It’s hard to strike the perfect balance in the credit card game. Points and miles are fun. I’ve had some sexy redemptions as of late. Flexible bank points are a staple of my point portfolio. Their transferability allows for some tremendous value. But even though bank points are flexible, cash is still more fungible.
Cashback cards really shouldn’t be ignored by points and miles enthusiasts. That’s been said by more than just me. Liquidity matters in a points/miles economy with frequent program devaluations. Airline points won’t pay the bills if times get tough. Granted, establishing financial security is a whole other discussion beyond the scope of miles hobbyists, but you get the point.
I’m not sure what the proper points/miles allocation is for a points portfolio. Are you a young, risky collector? Maybe an 80/20 portfolio- 80% points and miles with 20% in cash back. I really have no true strategy as of now. This is something I’d like to develop. I’ve found myself just looking to apply for the card du jour according to the blogosphere, with little regard to how that card or the points earned interact with the rest of my portfolio. Becoming a more conscious participant in this hobby is important. After all, money is on the line. I like money.
My ultimate allocation will constantly evolve. For now, I know there is one glaring issue in my approach: consistent devaluation. As more points and miles get added to any and all loyalty and bank programs, they are forced to increase redemption costs. Thanks to inflation, the same thing essentially happens to the rewards from those high earning cash back cards.
To plug this hole, my next card is likely to be a brokerage credit card. For instance, the Fidelity Rewards card earns 2% unlimited cash back with no annual fee. The cash can be deposited into one or more accounts at Fidelity. Options include standard brokerage accounts, retirement accounts, and Fidelity-managed 529 plans. Charles Schwab has a card with similar benefits at a 1.5% cash back rate.
When deposited into an eligible account, this cash will increase in value over the long term. That, after all, is how investing works. I’m not going to get into the nuances of the market. But we can all agree that when done intelligently, participating in the world economy with a long time horizon yields positive results.
There are a litany of issues worth examining with this idea I have. For one, taxable situations may arise depending on the linked account used. Further, I could very well get a higher earning cash back card and try to finagle a way to manually get that cash into an account I could easily open with any brokerage, not just those with credit cards. There are other considerations I’m sure readers will point out, of which I anticipate and welcome.
What I like about this approach is that the earning and deposits are close to automatic. The more steps involved in transferring cash to a productive savings vehicle, the less likely it will get there. With the Fidelity card, I’ll establish a floor cash back of 2% on all my spending. I’ll still have increased earn rates in certain categories on my fun travel cards, allowing me to build a points and miles portfolio ready to use for those sexy travel redemptions. However, a lot of my everyday spending will go towards something I feel is responsible and productive. Don’t worry, a cash back credit card isn’t going to be the backbone of my retirement plan. Rather, knowing that not all of my credit card swipes are myopic in nature is merely a way to make me feel better about my approach to this hobby.
What are your thoughts? There are two underdeveloped ideas in this piece. One is the notion that we can try to create a thoughtfully curated portfolio of points and miles to fit our individual needs and we can potentially rebalance said portfolio through card acquisition and usage. The other is the thought of using some of our limited points earning capacity in a more productive manner. I’m aware that both topics are embryonic. I want your help. Let’s poke holes in them. Let’s see if we can develop them into strategies of merit. Bring it my fellow travel influencer brethren.
The information herein should not be considered prescriptive financial advice. Travel Fanboy receives no commission or compensation from any credit card issuer or affiliated companies. The opinions expressed are the author’s alone.
For information on how the churn and burn process can impact your credit score: Churn and Burn Credit Score Guide