I am on the younger side and missed out on the golden age of points based redemptions for travel, I have managed some 4 cpp redemptions for trips that didn't require me to upend my entire schedule. But this year came out of my "apprenticeship" and have full autonomy on my part of the studio and jumped up to higher income, which is what caused me to get into investing.
Doing the math I've found out that a catch all 3% card, combined with a dining card at 4-5% ends up working out better for me (I don't drive so no gas spend) if I'm investing all of that cash back in an S&P500 index fund which has historically been around 8% annual return.
I've done a search through this sub and couldn't find anything on this specifically with investing/letting compound that cash back you're earning instead of points based cards and their current mediocre redemptions compared to the past. I'm curious what others think.
Started investing in index funds and points based cards no longer make any sense to me?
byu/Andreaindie inCreditCards
Posted by Andreaindie
4 Comments
1. Would you otherwise be saving money for a vacation in an index fund, or would you be saving it in a security more appropriate to short-term usage? If the latter, the time cost of money should be closer to the returns of the latter.
2. If you’re truly getting 4cpp, and the points take you, say, a year to accumulate, you’re still beating an 8% return by a ton.
Moving from points to straight cash back was probably smart move for you. When you’re putting everything in index funds the math really does work out better, especially if you’re disciplined about investing that cash back immediately instead of spending it
I made similar switch couple years ago when I started getting more serious about investing. Points can be tempting but cash back in the market beats those redemption rates most of time, plus you don’t have to deal with all the booking restrictions and availability issues
Doubling time of investing in big ETFs is 7-10 years hopefully. If you get twice the value from points vs cashback, you come out ahead if you redeem every few years. If it takes 10 years to get a redemption don’t bother.
Money is fungible. If you use points to pay for a trip you would’ve bought anyway, then you can invest your effective discount however you’d like. Of course the benefit with cash back is that you could invest that money as soon as it is available to capitalize on the time value of money, which seems like what you’re referring to.
In other words, it’s reasonable to take investment gains into account when considering points vs cash back, alongside the potential value and savings made possible with points and the time it takes to hunt down adequate redemptions to make it all worthwhile.