The general advice regarding non-investment funds:
- What you need to pay for the expected
- What your need to absorb the life happens events
- What you need in an survive a job loss of 3 to 6 months.
Of course, I might need money unexpectedly. I can now either keep an
"emergency fund" in cash, or I could just sell stocks when the need
as you point out
Selling stocks might come at a bad time when the market is down. But
stock prices are supposed to be random (or at least untradeable)
according to the Efficient Market Hypothesis. Would this not mean that
it does not matter when you sell? I could just sell at any time
without any (statistical) repercussions.
Now you are mixing multiple things. Life happens to you. That means that your need for money may be unrelated to what happens to the market. Your car needing to be replaced this week, because the old one needs a multi-thousand dollar repair just to get running.
If you have to sell shares in your investments now, you could be locking in gains or losses. You could be triggering taxable events.
In the spring of 2020 as the markets cratered. Many people lost their jobs. But many did not. Selling shares then to survive the multiple weeks between their last paycheck and their first unemployment check would have locked in losses. One jurisdiction near where I live saw more applications in one week than they had in the previous 52 weeks combined. The delay was months. Under your plan you would have been forced to sell. Remember nobody knew how long the delay would be or when the markets would come back.
The markets were efficient. They were reacting because people were panicking. There were businesses closing. There were shortages.
The idea of the life happens and emergency funds is to insulate that money from the market. They become a bedrock of safety. You know they will always be there if you need them.