Emergency fund

Cash set aside, outside of any investment, to cover unplanned expenses or lost income.

Example

Three to six months of essential living costs held in an easily accessible savings account.

Important

Money in an emergency fund should not be invested - the point is that it is there at full value exactly when something goes wrong, which is often when markets are also down.

Related terms

• Liquidity — How quickly and cheaply an asset can be converted to cash without moving its own price.
• Risk tolerance — How much decline in the value of your investments you can withstand financially and emotionally without abandoning your plan.
• Capital — Money set aside to be put to work, as opposed to money earmarked for near-term spending.

Lessons that explain it

• Is investing right for you, right now? — Not everyone should be investing everything they have, and not everyone should be investing yet at all. This lesson is the honest gate before the rest of the Academy. (10 min)
• Is this account right for you: match, fees, choices and when you can touch the money — Evaluating a retirement account means checking five things: employer money, the fees inside it, the investments available, the access rules, and what happens if you change jobs. (11 min)
• The long-term core of most plans, after the money you might need sooner — For most people, tax-advantaged retirement accounts hold the long-term part of their savings, but only after money for emergencies and nearer goals is set aside elsewhere. (9 min)

All 578 terms in the Investing glossary