Should Investors Be Adding to Their Emergency Fund Right Now?

With inflation soaring and the stock market experiencing regular bouts of volatility, you might be considering increasing your available cash right now. In this segment of Backstage Pass, recorded on Jan. 24, Fool.com contributors Danny Vena, Brian Withers, and Toby Bordelon discuss the importance of an emergency fund, and Toby shares how his family is reducing expenses during uncertain times. 

Danny Vena: I'm not sure if I remember you talking about it at the time or talking about it since then, but I do remember you talking about not having an emergency fund and having to sell at the worst possible moment. Oh my gosh, that really helped crystallize my thinking as far as having an emergency fund.

Brian Withers: So I'm glad I helped someone [laughs] Danny.

Danny Vena: I'm somebody who learns from other people's mistakes [laughs] and my own. We have no debt except for our house. My wife and I are at different stages in our bread winning. I have an entire year's worth of her pay in savings, or not quite that much of my own. I'm happy to have the money set aside for that.

Honestly, I know this sounds counter-intuitive, but what I've been doing is, I'm putting together my shopping list. When the stock market is down, and I looked just before air time because I looked at the market, and it was way down. Then I looked at some point later on, and it was in the green and I went, that's crazy. Then I looked an hour later, and it was back several percentage points in the red again. Roller-coaster ride all day.

My portfolio is down about 27% since November the 16th from its all-time highs. But having lived through the Great Recession of 2007-2009, I remember that I stuck to my investing plan. I kept putting money in. When I got paid every two weeks, I had the same amount of money going in there.

As I got comfortable with the fact that this too shall pass, I was actually trying to find ways, I had a little side gig going, so I could make some little extra money. I was taking my birthday money and whatever else I could and just throwing it at my investments because I really had a good feeling that it was going to be over soon.

When it was, in March of 2007, when the market finally started to go upwards, my portfolio got back to break even really quickly, and then started hitting new heights thereafter. That's just a really good reminder that this type of market, when things are falling, when everything is down, find the best stocks that you can find and continue to buy them, and try not to get caught up in the daily machinations, because it will make you crazy.

Toby Bordelon: Yeah. I think it's good advice or good thoughts from all of you guys. We are going to go back around and what I want you to do this time is I want to ask, do you have any advice for our members that makes sense right now? I know we're long-term focused, let's focus on the long-term.

But is there anything specific that you can offer in a time like this? Before you do that, though, I will say this, this has been interesting for me, this has been very interesting to me, this experience of this market drop in the last couple of weeks especially.

March 2020 was really rough for me. I really struggled, and it was definitely a bad time. I have not had that same emotional response to this market drop, even though I've seen my portfolio go down. I've been asking myself; what's the difference? What is it about me, or my life, or where we are right now that is making this be? Honestly, at least, for me from an overall standpoint, just not that big a deal right now.

It may come down to this, and I've talked to Brian about this. We recently paid off our mortgage late last year. We paid off our mortgage and what that did is it removed that recurring monthly expense that we had. Now, that's not there, and so it increases monthly cash flow and just the routine monthly budget.