Emergency Reserve

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Vol.2-pp143, Christa plans to establish emergency reserve equal to one year’s living expenses…The solution in the reading does not deduct it from asset base, why? How to handle the emergency reserve? To set it aside and deduct it from the initial investable asset, or add to the ongoing living expenses since it is maintained on an ongoing basis?
 
just make sure her asset allocation has at least the reserve amount in cash/cash equivalents. so it’s still part of her asset base.
 
An emergency reserve is not an expenditure, which would be deducted from the asset base. It is a liquidity requirement. The cash reserve is still part of Christa’s portfolio.
 
mcleod.. do you have a take on hired gun’s question re: equitizing a long short? i’m not sure about my answer.
 
I believe that only liquidity needs that are expected in the next 12 months are deducted from the portfolio value. Since this is an emergency fund, by definition, we don’t know when it will be needed. So the cash value must be there but it doesn’t have to be taken out of the overall portfolio.
 
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