Money Basics

Why Your Emergency Fund Should Not Depend on the Stock Market

By Owen Marsh / October 16, 2026 / Updated November 8, 2026

Coins collected in a glass jar on a wooden table

Start with three numbers. In the Federal Reserve’s latest household survey, 55% of U.S. adults said they had three months of expenses set aside in an emergency fund, and 63% could cover a $400 surprise with cash or its equivalent. In three recent stock-market drops, in 2020, 2022 and 2025, the S&P 500 fell 33.9%, 25.4% and 18.9% from peak to low. A car repair or a layoff does not wait for the recovery. That is the argument for treating emergency money and investment money as separate jobs. This article lays out the data and what regulators and the CFPB say, as of November 8, 2026. It does not tell you what to buy.

Key takeaways

Fed survey, 2025 data: 55% of adults had three months of expenses saved, unchanged from 2024 and below the 59% high in 2021.
The three-month figure runs from 21% for families earning under $25,000 to 75% for those earning $100,000 or more.
Peak-to-low declines in the S&P 500 price index: 33.9% in 2020, 25.4% in 2022 and 18.9% in 2025. The 2022 decline took about two years, measured from the peak, to recover.
A joint regulator bulletin issued October 5, 2026 offers three to six months of living expenses as an example emergency-savings goal, and says diversification reduces investing risk. Reducing is not eliminating.
The FDIC insures deposits, such as checking and savings, at insured banks. It does not insure stocks, bonds or mutual funds, even when a bank sells them.

How thin the buffer is: the Fed’s numbers

The Federal Reserve Board’s Survey of Household Economics and Decisionmaking is the standard yardstick. The report released in May 2026 covers 2025. These are the headline measures:

Measure (2025)	Result
Set aside three months of expenses in an emergency or “rainy day” fund	55% of adults (same as 2024; 59% peak in 2021)
No fund, but could cover three months by borrowing, selling assets or using other savings	15%
Could not cover three months by any of those means	30%
Would cover a $400 expense completely with cash or its equivalent	63%
Could not pay a $400 expense by any means	12% (13% in 2024)

The $400 series is worth a glance. It was 50% in 2013, climbed to 68% in 2021, and has sat at 63% from 2022 through 2025. The report’s tables also show how the buffer varies. The three-month figure by family income is 21% under $25,000, 39% from $25,000 to $49,999, 55% from $50,000 to $99,999 and 75% at $100,000 or more. By age it is 37% for ages 18 to 29, 49% for 30 to 44, 55% for 45 to 59 and 71% for 60 and over.

Two details matter here. Selling something is one of the other ways adults say they would cover a $400 expense; 7% named it. And 37% of adults hold stocks, bonds, ETFs or mutual funds outside a retirement account. The report does not say how many keep emergency savings there.

What a drawdown looks like

A drawdown is the fall from a market’s peak to its low. Using daily closing values of the S&P 500 price index from the Federal Reserve Bank of St. Louis’s FRED database (the data come from S&P Dow Jones Indices), here are three recent ones:

Episode	Peak close	Low close	Peak to low	Back above the old peak
2020	February 19, 2020	March 23, 2020	-33.9%	August 18, 2020
2022	January 3, 2022	October 12, 2022	-25.4%	January 19, 2024
2025	February 19, 2025	April 8, 2025	-18.9%	June 27, 2025

Read it as a range of experiences. The 2020 drop took under five weeks and was recovered in about six months from the peak. The 2022 decline took about nine months and the recovery took about two years from the peak. The 2025 drop lasted about seven weeks and was back above its peak in about four months. FRED notes this is a price index, so dividends are not included, and the percentages here are calculated from its published closes.

For scale, a hypothetical $10,000 that tracked the index’s price would have been about $3,390, $2,540 and $1,890 lower at those three lows. That is an illustration, not a forecast, and it leaves out dividends and fees. The point is timing: someone who needed that cash at the low would have sold at the low. The index recovered each time, but past episodes do not predict the next one.

Two jobs, two kinds of money

The CFPB describes an emergency fund as a cash reserve set aside specifically for unplanned expenses, such as car repairs, medical bills or job loss. It says the fund should be safe, accessible and not easy to spend on non-emergencies, and it calls a bank or credit union account generally one of the safest places for money. Without savings, it says, people may turn to credit cards or loans that can turn into harder-to-repay debt, or draw from retirement funds.

The October 5, 2026 World Investor Week bulletin, issued by the SEC with other U.S. regulators and posted by FINRA and the CFTC, puts emergency savings next to other resilience steps. It offers three to six months of living expenses as an example goal, suggests automatic saving through direct deposit and suggests putting windfalls such as tax refunds or gifts toward savings. It describes diversification as a way to reduce investing risk by spreading investments across and within asset classes. It also warns that short-term trading and market timing can mean buying high and selling low.

Put those together: diversification can lower risk, but it does not tell you what an account will be worth on the day the bill arrives.

Insured deposits versus investments

The FDIC says deposits at FDIC-insured banks are insured automatically, with coverage of at least $250,000 at each bank. The line it draws is between deposit accounts and everything else:

Insured by the FDIC (deposit accounts)	Not insured, even if a bank sells it
Checking accounts	Stocks and bonds
Savings accounts	Mutual funds
Money market deposit accounts	Annuities and life insurance policies
Certificates of deposit (CDs)	Crypto assets and municipal securities

Deposit insurance covers a bank failure, not market prices. Coverage rules depend on ownership category, so check the FDIC’s own page for your situation.

A checklist for sorting the two jobs

The CFPB’s guide does not give a dollar amount or a number of months. It suggests looking at the unexpected expenses you have had before and what they cost. These prompts build on that, and on the bulletin:

List the surprises of the last two years and what each one cost.
Mark which dollars you would need within months and which are for goals years away.
Ask what happens if a planned way of paying for a surprise involves selling something that is down 20% or 30% that day.
Check whether the money is in a place you can reach quickly and that is not easy to spend on non-emergencies.
Look at the FDIC page to see which of your accounts are deposit accounts.
If your employer allows it, ask about splitting direct deposit between checking and savings, and consider sending a tax refund or cash gift to savings, as the CFPB and the bulletin suggest.
If you use the fund, treat rebuilding it as the next goal.

Frequently asked questions

How big should an emergency fund be?

There is no single official number. The CFPB’s guide gives none and points you to your own past expenses. The regulators’ bulletin offers three to six months of living expenses as an example, and the Fed survey shows 55% of adults have three months. Your job security, bills and other support all change the answer, so a nonprofit credit counselor or a fiduciary financial planner can help with yours.

Does diversification fix the problem?

It helps with risk but does not remove it. The bulletin says spreading investments reduces investing risk. The drawdown table above is for a broad index of 500 companies, and in those three episodes it still fell between 18.9% and 33.9%.

Is a bank account safe if the bank fails?

The FDIC insures deposit accounts at insured banks, with coverage of at least $250,000 at each bank. It does not insure investments sold through a bank.

What if selling investments is my only option?

Whether that works depends on prices that day, which is what the drawdown table shows. A licensed professional can walk through your own numbers.

Before you decide

Skip the question “stocks or cash?” and ask a different one: what is this dollar for, and when? Money for bills in the next few months and money for goals a decade away face different risks. The data show a wide gap between people who have a buffer and people who do not, and a market that can fall by a fifth to a third and then take months or years to return. These sources describe general patterns, so use them as a starting point for a conversation with a qualified professional.