Emergency Fund- How Should I Invest My Emergency Fund? Part 3

My answer for what you should invest in is much shorter than the list of what you should not invest your emergency fund in. 

ING checking or savings-  If you have been reading this blog at all, you know my heart, for savings accounts, lies at ingdirect.com.  

Money Market Funds-

You will see Money market funds in your brokerage accounts.  Money market funds are large pools of money invested in short term notes and historically return amounts that mirror the Fed interest rate.  With the Fed rate at 0-.25%, it is no wonder why money market funds are returning close to nothing.   If all else fails, you will know a money market fund by its price: constantly $1.00 per share every day.

Like I said before, you will not get rich from these funds (though you will not lose any money either.) 

Here is a list of some popular Money Market Funds:

Where Would I Not Put It?  CD’s. 

CD’s historically earn more interest than your traditional savings or money market.  However, I would currently advise against buying CD’s for a couple of reasons.

1. There are excessive fees if you need to access your money for an emergency when you are invested in a CD.
2. Interest rates are at historically low rates, which can’t go any lower.  Buying low and selling high is good for stocks, but buying a CD at a low rate locks in that low rate.  When interest rates rise, your CD rate remains the same.   It was only 2 years ago when an average money market savings account was making 5.00%.  With the economy gaining traction as well as our unprecedented government spending, I am expecting these rates to go back up (and then some) sooner before later. 

That being said, I don’t want to be locked in a 1.5% CD for more than 6 months at a time. 

Stocks

Your emergency fund and your investments are to perform different functions.   Stocks will be good for investments, and that step will come soon.  In the meantime, there are two main reasons not to invest your emergency fund in stocks.

1. Stocks fluctuate.  A lot.  I want to buy stocks low and sell them high.  When there is an emergency, there is no choice when to sell.  It’s now.  I want my emergency fund to remain constant, even if I feel that I am missing out on higher potential returns. 
2. Stocks take T+3 days to settle.  T means today and 3 means good business days.  MLK, Presidents Day, Memorial Day, and Labor Day are good business days for me (I work in the financial industry and have these days off)  but are not good business days for getting your money out of stocks.  Take for example, you sell your stock for an emergency on a Wednesday (T), that money is not available to withdraw until next Monday (+3) or Tuesday if there is a holiday.    Add another couple of days to get your hands on the money and you are at a full week.  Your emergency fund should be more accessible than that. 

Mutual Funds

Like stocks, there’s a time and place for mutual funds, but your emergency fund is not the place for them.   

Where do you invest your first $1000.00 and your emergency fund?