Wednesday, January 10, 2007

An Unwanted Emergency Fund

I am not a fan of having an emergency fund (at least not the sort that earns a low rate of return sitting on deposit at the bank) in our personal circumstances.

Unfortunately, I am struggling to identify investments that look sufficiently attractive to justify investment. As a result I am accumulating a modest amount of money which is sitting on deposit at the bank earning a rate of interest which is barely above the official inflation rate (and below the real rate of inflation). At least under Hong Kong law I do not have to pay tax on the interest.

Potential uses for the money:

1. increase my monthly payments into mutual funds (currently divided equally between an Asian small cap fund and a European small cap fund). Valuation considerations make me slightly cautious about this although I am still looking for a Vietnamese country fund;

2. make early repayments on one of my mortgages. This will show a better rate of return than bank deposits but with mortgage rates settling below 5% pa (and all tax deductable except for my home mortgage) this is only marginally more attractive than leaving the money on deposit;

3. be patient in the expectations that better opportunities will arise.

The default option is to be patient - although it is irritating accepting such a low rate of return even on a short term basis.

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