Archive for September, 2012

Maximizing Cash Back Credit Cards


While I always love long-term investing with high-yield dividend stocks, I’m also a huge fan of maximizing the rewards you can get from the cash back credit & debit cards.  This only works if you’re responsible and confident with paying off credit card balances every month.  With a little planning, you can easily get 5% cash back on purchases you’d normally be making anyway.  Cards that are very attractive right now (in order of my own interest) include the following:

  • US Bank Cash+ Visa Signature (5% cash back on rotating categories you can pick yourself, 1% cash back on everything else, additional bonuses included)
  • Discover More Credit Card (5% cash back on fixed rotating categories (gas, food, etc.), 1% cash back on everything else, plus a nice redeeming system for additional savings)
  • Chase Freedom Visa (5% cash back on rotating categories, 1% on everything else, great signup $100 signup bonus, excellent redeeming system)
  • PerkStreet Debit Card (1% cash back on everything, 2% cash back for online purchases, 5% cash back on PowerPerks rotating categories)
  • Capital One Cash Rewards (1% cash back on everything, plus 50% back on the cash earned… averages out to 1.5% back overall.. good for “hands off” users)

I’ve owned the Discover More Card for about 3 years now, and without much effort I’ve been getting anywhere from $300 to $500 in rewards every year.  I use these rewards to get even further discounts on renewing my Sams Club membership cards ($40 for a $50 membership), paying for items on, buying gift cards for my favorite restaurants, etc.  And I think that when you can get 5% cash back on gas for 3 months straight (there is a limit on how much money can be applied), along with 5% cash back on other major categories such as supermarket spending, restaurants and travel, I think the Discover More card is a great one to have in your wallet.

I also own the PerkStreet Debit Card.  PerkStreet provides you with free checks when you get started, and the account provides a lot of flexibility to withdraw money from various ATMs, while still allowing you to get 1% cash back on all purchases.  2% cash back applies for certain online purchases, and there are some 5% rotating PowerPerks categories every month.  The debit card comes with a PIN number, but when you apply it as a credit card transaction (it’s a Mastercard), the cash back system goes into effect.  PerkStreet recently upgraded their PowerPerks system this month, and I’m hoping the options will get a lot better.  Personally, however, I have a love/hate relationship with PerkStreet, because they started out with a 2% cash back program on all purchases and then downgraded to a 1% system in the middle of 2012.  Because of this, I’m looking to replace the card with a new one that gets 5%.

And that new 5% card is the US Bank Cash+ Visa Signature card.  It looks like a great card! Once I can become more familiar with the program, I can provide further information, but the part that sounds the most exciting is the fact that IF you can stand to let your cash-back balance grow without redeeming it right away, US Bank will bump your rewards percentage up to 6.25%.  I also really like how you can select your own 5% categories, and I imagine this could really help to remember what the categories are.  This always seems to be an issue for me with the Discover More card since I always forget how many months certain categories last, etc.

Admitting you’re wrong, taking action, and moving on


Admitting You’re Wrong:
About a month ago, my portfolio of stocks reached an all-time high.  As the price of gas continued to climb, all I could think about were the brutal hits the market took in 2011 and early 2012.  Without letting my greed take over, I decided to reduce almost all of my positions in the market, and I also sold a lot of the stocks I didn’t want or need for the long-term.  The funny part is how I had justified everything in my mind by thinking “this is an election year, and the stocks have gone up & up recently, so the only option is to go down”.  Wrong.  Oh man was I wrong.  First of all, it is a complete MYTH that the market is too risky or that it will go down during an election year.  Secondly, I think I’ve learned an important lesson here:  It is never (and I mean NEVER) possible to predict the market unless you extrapolate the market 10-20 years into the future.  I’ve now missed out on a lot of gains.  My negative thoughts took over last month, and I’ve now found myself looking back, wondering what happened to my “long term” investment strategy!

Taking Action:
In order to rethink things, I spent a lot of time at a local book store last weekend in the ‘Self Help’ section reading books on finance and real estate.  One of the workers stopped by the area, curious to see what I was researching.  I mentioned how much I liked the stock market, and he suddenly had all sorts of book recommendations for me, and he was also really eager to share some conversations with me.  I mentioned how I had thought the stock market was fascinating while I was pointing to a chart I found in one of the books (the same 86 year Stocks, Bonds, Bills and Inflation chart I posted previously), and I mentioned how none of my friends found it as interesting as I did.  He was grinning the whole time, and he seemed to be agreeing a lot.  I asked him, “So, why do you think that is?  I mean, why aren’t people interested in stocks, even after looking at this chart?”.  His reply is something I will never forget.  He said, “The thing is, nobody wants to wait 86 years to make money.  Everyone wants it now.”  He’s right!  Nobody has the time or the patience to play the market in a “safe” way for the long-term when they can take risks & win like the TRUE winners win.  Everyone wants a story to tell and of course they want a big story.  And he is right; Nobody has that kind of patience or that kind of time…   Unless you’re smart and can set up your savings and investments to take place like paying your normal bills every month.

So the purpose of hanging out in the Self Help section was to figure out how I could eventually take action to correct the wrong assumptions I had made about the market taking a huge dive last month.  I found an interesting description in one book about the Dogs of the Dow, which mentioned how you can do really well by finding the top 10 highest paying dividend stocks every December, invest in them for the next year, and then repeat the process next December with the next top 10, and so on.  They traced this strategy back 50 years and found that it resulted in an average of 15% gain per year, which is higher than the return you’d get from a general index fund that tracks the Dow Jones Industrial Average.  The Dow is only comprised of 30 stocks though, so someone did an analysis with the top 10 dividend stocks in the S&P 500 and traced it back 50 years and found that it returns 17% on average.  That’s really high!!

Another book I found was one on real-estate called ‘Profit From Real Estate Right Now!’ by Dean Grazioso.  This guy is all over TV, especially in the South, and he comes across as a scam artist, so I was really skeptical when I started going through it.  It was written after the housing market crashed, which was the #1 thing I had checked, and by the time my feet were hurting from standing around for so long, I ended up buying it for $16.  I think it will at least be an interesting read.

So my new strategy will be to use the S&P 500’s “Top Dogs” strategy, along with buying real estate somewhere, and I’ve already gotten started with one of them.  I think it’s really important to stay active with investing unless you’ve (1) already inherited a lot of money and don’t need it, (2) you’ve started your own business – in which you’ve already invested your money anyway, or (3) you really don’t care about money.

Anyway, the fed came out with some interesting news today, and as much as I hate all of the control they have over being able to ‘tweak’ the market, I also have a lot of respect for their work, because I truly believe they’re smarter than I am.  Hah!  Bernanke announced another “stimulus” plan for the economy, and to be honest, the word “stimulus plan” makes my skin crawl, because I hate the idea of introducing more money into the market.  But, this time the money is being spent on mortgage backed securities, and the Fed will buy $40B of these every month, starting this Friday.  $40B!!!  They have also stated how they will lower the interest rates for loans and keep the bank mortgage rates low.  The whole idea is to encourage everyone to spend more money, which should drive the economy up even higher.  I think it will work, but I really don’t think it will solve anything long-term, because eventually inflation will take over, everything will level off, and there will be more market corrections.  We could potentially be in a position much worse than we are now.  But then again, it’s easy to confuse the economy with the stock market, and I think this is a difficult topic that even a lot of the news articles get wrong.  Everyone always mentions how the stock market is down because of the jobs report, or how the economy is driving stocks higher and higher.  I don’t think you can make these generalizations half of the time, but I do believe they are linked somehow – especially when the fed gets involved.

Moving On:
So regarding long term strategies, I think it’s important to stay on track at the end of the day.  I’m a huge fan of diversifying in multiple stocks along with multiple accounts (Roth IRA, Individual Account, 401K, Savings/CD, + Other(s)) and I also think it’s important to experiment with buying/selling within your different accounts at various times.  Yes, that’s exactly it.  My decision to sell last month was an “experiment”.  Hah.  With all kidding aside, I’m ready to put this behind me and to focus on what’s next, and I’ve already created a strategy to take action with.  I’m ready to move on.

How about you?  What is your action plan, and how will you be moving on?