In our last post on emergency funds, we looked at emergency funds at a very high level. We found that over the period 2003-2018 an emergency fund in the market returned more than an emergency fund in an offset account. But after tax, the offset account did better.
But a fair criticism of this type of analysis is that it looks at a single cohort. That is, one cohort that invested their funds at the beginning of 2003.
An improved approach would be to simulate how an emergency fund might work in the real world for a bunch of different cohorts. Then we can compare the performance of those cohorts and look for broad trends.
So in the post we take a closer look at emergency funds to understand when they’re better off in the market and when they’re better off in an offset account.