Opinion – Grain in Grain: Emergency reserve is not a liquidity reserve. See how to invest

You’ve probably heard that you should have at least six months of your monthly cost invested as an emergency reserve. This general rule is not entirely wrong for most people. The mistake is in confusing emergency with liquidity.

How many times have you seen someone use six months of monthly cost in a single day?

I’ve seen it several times.

However, in all of them, the use was not something emergency. To the dismay of financial planners, they were all a simple wish-fulfillment. For example, buying a car, a trip, a down payment on a property or any other impulse purchase.

I often use a phrase that friends often joke about: “will is what gives and passes”.

Whenever I say this, someone asks: “but what if it doesn’t pass?”. The answer is simple: “you didn’t wait long enough. Be patient and it will pass”.

I’ve never seen an emergency where the individual needed to use six months’ pay in a single day. You might say, “but it can happen”.

Let’s make an account. Assume your monthly cost is $5,000. Six months of its monthly cost represents R$ 30 thousand. What kind of emergency would make you need this amount in a single day?

You can argue that an opportunity might arise. Do not be deceived. They don’t come to those who aren’t looking. And if you’re looking, then this is no longer an emergency reserve. It became planning for some kind of business.

The purpose of the emergency reserve is to serve as a source of income during periods of employment transition. When you unexpectedly lose your job. It can also be for health emergencies or some kind of accident.

In these cases, you would hardly use everything you spend on rent, food, transport and all the expenses of an entire month in a single day.

Your liquidity reserve can be one to two months of monthly cost. This portion must be invested in highly liquid fixed income products such as CDBs, LCIs, LCAs or daily liquid fixed income funds.

As they are of daily liquidity, they will have profitability closer to the CDI, that is, 13% per year over the next twelve months.

For the rest of the emergency reserve funds, you must invest in fixed income. However, it does not need to have daily liquidity. It can have staggered deadlines, that is, spaced out in time.

For example, you can invest in fixed income funds with a redemption term of 30, 60 or 90 days. Thus, it would already raise the profitability to 110% of the CDI or more.

You can also break it down into LCIs, LCAs and CDBs with terms of three to six months. These should also yield more than the CDI.

This additional return makes a big difference in the composition of interest and will help you create retirement savings.

Michael Viriato is an investment advisor and founding partner of Investor’s House

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