What is the Best Investment for Emergency Reserve? Are properties on the list?

What is the Emergency Reserve?

The emergency reserve is an amount of money saved to cover unexpected expenses, such as health problems, job loss, or urgent home repairs.

The main objective is to ensure that you have quick access to money without having to resort to loans or commit other long-term investments.

Liquidity: Money set aside for emergencies must be easily accessible.
Security: The emergency reserve must be in low-risk options, since its purpose is to guarantee immediate financial protection, without running the risk of losing the amount invested.

Characteristics of the Best Investment for Emergency Reserve

When asking what is the best investment for emergency reserves, the main characteristics to look for are:

Liquidity: The ability to access money quickly is critical. In an emergency, time is of the essence, and money must be available immediately or within a short period.
Low risk: As the emergency reserve is intended for unforeseen situations, the risk of losing capital must be minimal.
Accessibility: The investment must be easily accessible, without penalties or difficulties to withdraw the amount.

With these characteristics in mind, let's explore the best investment options for emergency reserves and evaluate the role of real estate in this scenario.

Best Investment Options for Emergency Reserves

1. Savings

Savings are traditionally considered to be the safest and most affordable investment, ideal for those who are creating their emergency reserve. Although its profitability is low, savings offer high liquidity and security, making it the simplest option for those looking for convenience.

Immediate liquidity: The money in savings can be withdrawn at any time without loss of value.
Low risk: Savings are guaranteed by the Credit Guarantee Fund (FGC) up to R$ 250,000 per CPF and per financial institution, making it a low-risk option.

2. Treasury Direct (Selic Treasury)

The Direct Treasury, more specifically the Selic Treasury, is an excellent alternative for those seeking an emergency reserve investment with better returns than savings, but with low risk and high liquidity.

The Selic Treasury is a public bond issued by the Brazilian government, and its yield is accompanied by the Selic rate, which is the main indicator of the economy.

Liquidity: The Selic Treasury can be redeemed at any time, with daily liquidity, and you only pay income tax on income.
Security: The Selic Treasury is considered one of the safest investments, as it is guaranteed by the National Treasury.
Profitability: Profitability is higher than savings, especially in high inflation scenarios.

3. Daily Liquidity CDBs

Bank Deposit Certificates (CDBs) for daily liquidity are another excellent option for an emergency reserve. These investments offer greater returns than savings, in addition to ensuring the security of the FGC.

Daily liquidity: It is possible to redeem the amount invested at any time, at no additional cost.
Security: Like savings, CDBs are protected by the Credit Guarantee Fund (FGC), which guarantees the security of the amount invested up to R$ 250,000.
Profitability: The return on CDBs is generally higher than savings, making them a medium-risk option, but still very safe.

4. Fixed Income Investment Funds

Fixed-income investment funds may be a good option for those seeking diversification but still want to maintain security and liquidity. There are funds that invest mostly in government bonds and CDBs, and these can be accessed quickly.

Liquidity: Fixed-income funds with daily liquidity allow you to redeem the amount invested at any time.
Diversification: By investing in a fund, you're diversifying your portfolio, which can reduce risk.
Profitability: Profitability depends on the type of fund and the assets in which it invests, but it generally offers a return greater than savings.

What about Real Estate? Are they on the Emergency Reserve Investment List?

Now, the big question: are real estate a good option for emergency reservations? The answer is somewhat complex, since, despite being an excellent choice for long-term investments, properties do not meet the main criteria for emergency reserves: liquidity and quick accessibility.

1. Low Real Estate Liquidity

Real estate is not easily liquidated. Selling a property can take weeks, months, or even longer, depending on the market and location. This factor makes real estate a difficult option to use as part of an emergency reserve, where the need for quick access to money is paramount.

Delayed sale: Selling a property can be a lengthy and complex process, which prevents you from having access to the money quickly.
Additional costs: Selling real estate involves costs with brokerage fees, taxes, and other expenses that may reduce the net amount you will receive.

2. Rental Properties: Source of Passive Income, Not Liquidity

While rental properties are an excellent way to generate long-term passive income, they are not suitable for immediate emergencies. Obtaining rent takes time and depends on contracts that can be canceled or renegotiated.

In addition, there are maintenance costs and possible vacancy periods (when the property is vacant).

Slow profitability: Rental income may be a good source of money over time, but it doesn't offer the quick access that an emergency reserve requires.
Maintenance and unforeseen costs: Properties require maintenance, and unforeseen events, such as urgent repairs, can generate unexpected costs.

When Can Real Estate Join the Investment Strategy?

While real estate isn't a good option for an emergency reserve, it can be an excellent choice for long-term financial planning.

If you already have an established emergency reserve with more liquid and secure options, investing in real estate may be a way to build wealth over time, either through valuation or rental income.

1. Real Estate as Part of a Diversified Portfolio

If you have a diversified investment portfolio and want to balance risks, real estate can be a great option to consider to accumulate wealth over the years. Real estate can complement more liquid investments, providing long-term valuation and profitability.

2. Investing in Real Estate After Building Your Emergency Reserve

Once your emergency reserve is built with liquid and secure investments, you can start investing in real estate, focusing on passive income or property valuation. In this case, you will already have the necessary capital to cover any emergency without having to sell the property.