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Decided to payoff my mortgage.
Mentor
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First of all, your emergency fund should absolutely at least be in a HYSA or money market fund. Having $120k sitting in an account that’s earning less than 1% interest is just outright foolish.
Personally, I’d consider investing half of it in CD’s or some sort of income generating investment if it beats the rate in your HYSA. I know my HYSA is generating 3.1%, if you can lock up a 6 to 9 month CD around 3.75% to 4%, I’d do that.
Openbank.us HYSA is paying me 4.0% right now.
Mentor
Look at USAlliance and Marcus for No Penalty CDs. Open up a bunch in $25k increments (so if you need to break one, the rest continue to earn). They are paying close to 4% for around a year of time - and the best part is you can break them penalty free, just by calling. Other than a small high yield savings account, all of my "Emergency Funds" are in no penalty CDs. They are the best of both worlds - higher yield, and you can get to your money if needed. Good luck!
If you have state tax, put half in 26 wk tbills or munis, if at Fidelity, fdlxx is more liquid but state tax advantages not as good
Subject Expert
Fdlxx is close to 100% state tax sheltered, but you pay 0.3% management fee
Coach
Depends if you have parents who would hail you out. You can keep less on hand
I would keep most of my liquid cash in a high-yield savings account or money market account at a brokerage. Depending on your net worth and what percent of that is the $120k, it could be high or low. If you have a very high net worth, it could make sense to keep the full FDIC-insured amount of $250k in a cash account.
I would look into dividend ETFs, when you pick the right one you could be making almost $1k/month in dividends and auto reinvest the dividends so it just continues to grow and make you more money without doing anything
These are not emergency fund type investments.
In fact, I have no idea what their purpose is; they’re tax inefficient and broadly likely to underperform the market.
For how much you need, it is a personal choice and I would consider - how many dependents you are supporting, how long you think you would be out of work given your skill set, how easily you can downsize expenses, etc. as others have said, it minimum you should be earning good interest - HYSA or similar rate. Frankly, if it is a year’s worth of expenses and likelihood of job loss is not high, I’d consider having a portion of it in equities. You can still sell in time of need, the risk is that you take a value hit because of timing of need.
For a single income household, the "standard" is 6 months of expenses. If you have a relatively "unstable" job, hazardous hobbies or other abnormal circumstances, you could extend up to 12 months. Not knowing the rest of your financial situation, age or personal circumstances, i'd probably keep 6 months of expenses (not income) in a HYSA and put the rest in a low expense index fund like VOO or similar.
Thank you, everyone, for your input. I will definitely consider all the options you've mentioned here.
Sgov
Treasury bond ETF
Subject Expert
How much are your monthly expenses?
How stable is your job and income?
Subject Expert
Good luck. :)