Can You Use Investments for Emergency Expenses-Where to Keep Emergency Fund-Best Emergency Fund investment

Can You Use Investments for Emergency Expenses?

You don’t have an emergency fund sitting in a savings account, and you’re debating whether you should put one together. Can’t you just turn to your investment portfolio to help you recover from an emergency expense?

The answer to this is “no.” Certain types of investments are not ideal solutions for emergency expenses. Read ahead to find out why.

Why You Shouldn’t Use Stocks for Emergencies

Stocks can be volatile. This potential volatility makes them unreliable replacements for a standard emergency fund. You can’t be sure that the value of your stock will be high enough to afford an emergency expense right after it drops into your lap. Your investment could actually plummet in value when you need it most.

And what if your stock investment is doing really well? Do you want to sell it for the sake of a small emergency, like a plumber’s bill or an appliance repair? Do you want to risk selling it at this early stage instead of allowing it to potentially grow and result in more gains? Either way, you might not be too excited to tap into this investment when disaster strikes.

Finally, another issue that comes with stock investments is that they are not liquid. You will have to sell your stock in order to access its cash value and pay off an emergency expense. This process isn’t immediate. It can take several days to weeks to complete.

Why You Shouldn’t Use Cryptocurrency for Emergencies

Cryptocurrency is another unreliable investment to use instead of a standard emergency fund. Cryptocurrency is volatile and can plunge in value at a moment’s notice. So, you might not have enough to cover a single urgent expense. You can also read risks associated with crypto savings accounts for more details on it.

Cryptocurrency isn’t liquid, either. You will have to trade or sell the cryptocurrency before using it. This process can take couple of weeks to complete. While cryptocurrency can be used as a form of payment, it’s not very common. You’re not likely to get most goods and services with the digital investment — you’ll have to acquire its cash value first.

Why You Shouldn’t Use a 401(k) Plan for Emergencies

Do you have a 401(k) retirement savings plan? If you do, and you’ve been participating in the plan for years, you likely have a significant pile of savings set aside for your golden years. This pile of savings may be tempting to use in an emergency, but that’s not a good idea. You should leave this investment alone.

Why? Your 401(k) plan is meant to support you in your retirement years when your regular stream of income is no longer available. It’s not meant to cover emergency expenses. If you decide to withdraw from this savings plan before you reach 59 ½ years old, the IRS will charge you with an early withdrawal penalty. This penalty will be 10% of the amount that you’ve withdrawn.

In addition to this significant penalty, your early withdrawals will be considered taxable income.

Why You Shouldn’t Use a Certificate of Deposit (CD) for Emergencies

A Certificate of Deposit is a specialized savings account where the user deposits a lump sum for a pre-determined amount of time. That timeline could be a few months or a few years, depending on their ultimate goals. During this set time, the deposit will accumulate interest and grow.

The savings inside of a CD are technically liquid, so why aren’t they ideal solutions for emergencies? For the same reason that a 401(k) isn’t a good solution for emergencies: early withdrawal penalties. That’s right, making a withdrawal from your CD before the timeline is over, and your account officially matures will result in a penalty.

Some CDs will not have early withdrawal penalties. To compensate for this great feature, these accounts tend to have smaller interest rates than CDs with penalties.

What Should You Do Without an Emergency Fund?

Without an emergency fund, you might not have enough savings on hand to cover an urgent expense. And if you’ve hoped that these above investments would help you, you might be out of luck — you still might not be able to cover the expense in a short amount of time.

While this situation isn’t ideal, you’re not out of options. You could try to apply for a personal loan online as a solution. And why get an online personal loan as a solution? The application process is fast. You can use the temporary funds to cover your urgent expense quickly. And you can leave your other investments untouched.

As long as you meet all of the loan’s requirements, you can submit an application online and wait to learn about your results. You just might get approved.

You can’t replace an emergency fund with your investment portfolio. Your investments are not meant for this!