Investing for Liquidity

[RoamingFrancis]

Hey everyone,

I am a US-based student with 0 income, but I do have a couple thousand dollars in savings. Even though I'm not working now, I'd like to reach ERE as soon as I can, so I want to start investing some of my savings. The most important factor to me is liquidity, because I want to be able to quickly turn the money into cash in case of an emergency.

I'm currently being supported economically by my parents (living at home, but paying for school myself), so I have some buffer room, but I think it's important to have access to my own emergency cash.

CD's seem to be a good option from what I have read so far. Does anyone have any good information regarding their pros and cons? Does anyone have suggestions for other highly liquid investments?

Thanks,
Roaming Francis

[ertyu]

Given this is your emergency cash and liquidity is your main priority, I'd say a CD is the best choice.

[jacob]

How quickly?

[RoamingFrancis]

@jacob Since I'm essentially investing my emergency fund, I want to be able to liquify it immediately.

[jacob]

In that case, there's nothing I'm aware of(*). Securities generally have settlement times referred to as T+N, where N=1,2, or 3. N is the time in days between selling and when the money is available for withdrawal. Most brokers are nice enough to front you the money for further trades in the mean time but you can't withdraw it as cash. Stocks and mutual funds are generally T+2. Bonds can be T+1 or more. Money market funds are also T+1 or more.

(*) CD in your local bank might be an exception, but I don't know.

Alternatively, some of the higher yielding (meaning +1% ) savings accounts would also work.

There is of course this: https://earlyretirementextreme.com/i-do ... -card.html ... then just sell the securities and pay off the balance. Unlike a cash emergency fund, this has some risk of course.

[Gilberto de Piento]

I've found it easy to find CDs that you can cash out almost immediately. I think I used Ally one time and was able to cash out same day and I just lost part of the interest I had earned. Read the fine print or ask when you are researching CDs.

That said, a high interest checking or savings account can probably get the same yield as a CD and stays liquid. Check for the rules on that too, you may need a certain amount of direct deposits per month etc. CDs haven't paid much in a long time.

I suppose the real answer is you need more income so that you can have a cash emergency fund and also have money invested in something illiquid that pays. I understand being a student though. Good for you for having some savings and working on growing it.

[Scott 2]

Credit card is a great emergency fund in your position.

If ERE is your priority, earning income year round is the problem to solve. I found 10-20 hours a week during the school year, with internships during the summer, very doable.

Alternatively, if your school allows greater than full time class load, finishing in fewer terms may be highly lucrative. In my case, AP credits let me finish the 4 year degree in 3. One less year of school to pay for, and entry into the job market a year earlier. One of the best financial decisions of my life. At 22, I was worthless, instead of digging out from what would have been 80k in student loan debt.

[Chris]

First question would be, how big of an emergency are you planning for? From there, you can allocate your "near cash" into layers:

0. physical cash on-hand
1. ATM-accessible cash in the bank
2. Bank CDs
3. Cash-like investments that settle in < 1 week (what Jacob was describing)

[The Old Man]

In your situation I would go with a savings account.
https://www.depositaccounts.com/savings/

[Toska2]

I second the checking or savings account. At that stage of life and amount I found good deals saved me more than any interest earned.

Invest in a good lunchbox and a good jacket.

[George the original one]

CDs, particularly if apart from an emergency you don't need the money. Drop it into whatever CD offers the best rate (usually a 5-yr).

Alternatively, if you can stand 3-4 days of not having the money and you otherwise meet the same requirements for a CD (you won't need the money except for an emergency), you can open a brokerage account and invest in the stock market. The other caveat, however, is you can lose money if you're forced to cash out at a bad time.

[RoamingFrancis]

Ideas I've gathered from the thread:

1) Get a job.

Nope. I'm happy with my current schedule and don't want to add anything else for the time being. This might change over the summer.

2) Get a credit card, invest savings, suggested by @jacob

Not opposed to this idea. I will think more about whether the risk this introduces is acceptable.

3) @Chris suggested dividing cash in to layers based on the size of the emergency I'm planning for. This seems to be the best idea for the time being, which I could also combine with idea #2, based on how much risk I decide I'm willing to take on.

Thanks for the help,
Roaming Francis

[Cheepnis]

I'd like to reach ERE as soon as I can

Get a job.

Nope

While there's much merit in balancing your life today vs. life tomorrow (as opposed to sacrificing now to reach a non-existent dreamland tomorrow), your stated goal is at odds with your current choices. As others have said you are in the best position you will EVER be in to save. Even working 10 hrs/w with a 100% SR could double or triple your cash pile depending on just how much a couple thousand is.

You're extremely lucky to be savvy to some (read: any) level of financial literacy at your age. Hell I'm extremely lucky to have stumbled across this stuff at 26, but had I known about it at 22 I'd have been able to save an extra 40-50k since I started accumulating. After this bull market of the past 8 years that extra early savings would have put me within spitting distance of 4%.

Sometimes you gotta play the hand your dealt. Don't fold on pocket aces.

[jacob]

IMHO, given the zero income/student status---there may or may not be good reasons for getting a job or avoiding it---it's trade-off between the need for emergency funds and gaining experience/wisdom investing w/o risking more than what will eventually comprise one or just a few months worth of extreme savings later on.

Mistakes or downturns are best experienced for the first time when there's relatively little $ at risk. And since it hasn't been mentioned explicitly yet(?), I'll point out the obvious and say that investing $1000 now will under the best of circumstances not even double by the end of graduation. Thus investing at this point should not be seen as a missed opportunity to grow the stash but rather in terms of learning a few valuable life lesson frameworks:

Lessons to be learned/experiences to be gained include:

• Most trade time for money but it's also possible to trade money for money and money for time => money is ultimately a claim on time!
• Market value goes up and down on a daily basis even if the world doesn't.
• Making money in the market is VERY different from making money in employment, but strangely the dollars made spend EXACTLY the same way.
• Invoking "the long run" is BS. It all depends on everybody's individual time scales.
• The feeling of NW increasing because the market is going up. The feeling of NW decreasing because the market is going down.
• Questioning your strategy. Questioning your questioning of your strategy.

[Gilberto de Piento]

OP should look into whatever tophatfox did. If I remember correctly he isnt too far out of college and has a good amount of money saved.

Also, college is a good time to experiment with creating a business.

[flying_pan]

I would not bother with anything and just keep money in cash, unless you personally want to experiment with opening a high-yield savings account or a CD, to familiarize yourself with all that fine print and stuff. However, these investments will bring you back like $50 the most in 5 years (more realistically it will be $10). So, just a rounding error.

I agree with others that right now you have a great opportunity to earn money, invest into a stock market and forget about it for a decade or two. You _will_ thank yourself later. Although, if everything is perfect and you totally understand that it will delay your FI time, it is totally fine.

> I'd like to reach ERE as soon as I can

If you will follow true ER-E way with like ~5 years of accumulation, then you are not really missing out _that_ much by not working now. But if you will end reaching it in 10–15 years, it might significantly reduce number of years.

[classical_Liberal]

I agree with @jacob, learning about investing and capital return young is worth risking/giving up a bit of liquidity. My advice, take $500 and dump it into any online broker that is fee free for trades, most are nowadays, particularly if you are investing in ETF's. Then use some free time to to decide how you want to invest it, track it, etc. For the remainder, put into a decent yielding savings account. I recommend Capital One's' Performance Savings. Currently a 1.7% yield with no minimum balance. They do everything online, and have a ton of no fee ATM's across the country.