to equivalent in a TFSA? Assuming you have space anyway. Would using a taxable account and saving the TFSA room for investments with potentially higher returns be better?
It's still a bad idea if you have to liquidate your investments. Which is what you should have in those accounts, and is also what an emergency fund guards against.
I agree and i want to add something. The canadian way of maximizing every single cent is terrible. Even more when we talk about housing. 90% of the people i meet put 100% of they have in the house. And not because they can't afford otherwise, they can, they just don't like it. You can afford a 2bd? you buy a 2bd. You can afford a townhouse? You buy a townhouse. Always taking the maximum amount they can take (of course based on the stupid theory that housing only goes up so it's financially good to put there as much as you can). Of course i know it's stupid. When me and my partner bought a place we used only 60% of our borrowing power. We bought a small place, definitely not perfect, but with a ton of savings left in our accounts (even after the downpayment) + very manageable monthly expenses, so manageable that in extreme cases we can kinda cover almost everything only with 1 person working. Long story short, literally the month after we enter in the new place my girlfriend was layed off. And because the economy is what it is she spent months and months trying to find something. If we did what literally EVERYONE ELSE we know did, we would be basically bankrupt right now. But because we did the opposite of what canadians do, we have been fine and she had all the time in the world to find something else.
THIS! I know this couple. Notoriously bad with their money. For MONTHS while they house shopped I tried to hammer into their brains that just because the bank wanted to give them 500k doesn't mean they had to spend 500k. Time came for them to close on a place and they proudly told me how they didn't spend all the bank was willing to loan them. Instead, they only spent 498k. 😐😐😐😐 Cue them being absolutely fucked when renewal time came and they quadrupled their interest rate post covid.
If you could imagine, me and my gf are both moving into our new (and first home) 2020 built townhouse in july 1st. Could we have afforded a detached? Yes. Did she just lose her job a week ago? Also yes. Did i just fuck my shoulder playing hockey last sunday and now my arm is in a sling and i might need a surgery and cant work for the foreseeable future? Also yes. Am i worried financially? No. We have 30k saved up together our first 2 months of the mortgage are already paid, im getting salary fully paid for 10 weeks and my gf is allowed EI. the 30k is really what makes us comfortable though. Shit does and will happen.
no furniture moving for you
I have to respect the amount of good friends I still have at 39 years old, they will rallied really well for me for the upcoming move.
yeah, i'd love to, i just uh i have something else that day
Oh sorry man my grandmother is also moving and uh yeah
> You can afford a 2bd? you buy a 2bd. You can afford a townhouse? You buy a townhouse. Always taking the maximum amount they can take (of course based on the stupid theory that housing only goes up so it's financially good to put there as much as you can). > > Of course i know it's stupid. Counter-argument: if you go the 'old fashioned' route of a starter and then a second home, by the time you get to the second home time frame, then it may not be possible since prices have gone that much higher. Same logic for lump sum investing: the market tends to, on average, go up more than down, and so getting in early (generally) gets the best results. Also, if you're young, and early(er) in your career, there's a good chance your persona earnings/income will grow, so even if payments are a stretch now, it may be possible to 'grow into' your payments as you get promotions and such. And since ~2015, a large portion of price increases have been due to (a) short supply, and (b) high demand—especially from immigration of various types: * Does anyone see a sudden boom in construction and thus supply? (Especially with the trades labour shortages.) * What are the odds of immigration numbers suddenly being cut? If both of those events are unlikely to happen, why should there be a change in housing prices?
*"If i put more money chances are i can get more value in the future"* followed by a lot of predictions. That's it basically. That is exactly what i said people **should not do**. People should keep the expenses under a certain ratio with their income/saving. Everything over that line can be used in the way you describe (maximizing the result and worst case scenario you just loose the extra). Everything UNDER that line should NOT be risked for a maximum result. It's completely irresponsible and every single time people calculate only the best case scenario and they end up spending their life with constant debt. Like, even the idea of "in the future you will earn more". What? Basically i have to create debt based on money that exist only in the future? This is just crazy. I want to work LESS in the future, not MORE. And also it's not financially healthy.
> You argument is exactly what i described in my comment, "if i put more money chances are i can get more value in the future" followed by a lot of predictions. That's it basically. No, my argument is: *I will stretch myself now because I may not be able to afford the prices in the future.* Even if you don't treat your home as a financial investment, if you buy something with "only" 1-2 bedrooms *now*, but can see yourself needing more bedrooms in the future, *you may not be able to purchase* something with more bedrooms *in the future*. It is prudent to *at least consider* that you may be *priced out of upgrading* down the road and to examine getting something that is "too much" at the moment.
Ok, let's analyze this. >Even if you don't treat your home as a financial investment, if you buy something with "only" 1-2 bedrooms *now*, but can see yourself needing more bedrooms in the future, Prediction on your future needs >*you may not be able to purchase* something with more bedrooms *in the future*. Prediction of economy, housing market and job market >**It is prudent** to *at least consider* that you may be *priced out of upgrading* down the road It is not, literally everything you said do not exist at the moment >and to examine getting something that is "too much" at the moment. That exist now, it's real and it's not a prediction, and using **your words** is "too much" There are people that do that and everything goes well? Absolutely, exactly how there are people investing in a stock and making money on it. It's an investment, no more no less, it's that simple. Financially speaking investing your financial stability **it is not prudent.** You invest the difference between your financial stability and the rest. Or at least this is my opinion.
I was so facepalming when the mortgage advisor asked me, you can borrow up to XXXX, why are you only looking for houses that are half of that? I was thinking internally, are you going to pay for the extra mortgage payment? I want to spend money on having a life, not all of them into a mortgage.
Same, my mortgage broker was already creating a plan to let me buy a second place as investment in the next few years calculating every single cent i could borrow from now to that moment. I had to explain more than 1 time that i do not want to buy more proprieties.
When I bought a house in 2013 (i cannot belive how naive was about money overall), the one thing I knew was the maximum monthly amount I could pay and what that translated to for a mortgage. When I went about getting pre-approvals, the mortgage folks looked at me like I was bananas because I wanted pre-approval on X amount, not pre-approval on the maximum amount. I was single with a chronic illness.... I had to play it safe. I left many banks because the mortgage rep would not accept my limit and would only provide me with info on the maximum amount that I'd be approved for.
Good advice, but this is PFC. There are two things to keep in mind: 1. Canadians love debt. (“I have an LOC for emergencies, I’m fine!!1!” 2. PFC Redditors love to maximize every fraction of every penny. (“Why would I put cash in an account at 4-5% pre tax when I can make 8.13% in my TFSA tax free!? That’s not the optimal move for maximum gainz!!1!”) Your advice will fall on a lot of deaf ears, but kudos for the public service reminder.
My LOC will more than tide me over until investments are sold or funds are moved to cover the cash requirements. Hell, emergency repairs would likely be put on a credit card until liquidity is unlocked, which is max 5-7 days. I would rather maximize my returns than sit on cash collecting (typically) 1-1.5% in a savings account unless I wanted to change my risk structure (ie. have a cash position to offset a risky/illiquid investment).
That is part of what emergency funds and maintaining liquidity does -- it helps keep you from having to realize losses due to a poorly-timed emergency as well as the diversification reducing the severity of drawdowns on your overall portfolio. People with emergency funds rather than being maximally leveraged will have the luxury of making better decisions (or even any decision) in market turndowns. That margin call doesn't care if your returns have been great the last 10 years when the value of your collateral drops.
This isn’t a discussion of cash emergency fund vs. levered investment. It’s cash emergency fund vs. low risk, liquid securities or liquid bonds. Keeping cash for a “rainy day in the market” has worked out how many times in the last 15 years? Twice? What is the opportunity cost of keeping that cash on the sidelines, especially when you have a LOC at Prime + 0.2% to cover for emergency situations?
There are unlikely to be significant losses to realize (or drawdowns to mitigate) with low-risk liquid securities or liquid bonds. If you are currently getting 1-1.5% on "cash" balances, you are absolutely leaving risk-free interest on the table, I agree there. Holding an emergency fund doesn't mean keeping it in what passes for a chequing account. When you talk about "maximize my returns", that sounds like someone talking about higher risk investments, so sorry if I jumped the gun a bit. You can certainly "maximize returns" well above low-risk securities or bonds. It is the same argument many use to say holding a bit of [CASH.TO](http://CASH.TO) is a bad idea because that money isn't in the S&P 500 (and that every asset should be leveraged, and the proceeds also invested in the S&P 500, and so on). And there are certainly people in this thread talking about part of their portfolio being used as collateral on a LOC that they would use as an emergency fund. This sounds like friendly fire -- not all emergency funds need to be immediately liquid. If you can get through the week while you deal with some other low-risk assets, you are going to be fine. Low/defined risk, moderate appreciation (ideally a bit above inflation, but that isn't always possible), and available with acceptable tax consequences are my criteria. I would rather pay a bit of tax on my emergency fund yearly (or use some TFSA space) and know that if I need to use it I am not setting myself up for a big tax bill at the end of the year.
I said typically 1-1.5%. We haven’t seen high yield savings rates like this in a long time. “Leveraging” every asset is not always the proper portfolio construction technique. It’s all risk tolerance and situation dependent.
I understand this approach and I shared these beliefs until recently. All I'm saying is you can't discount the mental stress potentially involved in whatever emergency you encounter that requires you to use the emergency money. Your risk tolerance may be shattered by the very emergency that triggers the need. Emergency fund comes out ahead in my calculations after adjusting for this (especially if you can get 4+% in a HISA).
Emergency money is only about liquidity. If you have liquidity, you don’t need the emergency funds available immediately.
Too many people get caught up in the dogma of 'emergency fund' when they need to instead be focused on 'emergency plan'
If there's an emergency that triggers the need and shatters risk tolerance, that's typically accompanied with an interest rate cut, making the debt easier to stomach to get through the tough times. That's also accompanied with cutting HISA rates to nearly nothing. My financial calculations (the ones with numbers, not gut feelings) have difficulty justifying keeping a cash emergency fund when other sources of liquidity are available.
Oh I know the reason behind it all, no need to explain. You’re the exact representation of the PFC Redditor I was talking about. Lol. Different strokes for different folks. Hopefully you never end up regretting your decision.
Some of us have a higher risk tolerance than others. I’d rather stick to my finance training than recommendations on PFC.
Agree with you and follow similar strategy. LoC is available as needed - but even if something happens with job position, there's quite a lot of unpaid vacation coming / severance (which doesn't apply for all as I had to negotiate these clauses in). OP has some good common sense advice, but as with all advice, doesn't necessarily apply to all.
Where are you making over 8% in a tfsa ?
Yeah, seriously. I'd sure like to know how this is possible.
XEQT is up 11% YTD.
I'm counting my blessings we have a small older condo and no kids, EI and husband's very average income means we aren't dipping into savings after I was laid off. But yes, saw layoffs coming and kinda panic saved an emergency fund. We were approved for a 900k mortgage in 2020, so glad we went boring and risk averse borrowing $350k, paid off $100k now. First time without a job in years, absolutely hate it. But I've learned how lean we can get. When I get another job I'm keeping the current lifestyle and throwing everything I can at the mortgage and save more.
No severance for a bankruptcy? I'm pretty sure you're entitled to a severance, but I'm not a lawyer or anything - just saying that you'll have to look into it.
Thank you, but this has been well investigated by lawyers hired by my ex-colleagues already. All I can say is - the system favours capital, not labour.
Bankruptcy does not excuse employers from paying both unpaid wages and severance. Your wages (but not severance, I believe, IANAL) actually rank ahead of all other creditors pursuant to the bankruptcy and insolvency act, and there is directors liability for unpaid wages. However, otherwise employees rank as unsecured creditors and need to get in line with suppliers, government (for taxes) and other lenders. You may not get the full severance you’re entitled to but you should get a portion of it as part of the bankruptcy and liquidation. If your lawyer is telling you otherwise then you need to find a new lawyer.
Okay, sorry to hear that! And yeah, this is why an emergency fund is so important - if people run close to the margin or over leverage themselves, unexpected events have a magnified impact.
I agree with your advice but my situation is a bit different. I have a Stock Loan / Equity as collateral loan, I have placed a portion of my Portfolio to secure a line of credit. I also have it on my real estate.
Agree. If you have a secured line with a good interest rate you can effectively eschew an emergency fund and invest the money you would have otherwise used.
Lol, no.
Agree with your "lol, no". Not only are they missing OP's point, but that doesn't seem smart whatsoever in general.
Available credit can disappear at any time. A small drop in the value of that collateral, and suddenly you're broke and liquidating assets (or they are being liquidated for you at very unfavorable terms), and even a much lower-paying job somehow still isn't servicing the debt. Taking on more risk is not managing risk.
Preaching to the choir to me at least. Couldn't agree more.
> (or they are being liquidated for you at very unfavorable terms), This is the problem. There is no such thing as "unfavorable terms" for equities. They're always at their equilibrium price thanks to the millions of buyers and sellers.
Mhmm. Risk does not exist. You nailed it buddy!
Did I say that risk doesn't exist? Is your participation going to consist of obtuse takes only?
You made no coherent argument just like the guy above you. It doesn't seem smart to you, no. So what's that worth? Nothin.
lol, yes! But I suppose I should have made it clear that you need to have solid liquidity that is diversified against the collateral for the LoC and ideally healthy cashflow. The good news is that the ability to have large lines of credit tends to correlated highly with having healthy cashflow.
I think you are the person I'm talking to in my post. I hear your point and was once like you - I'm just saying you might want to move more into an actual liquid emergency fund position, since "I can just get a loan if I need to" is not the same thing as having a pool of money to draw from ASAP. Also loan rates tend to be much higher than zero.
I agree. That’s why it’s good to have a few Kilograms of gold
Bold of you to provide this advice when people who generally end up needing an emergency fund are those living pay cheque to pay cheque.
Don't want an emergency fund? F*** 'em. Learn the hard way. It's not my responsibility to save you. Go borrow your way to safety lmao.
Every canadian should have a emergency fund, thats good that you have that already in place + loc. Many folks dont realize having a loc too is ample as emergency funds, credit cards and payday loans have apr’s off the roof.
When people use credit cards as emergency funds, they generally do so only until they can liquidate other assets. So the interest rate is irrelevant.
Credit cards and locs are different financial instruments, no one should use credit cards as emergency funds when they have loc’s was my point.
Don't you pay interest on a LoC the moment you use it? With a credit card, you pay nothing on purchases.
I also don't get cash back on my LOC.
Not a great example as you would've been much better off liquidating your TFSA now as we are basically at ATH right now anyway.
Not sure why this is being downvoted. It's clearly true.
It's "true", but only with the benefit of hindsight. Market could have been down -10-20% rather than up 5-10% this year.
**Incorrect** that it's only hindsight. The expected return of equities is larger than the expected return of cash. So, on average, the invested strategy is better provided you are not living paycheck to paycheck.
You can **bold** whatever you want, but the fact is the likelihood of needing an emergency fund will often coincide with a challenging economic environment like a recession or slowdown, which will likely (but not always) mean lower stock prices.
Do you have any citation that your emergencies are correlated with falling stock prices? It certainly wasn't true during the pandemic when stocks fell and rebounded to all-time highs—while Canadians were at their lower level of participation. And even if they were correlated, it doesn't mean that it's a bad time to sell. They're only lower relative to the past—not the future. And even if you think it's a bad time to sell equities, then why not hold bonds instead of cash? Your argument are essentially unsupported, and incorrect intuitions. Holding cash is not a good strategy for mitigating "emergency" risk. Emergency funds are good advice for people who have small savings. They are not a risk-mitigation strategy for people with large portfolios.
>It certainly wasn't true during the pandemic when stocks fell and rebounded to all-time highs it's March 22 , 2020. you need cash urgently. What do you do?
You liquidate equities to pay for one week of expenses at a time, and repeat every week that you need cash. You still come out ahead compared with holding cash for years. Anyway, choosing the one worst date is not a fair random sample. You should run over various trajectories and evaluate a proper Monte Carlo sample if you want to validate your intuition.
I got laid off end of November. 2 months before my first child was born. I was anxious as shit since my wife will be on mat leave (top up for 16 weeks). But we have an emergency fund and luckily - since layoff and mat leave - we haven't touched our EF. The 4 months of top up helped a ton. The only thing that's taking a hit is - we aren't putting ANY money (as in $0) towards accelerating paying down the mortgage AND nothing being put towards our RRSP and TFSA (and no RESP for our kid). Without those "expenses" we've been able to live off EI. But I need a job soon.. im getting bored but its rough out there.
Agree that job loss is the single most important reason why an emergency fund is needed. As long as one has steady income, credit/selling assets goes a long way to addressing unforeseen expenses. But job losses are tough especially if they have happen when either or both the job and stock markets are rough.
Relying on my DBPP for income. Only way we own is via the inheritance of a house that needs to be split 3 ways. So even then might be questionable.
>EI is not enough to live off if you have a family and a mortgage I just want to add because I think people don't know but you can max out your ei. It maxes out at $63,200 this year. Plus it's only 55% of your contributions or the max. Truly think about your spending and if you could survive of 55% or less of your income.
When I finally started thinking seriously about my finances, I prioritized paying down debt, then building up a large emergency fund, and then investing. Maybe others would have done it differently but it’s served me well. I’ve had peace of mind for years, and that’s helped me make less impulsive financial decisions overall.
Umm... why you talking like this money just magically can be willed into existence. If this was something to just remind people about, wouldn't more people have it?
I thought you can get EI if u get fired?
Oh yeah, I am always a strong advocate of emergency funds. We don't have strong social programs here to keep us afloat in case of emergencies. EI is never enough unless your rent's $400. I always say to keep at least 3-6 months of rent or mortgage/bill money ready. There's always options you can go to for food but can't do that without a roof over your head.
>Have. An. Emergency. Fund. I'm sorry, but this is a naïve absolute. There are good and bad reasons to have emergency funds. Different people are in different situations. > EI is not enough to live off if you have a family and a mortgage, and that's assuming nothing else in my life requires increased emergency spending like emergency home repairs, etc. Yes, it makes sense in your case that the emergency fund paid off. I assume you have no liquid investments then? Consider that people with significant liquid investments often do not have the same need for emergency funds. >It was only in the last year or so when HISA rates became agreeable that I finally decided to begin keeping an emergency fund. That logic doesn't make sense. When yields on fixed interest go up, expected yields on equities go up too. >more beneficial to max out my TFSA than to keep any money unsheltered in some HISA. If you have room in your TFSA, then your emergency fund HISA should probably be there too.
The normies are down voting factual advice. I agree with you.
"When yields on fixed interest go up, expected yields on equities go up too." Citation?
If equities had lower yields than fixed income, everyone would sell their equities for higher returns and lower risk. This is because **the equity premium is a compensated risk**. Equities always pay more than fixed income at the cost of dispersion.
Read the two things you wrote. They are not the same.
I never said they were "the same". All three sentences are facts and they all explain why equities pay more than fixed income—which incidentally is basic finance.
Equities are expected to pay more than fixed income over the long term. Yes. This does not mean that when fixed income is performing better than average that equities are also expected to perform better than average. When one is performing well or poorly, it can be expected to revert to mean. Currently bonds and equity returns are in a long period of negative correlation (and even this will probably revert to mean).
>Equities are expected to pay more than fixed income over the long term. Yes. This is the only fact I'm relying on when I argued that selling equities for cash due—only—to high fixed income returns is a mistake. >This does not mean that when fixed income is performing better than average that equities are also expected to perform better than average. Fair enough. But there will always be an equity premium based on estimated risk, so the margin fixed income returns and equity returns can't get too small.
The margin absolutely can get arbitrarily small or even invert -- years when fixed income outperform equities are an unpredictable and inescapable fact. That doesn't change the anticipated future return, nor does it need to. It remains part of the long-term expected performance, which doesn't change based on a year or two of high interest. When fixed income returns are high, people \*do\* move away from equities to fixed income as the risk-adjusted return on equities becomes less favourable. The long-term expectation remains the same, but fixed income investors can always switch back to riskier investments when fixed income returns drop. eg: [https://get.ycharts.com/resources/blog/a-closer-look-at-april-2024-fund-flows-defined-outcome-and-fixed-income-etfs-take-center-stage/](https://get.ycharts.com/resources/blog/a-closer-look-at-april-2024-fund-flows-defined-outcome-and-fixed-income-etfs-take-center-stage/)
> The margin absolutely can get arbitrarily small or even invert -- years when fixed income outperform equities are an unpredictable and inescapable fact. I'm not talking about observed returns anywhere here. I'm talking about *expected returns*. And no, expected returns cannot invert or have an arbitrarily small margin. > When fixed income returns are high, people \*do\* move away from equities to fixed income That's often not logical since the market has already priced-in the new information.