Welcome to Wednesday everyone!
I’ve posted my thoughts previously about what an emergency fund should like, specifically saying that having a plan about what you would do during an actual emergency is just as important as how much money you have.
More to the point, thorough planning is the only thing that applies to everyone; beyond that, the specifics of how much and what should or should not go into an emergency fund are simply too dependent on individual circumstances. Personal finances are personal!
Anyhow, that certainly doesn’t mean that you shouldn’t have as much knowledge as possible. So, for the sake of knowing and understanding as many of your options as possible, let’s look at precious metals, and gold bullion specifically, as possible components of an emergency fund.
Oh yes, let’s talk gold
On Twitter, I asked generally about thoughts on gold and was surprised to be met with an earful.
Generally speaking, one of the most universal aspects of any component of an emergency fund is that it should be liquid — that is, that they can be “converted into cash quickly” — so that they can be used to pay bills in the event of a job loss or some other unforeseen personal finance event. Gold, then would seem to be directly at odds with this aspect of emergency funds
For those interested in the topic, investment site BullionVault has plenty of information on buying gold, such as making the attached finances more accessible.
Liquidity concerns and some final thoughts
Even though its literal liquidity — that is, its low melting point of 1948 degrees Fahrenheit — is seen as one reason why gold has long been the metal of choice for currency, it’s figurative liquidity should still be a cause for concern.
The site’s guides for buying and selling acknowledge that physically keeping the gold makes converting into cash very inefficient. However, one alternative they suggest of storing your gold in a provided, secure vault makes the re-selling process far more efficient and thus more liquid, making it potentially more compatible with an emergency fund.
Whether or not having gold makes sense from a strictly financial standpoint depends on your personal situation and is something you should definitely discuss with your financial planner before proceeding. Some of the pros and cons are outlined clearly and concisely at Mass Resources. One pro that this guide suggests is that gold can help to protect you from issues like currency devaluation or even bank crises, which can negatively impact cash holdings or other forms of investment.
At the end of the day, even if you do go this route the most prudent strategy may be to include gold as just one part of an emergency fund plan, rather than the main focus. This, too, is very general advice that is certainly not to be taken as gospel. Any investment depends on your tolerance for risk, your other holdings, and so forth. Still, gold and other precious metals are at least worth considering as components to include in a thorough emergency plan.