Everyone should have an emergency fund that covers a minimum of 3-6 months of living expenses (and maybe more depending on your particular situation). Typically, that emergency fund should be held in a savings account or some sort of account where the money will not be subjected to the inherent uncertainties of the markets. In other words, you won't make much on the money long-term (in comparison to stocks, and probably even bonds) but you know for sure that it will be there when you need it and it will be easily accessible.
If you have your emergency fund invested in the markets, you may find yourself in a situation where you need the money and we are in a down market and there is less in the fund than you expected or need. If it is in a savings account or money market account, this uncertainty is not an issue - you know that the principal will be there.
Hope that helps and good luck.
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