Investors: The Stock Market Is Not Your Emergency Fund
When the S&P 500 was up nearly 27% in 2021, it was easy to feel like the broad market would go up in a straight line forever. Cash reserves were yielding under 1% for the year. Why would an emergency fund be necessary if you can just sell some shares to cover expenses?
The wake-up call of 2022 has been nothing short of harrowing for some investors. The S&P has fallen 17%, while some of the big tech names are down as much as 90%. If you end up in a position to need extra cash when the market falls into a tailspin, you'll be forced to sell your shares at a discount (potentially a very steep one) and, consequently, to hinder the long-term growth of your portfolio.
Here, we'll discuss how financial psychology and basic math work together to make a cash emergency fund a smart choice.
Source Fool.com
