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ThrustVectoring comments on Open Thread, June 2-15, 2013 - Less Wrong
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You only need an emergency fund if you do not have access to credit at reasonable terms. Investments you don't touch outside of emergencies coupled with open lines of credit should outperform excessive "emergency" savings. After all, lines of credit are typically free when you don't use or need them, while not getting the best rate of return on your savings isn't.
EDIT: I was reminded of a relevant saying: If you’ve never missed a flight, you’re spending too much time in airports.. Similarly, if you never have to borrow money for emergencies, your investments are too liquid.
That assumes there is price for liquidity which you are paying. I am not sure this is the case for most normal people (as opposed to, say, those who invest into private equity) now because other than real estate most other available investments are quite liquid.
Essentially, most of people's investments are bank accounts and market securities (again, real estate is the big exception). Liquidity shouldn't be an issue here.
For recent college graduates, their best investment opportunity is early repayment of their student loans. It's essentially guaranteed 4-5% return (whatever their loan rate happens to be). Note that this "investment" is completely illiquid.
That's often but not necessarily true, especially on a post-tax basis (and especially if your alternative is putting money into tax-advantaged vehicle like 401(k) or IRA).
Hm, is it really? If you're paying back your loans early, couldn't you then, in case of need, cease paying for a time equivalent to how much you paid and then resume paying? You'd just be right back on schedule.
It depends on the terms of the loan. Some loans may allow you to skip payments if you're ahead. Most I've seen don't though. But either way, if you need $5000 cash right now because your significant other ran their car into someone's living room and you need to pay bail and a lawyer, or the levees are collapsing and you have to split town, you can't get the $5000 back from an early repaid loan.
Your loan may vary. For me, all it does is give me a few extra dollars a month.