howszat,

It is VERY SIMPLE.

1) You DO NOT INVEST your emergency fund.

2) Ditto, I do not include the house that I lived in as an asset and investment.

Dreamer

No, it's not simple - it's silly.

You don't need to keep all 2 years as emergency, ie liquid funds.

You could for example, keep 6 months in cash, 6 months in less liquid funds, 1 year in even less liquid funds that you can withdraw in a years time.

What's your examples of less liquid funds? would it still be the same amount when you withdraw at the case of emergency? or would it be with drawable by then?

Probably dreamer have no faith with any financial system in the world. Therefore, having his emergency fund in forms of cash would be the most secured way with quickest withdraw ability, no penalty and guaranteed sum at any point of time.

WHEN (hehe, not yet now ) i'm a multi-millionaire, i'd do something like Dreamer101 too, like having 3 to 6 years' (a long cycle of bust to norm) living expenses stashed away into a combination of:
a. Savings
b. FD or MM funds
c. Bond funds

and re-load them from my dividends and a % from capital profits. Perhaps my personal definition of "liquid" is flexible to cover all these gua + by that time, 3 to 6 years' living expenses would be like er.. 10% to 20% of my net worth?
heheh - i CAN dream and plan cant i?

This post has been edited by wongmunkeong: Sep 17 2011, 08:05 PM

howszat,

Need versus want.

1) Yes, I do not need to. But, I can afford to do this and it does not affect my road map to FIRE.

2) I BELIEVE the GLOBAL RECESSION is bad enough that 2 years emergency fund is MINIMUM that I am comfortable with.

3) Your concept of FUNDS only works if the GLOBAL RECESSION plus loss of income is 6 months or less. Longer than that, you have to SELL something in a RECESSION. Then, you will take a BIG HIT. Your 18 months worth of funds will not worth that much.

4) Please note that I could survive anywhere from 3 to 5 years dependent on how well my dividend payment is holding up WITHOUT SELLING.

It is a BAD IDEA to prepare for RECESSION by counting on selling FUNDS.

Dreamer

This post has been edited by dreamer101: Sep 17 2011, 07:58 PM

i never found any acceptable hypothesis on why gold PEAKED at usd800+ in 1980, then PLUNGED to half that (usd400+) the next year, then stayed STAGNANT around usd200+ / usd300+ until around 2002. (that's more than 20 years!) maybe uncle prophetjul can give some thoughts...

my opinion is, until i can properly understand this period (1980 - 2002), i'm not very confident to "invest" in gold. (although i did buy around 400g of gold when it went down to usd750 in 2008. sold in 2009 for just 40% profit.) likewise, if you cannot properly explain this period, maybe you should not encourage others to invest in gold...

It depends on what you mean by emergency in the first place. It depends what you view the timeframe of "emergency" to be. REITS or bonds are not cash, but can be withdrawn in less than 6 months, I'm sure.

What you need in a years time, or more than 6 months time is difficult to justify as "emergency" in the sense of the word.
That's his problem.

A more sensible alternative is to not to treat all 2-years funds as emergency.

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Added on September 17, 2011, 8:17 pmNot interested in what YOU need to, or not.

I'm just pointing out it's a silly idea, which you don't dispute.

PS: Please note I distinguished between liquid and illiquid funds, REIT/bonds on one hand, and equities/properties on the other far-end. One doesn't have to think strictly in terms of cash.

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Added on September 17, 2011, 8:31 pmWhat you do would depend on what your objectives are:

1) Preservation - in which case your funds are in conservative vehicles, so the "emergency" concept doesn't really apply
2) Growth - in which case keeping 2 years worth in emergency cash would stunt the growth of your fund

As they say, depends...


This post has been edited by howszat: Sep 17 2011, 08:31 PM

hehe - actually, mine's the third option
3) zzz nice and good
since it's like only 10% to 20% (preferably just 10% lar) of my future total net worth, excluding non-real assets like vehicles & big huge humongous home that sucks blood.
Or that's the plan lar
Still a dream, to zzz nice & good

Until then, i owe, i owe, off to work i go..

This post has been edited by wongmunkeong: Sep 17 2011, 08:53 PM

Sorry to interrupt. Felt the need to clarify "the blast from the past". I can remember the CRUNCH during 1997/98 as I was working with one of the largest investment banks (or rather merchant banks at that time) in Malaysia. Let me refer to a few articles to help you understand better why it is possible to have 60 months for 10%-11% F.D. during 1998.

1) http://mrem.bernama.com/viewsm.php?idm=1000
15/04/1998: refers to the Astro promotion

2) http://mrem.bernama.com/viewsm.php?idm=999
15/04/1998: refers to the AM 50 Plus promotion - "During the promotion period customers will enjoy an additional 0.3 percent on top of AM 50 Plus normal interest rate of 11.20 percent p.a. for the tenures of six and nine months and 11.50 percent p.a. for 12 months and above."

3) http://www.themalaysianinsider.com/busines...s-for-car-loans
“During the 1998 financial crisis, the interest rate for hire purchase loans for cars was around 8.0 per cent. "

4) http://www.bnm.gov.my/index.php?ch=12&pg=6...h=12&EndYr=1998
KLIBOR during Sep 1997 to Dec 1998 - please note the sharp increase in KLIBOR during end-1997 and Jan-Aug of 1998 before capital controls were imposed.

During the 1998 financial crisis, there was a LIQUIDITY crunch in Malaysian banking system (local financial institutions were hit badly, people were withdrawing $$$ from local banks/FIs and depositing $$$ into foreign banks). If I recall correctly, there was even a 'bank run' on a local finance company (M--). Although your FD rates does not indicate such a high FD, FD rates of more than 10% were offered during 1998 before capital controls were implemented (note your FD rate is across banks/FIs over the whole year).

Why the finance company is willing to pay such a high interest for such a LONG period (60 mths)? Valid question...
Please refer the articles in 3) and 4) to get an idea why. AmFinance was the largest car financier at that time (HP rate of 8% translates to an effective rate of 14+% for a 5-yr car loan). Someone mentioned on asset-liability management for financial institutions (in this case, duration matching) - it can make sense for the finance company to give such FD rates for such a duration to support its HP loans during the period. During that period, the liquidity crunch was BAD and finance companies were trying their best to ATTRACT as much as longer-term FDs as possible.

This post has been edited by chabalang: Sep 17 2011, 09:47 PM

howszat,

1) Silly or not is DEPENDENT on how LONG that you THINK this GLOBAL RECESSION will last. IMHO, any plan with LESS THAN 2 years emergency fund is NOT good enough.

2) Liquid versus non-liquid

All those funds can be liquidated in a RECESSION. But, at what cost?? Half or less of the original value?? With 2 years of emergency fund, I do not have to sell at the LOW. For people with 6 months of emergency fund, they have to sell after 6 months at the LOW if the recession continues...

3) I am PESSIMISTIC enough that this will last a long time. Please note that this recession is triggered by USA REAL ESTATE BUST. USA REAL ESTATE has a boom and bust cycle of 7 to 8 years historically.

4) You ASSUME that any loss of income will not last more than 6 months.. I wish you best of lucks...

Dreamer

Think it depends how recession sturdy ones portfolio is. Bear in mind, I do not think anything is ever 100% recession proof.

E.g. If u have some properties within the 300k sub-segment, they would tend to be more recession sturdy vs. Luxury condo's 20 stories in the sky.

With that, u could adjust how much emergency cash buffers u would maintain. It really depends on your portfolio dynamics.

Ya u r right. But 13% was the highesr lol. I still remember my mom forfeited all the fds she had for the new rates. I went with her to do it.

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Added on September 18, 2011, 3:03 amMom's was ambank n its true haiyoo cherroy kor lie history to u for???? Just coz u dun see it doesnt mean its not there.... Ask your parents? Most older peeps shd know

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Added on September 18, 2011, 3:18 amLol maybe u were not looking at the right place at the right time?

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Added on September 18, 2011, 3:26 amExactly my sentiments. A fren much older than me told me that when he was in vietnam, there was a time where the vietnameses actually exchange gold for food....if this is the case, its just slightly better than currency, still lose to food & mayb energy, as these days food need energy to process.

This post has been edited by mIssfROGY: Sep 18 2011, 03:26 AM

whats the best thing one can do during recession except eating up the emergency fund?

I remember that in the 1997 financial crisis, Singapore banks were offering RM-FD @ 20 - 30%. There were a large amount of Rm getting out of the country. It was one of the reason that caused Capital Control.

IMHO, fix-price Amanah Saham is a good vehicle to park your emergency funds. It is much better than SA/FD in that you can withdraw whatever amount for your daily requirement from banks and still gaining higher return.

When opportunity comes you can withdraw these funds to invest and u still earn the dividen at the endof Financial year (prorated).

MGM,

You TRUST the government.. I wish you best of luck...

Dreamer

If you dont trust PNB, do you trust EPF, TabungHaji, Govt Owned banks, GIC companies?
If you dont, then what about UT that invested in local blue chips which are owned by these bodies?

If these bodies fail then Malaysia would collapse and there is no place to run accept offshore, Singapore?


This post has been edited by MGM: Sep 18 2011, 08:53 AM

MGM,

Bingo...

I only invest on one counter in KLSE and it is NOT a GLC. Most of my investment are all over the world.

<<If these bodies fail then Malaysia would collapse and there is no place to run accept offshore>>

Now, you UNDERSTAND what will happen next in Malaysia.

What makes you THINK that Malaysia is not on the threshold of collapse??

Dreamer

This post has been edited by dreamer101: Sep 18 2011, 09:10 AM

What makes you THINK that Malaysia is on the threshold of collapse??

What makes you THINK that offshore countires are not on the threshold of collapse? Look what happen at japan, usa, european countires and other countries that depends on these places. The whole world is not safe if one is too paranoid.

MGM,

I wish you best of luck.....

It is VERY SIMPLE.

Either

A) You had seen enough signs to know that it is coming

Or,

B) You do not believe and have not seen any signs....

Looks like in your case, it is (B)...

<< What makes you THINK that offshore countires are not on the threshold of collapse? >>

You live in Malaysia and you DO NOT KNOW that Malaysia is SPECIAL?? Aka, Malaysia is DIFFERENT from all those countries??

Dreamer

Sigh....dreamer, dreamer.....after all these years still the same arguements all over again.

sigh....i do not have any particular love for the m'sian gomen. But i do know one thing - every single country is f*cked up in its own way.

Bottomline - if u r good - u will know how to insulate or ringfence your portfolio from risk, irregardless of whether it's country specific or not.

Your diversification theory leads to "di-worsi-fication" sometimes.

Sigh....and I do know one asset class which has always been missing from your portfolio. Hence, your thinking may not be holistic.

This post has been edited by Phoeni_142: Sep 18 2011, 04:27 PM