Question about using a robo-advisor for my emergency fund

I put $5,000 into a robo-advisor's 'conservative' portfolio for my emergency fund last year, and a market dip last month dropped the value by almost $400 right when I needed to tap it for a car repair, which taught me that even 'low risk' investing isn't the same as cash for emergencies.

3 comments

3 Comments

morgan.cameron2mo agoTop Commenter

Wait, you put your actual emergency fund into the stock market? Even a conservative portfolio can drop when you need cash the most, that's why they tell you to keep that money in a savings account. Did the fine print on the robo-advisor say it was safe for money you might need tomorrow?

luna_wells572mo ago

A high yield savings account loses to inflation every single year. My robo advisor keeps a chunk in bonds and cash equivalents, the overall return beats a bank account even with some risk. The key is having a bigger buffer than the bare minimum emergency fund.

river_wright1d ago

Dumped my own emergency fund into a similar setup about two years ago, @morgan.cameron, and it's been fine so far (mostly in short term bonds and a money market fund). The trick is keeping like 3 months in plain cash, then another 3 in that roboadvisor bucket so you're not pulling out when the market's down. I just made sure the brokerage lets me withdraw same day, which a lot of them do now, because that was my biggest worry too.