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Wealth protects your lifestyle, but liquidity protects your wealth. Here’s why a strategic cash cushion is still your portfolio’s best line of defense.
By Robert H. Yunich Published 6 July 2026 In FeaturesWhen you purchase through links on our site, we may earn an affiliate commission. Here’s how it works.
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Imagine the stock markets are plummeting, your portfolio has incurred a significant unrealized loss and you need a substantial sum of cash immediately. What's your safety net?
Having an emergency fund minimizes the need to sell investments during market downturns. It protects your future profits by keeping your investments intact, allowing them to recover and grow.
It also helps cover expenses if your income stops or decreases, if you need to pay medical bills not covered by insurance, settle taxes, handle auto and home repairs or support family members.
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Sign upAn emergency fund is a highly liquid, risk-free asset that isn't affected by market volatility. Typically, savings or money market accounts are the best choices because they prioritize protecting your principal over earning interest.
Also, your emergency fund should be hard to access for unnecessary spending and free from withdrawal penalties.
How much to save in an emergency fund
A standard guideline is having enough in savings to cover three to six months of essential expenses. If you are self-employed, have irregular income or support others, aim for the higher end of that range or even more.
Keep it up to date. Review it annually to be sure it still covers your expenses. And if you do dip into it, be sure to replenish it as soon as you can.
How should you build an emergency fund?
Decide on the dollar amount you want to reach eventually, then work toward it gradually, month by month. Here are some suggestions:
- Transfers: Schedule monthly transfers from your investment income, your paycheck if you're still working or your Social Security benefit.
- Non-employment income: Set aside a portion of your freelance earnings.
- Tax refunds and bonuses: Earmark a portion of refunds or bonuses.
- Windfalls: Direct unexpected money gifts or an inheritance.
In short, an emergency fund is the smartest insurance policy you can have. It boosts your confidence by helping you stay calm during market declines, enabling you to make well-informed financial decisions from a position of strength.
Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that's right on the money.
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Robert H. Yunich is a freelance writer in New York City. He has extensive knowledge about and expertise in investing and insurance. His career spanned over 30+ years in the financial services industry, including public accounting, banking, and as a financial adviser. He earned a Bachelor of Arts degree with a concentration in Economics from Columbia College (New York) and an MBA from Harvard Business School.