Why you should invest in an emergency fund and how much

Homestandard articlewhy you should invest in an emergency fund and how much
How much should you invest in an emergency fund? Why are climate-friendly emergency funds important? Where should you put your money?

Short Version:

Emergency funds exist so you can quickly access needed cash in case of an unexpected job loss, medical emergency, or larger expenses like home or vehicle repairs and appliance replacements. They can provide temporary cash so you can avoid dipping into your long-term investments or retirement funds. 

Your fund should last you six to nine months and how much you put aside depends on your usual expenses. This shouldn’t include discretionary spending. Creating a budget can help you figure out how much you’ll need to put aside. 

The best options to place your emergency fund include a high interest-rate savings account, a high yield savings account, and a conservative portfolio of stocks and bonds.

We built Carbon Collective’s Safety Net Portfolio to be a climate-friendly way to build an emergency fund. It is built to protect against significant capital loss while investing in a sustainable, low-fee, diversified set of companies that actively work to help solve climate change.


Long Version:

Why Divesting from Fossil Fuels Matters

To solve climate change, decarbonization technologies need to scale rapidly. In some cases, 100x over the next 30 years (batteries, etc.). Until recently, green stocks have historically been seen as being feel-good, but not smart investments. It’s the right thing to do, but you can expect lower returns.

Green investing is being seen as smart investing.

Thankfully, this narrative seems to be changing (2020 was a banner year for green stocks and bonds). But it’s not nearly enough. If we are to solve climate change, annual clean energy investments will need to increase 4x and 50% of cars sold must be electric or hydrogen powered by 2030 (source).

So we choose to buy and hold these stocks, rather than fossil fuels. The opposite of divesting is reinvesting and they are more powerful in tandem. By buying and holding a green company’s stock in a long-term account like for retirement, we effectively lower the supply of shares on the market. This investor confidence helps push the company’s share price higher, and can lower their cost of capital, enabling them to expand faster.

Green investing is being seen as smart investing.

Thankfully, this narrative seems to be changing (2020 was a banner year for green stocks and bonds). But it’s not nearly enough. If we are to solve climate change, annual clean energy investments will need to increase 4x and 50% of cars sold must be electric or hydrogen powered by 2030 (source).

So we choose to buy and hold these stocks, rather than fossil fuels. The opposite of divesting is reinvesting and they are more powerful in tandem. By buying and holding a green company’s stock in a long-term account like for retirement, we effectively lower the supply of shares on the market. This investor confidence helps push the company’s share price higher, and can lower their cost of capital, enabling them to expand faster.

Why Re-investing in Green Companies Matters

Fossil fuel stocks have historically benefited from being seen as "smart investments"

Historically, fossil fuel companies and dirty utilities have been considered an important part of a diversified portfolio. The argument went that they offer high dividends and have lower correlations with the rest of the market.

Turns out fossil fuels aren't actually a great investment

This narrative is false. If you divested the S&P 500 from fossil fuels in 1925, it would have delivered essentially the same performance. From 2010 - 2020, renewable energy stocks significantly outperformed fossil fuels around the world.

This narrative is false. If you divested the S&P 500 from fossil fuels in 1925, it would have delivered essentially the same performance. From 2010 - 2020, renewable energy stocks significantly outperformed fossil fuels around the world.

The importance of Stakeholder engagement in climate change

Fossil fuel stocks have historically benefited from being seen as "smart investments"

Historically, fossil fuel companies and dirty utilities have been considered an important part of a diversified portfolio. The argument went that they offer high dividends and have lower correlations with the rest of the market.

Turns out fossil fuels aren't actually a great investment

This narrative is false. If you divested the S&P 500 from fossil fuels in 1925, it would have delivered essentially the same performance. From 2010 - 2020, renewable energy stocks significantly outperformed fossil fuels around the world.

This narrative is false. If you divested the S&P 500 from fossil fuels in 1925, it would have delivered essentially the same performance. From 2010 - 2020, renewable energy stocks significantly outperformed fossil fuels around the world.

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