Should we cash out $20,000 in stock and use it for our emergency fund?

Dear Dave,

I stopped contributing to my 401(k) temporarily to help us build an emergency fund a little faster. Things are going slowly, though, and I’m getting worried. My wife and I are both 46, have no debt except our home and we have a combined household income of $100,000 a year. We have $20,000 in a single stock, and I was wondering if we should cash out that stock and use the money for our emergency fund.

Doug

Dear Doug,

That’s exactly what I’d do. I’d cash out that stock as soon as possible, and put the cash in a simple money market account with check writing privileges and no penalties for early withdrawals.

Basically, your emergency fund is in stock right now, and that’s a bad place to keep it. You never know when life will throw unexpected expenses your way, or when the stock market will go down. You always want your emergency fund to be safe and easily accessible. Remember, your emergency fund is insurance—not an investment.

After that, make sure you keep pushing forward and jump back into Baby Step 4. That means start pouring money into your 401(k) again.

Great question, Doug!

— Dave