Emergency Fund and Market Timing

The advice is usually given to keep your emergency fund in cash (high-interest savings account, GICs, money market fund or 30-day T-bills) because you do not want to have to sell assets when the market is down to cover an emergency. This means that your emergency fund is not collecting the same rate of return as your investments.

If bonds and stocks usually have negative correlation, why not treat selling assets for an emergency as a rebalancing event giving you an opportunity to sell high? For example, say you start out with $30,000 in bond ETFs and $70,000 in stock ETFs. After a bear market period, you're left with $35,000 in bonds and $60,000 in stocks when suddenly a $10,000 emergency appears. You sell $9500 worth of bonds and $500 worth of stocks (or just round up the bonds), putting you back at 30:70 and positioning you well for the eventual bull market.