Weekend Reading: Should You Invest Your Emergency Fund?

This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
Weekend reading investing emergency fund Weekend reading investing emergency fund
Weekend Reading

An emergency fund exists to provide you the financial peace of mind to sleep well at night. It’s there when unexpected events arise (or even exciting opportunities), but on the flip side, some in the financial world also question if that money might be better utilized in an investment vehicle.


In favor of investing: Emergency funds often sit in your savings account, where they earn an interest of about 0.5 percent per year. And while this money is highly liquid, in an economy of high inflation, it will inevitably yield worse returns than investing. Additionally, the liquidity of investments has improved over the years, and while that money cannot be simply pulled from an ATM, many vehicles allow asset withdrawal within 48-72 hours.

Protecting your “safe number”: The greatest issue with investing your emergency fund comes down to risk. If you’re willing to part with money in your emergency fund and know you will still sleep at night, that money doesn’t belong there. On the other hand, whatever number you have in your head as your set amount for financial peace of mind does belong in your emergency fund, and putting that at risk means purposefully placing yourself in a stressful situation.

Consider this: Do you know when your next emergency will hit? Of course not. But when you know you have cash readily available for anything life brings, that is often worth more than any greater investment return. Above all, your emergency fund serves a dual purpose: Safety AND security. Or, strategic AND psychological.