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Ask Dave

Cash out stock for emergency fund?

Cash out a small amount of stock for an emergency fund? Dave thinks that's the right call for Nate.

QUESTION: Should Nate cash out a small amount of stock, and use the money for an emergency fund? In this situation, Dave thinks that’s the right move.

ANSWER: That’s what I would do. Basically, your emergency fund is in stock right now. That’s not a good place to keep an emergency fund, because you never know when life will throw unexpected expenses your way or the stock market will go down.

Put the money in a simple money market account—one with check writing privileges and no penalties for early withdrawals. You always want your emergency fund to be safe and easily accessible. Then, make sure you keep pushing forward and take care of Baby Step 4, investing for retirement; Baby Step 5, save money for college if you have young children; and Baby Step 6, pay off your home early. Baby Step 7 means building wealth and giving like crazy.