Should We Cash In Our Chips (Points) Because Of Covid-19?
I have been thinking about this a bit after some thought provoking comments because of Benjy’s article yesterday, I Cash Out All Chase Ultimate Rewards – Here’s Why. I am not talking about cashing them in because we won’t be able to travel for a while. But rather because it appears there are going to be a lot of opportunities for cash in the next several months. There will also be people that are struggling as industries and businesses are forced to close their doors for quarantine. Should those people use points to supplement their income? These are important topics I think we need to discuss.
Thought Provoking Comments
I first wanted to share the reader comments with you.
Thought this article was about cashing out given the current status of travel and economy with COVID…that is a much bigger question to me
— ClubOleg (@ClubOleg) March 15, 2020
Investment Opportunities
It appears that a recession is upon us. And I think it is likely to get worse before it gets better. As more and more states close businesses to promote social distancing the stock market will likely continue to dip (see this morning’s opening). While bear markets are usually horrible all around they do open up opportunities for people with cash on the sidelines.
The last major recession was in 2008 and there was opportunity to be had. Stocks were at rock bottom prices and the housing market crashed. If you had money to spend you could exponentially grow your wealth. People snatched up rental properties and stocks that are worth 2, 3, 4 more times then they were back then. That is how you grow long term wealth.
Will a similar opportunity be presenting itself because of the coronavirus pandemic? It looks likely. Should we cash in our miles and points in order to take advantage of it? That is looking like a distinct possibility when it would have never been considered mere weeks ago.
Emergency Funds
As I stated above many industries could be coming to a standstill. And it will affect the people on the front lines or that are in the service industry. Many of those people also collect miles and points. There could be difficult times ahead and not everyone has the emergency fund set aside that is recommended. If that is the case should they consider turning to their miles and points as an emergency fund?
I would say it is better to cash in your points for money or gift cards before you rack up credit card debt or dig yourself into a hole some other way. Even though it hurts not to get maximum value the interest you would pay on credit cards would be worse. Since it compounds on itself you would end up spending way more than you would give up by redeeming the points at 1 or 1.25 cents a piece.
Points Can Be Earned Back
I find it easier to amass points than to amass cash. For one thing large cash back welcome offers are few and far between. And cash back spending is usually capped around 2%-3% but you can earn up to 5X points per purchase for the same things. There are more spending offers and authorized user bonuses offered on points earning cards etc.
Because of that I think that it will be easier to replenish a miles and points stash versus a cash stash.
Travel Cancellations & A Hold On Travel
Many of us are cancelling travel right and left that we had booked over the next few weeks and months. And we are putting a halt on travel going forward for the time being, as Shawn discussed this weekend.
That means we probably have a large stash of miles and points coming back from the cancellations. We will also continue to earn them, even if not at the same levels for the time being. In the near future we will no longer be burning them at a rate like before either.
Essentially everyone’s earn rate now supersedes their burn rate. Should we sit on this surplus until the good times start rolling again or should we use them for the opportunities before us now?
Cash Deals Going Forward
The travel industry is going to be hit hard by this virus. I imagine there will be some bailouts and there will be some places that don’t survive it.
I also imagine it is going to be hard to start up this travel machine again once the smoke has cleared. People will still be hesitant to travel even once they get the all clear. That means there will likely be some pretty stellar deals offered on the other side. Most of these deals will be cash related as well. If our cash grew once transitioned from miles and points then we would have more buying power versus just keeping them as points. Not only that but we could pair the purchase with shopping portals. We would also earn points on the flight or stay which could add 10%-20% in value on top.
There Is More Risk With This Approach
I should caution there is more risk from this approach but the upside seems to be higher too. The points have a somewhat static value in their current form. Sure they are constantly devalued but if we are talking about transferable points they are affected less than any individual loyalty currency. Plus most have a static cash value:
- 1 cent a piece for Ultimate Rewards
- 1.25 cents per point for Membership Rewards with the Charles Schwab (1 cent for gift cards)
- 1 cent a piece for ThankYou points for gift cards or mortgage payments.
If you cash them out for these rates and the investment drops in value then you lost out. That is on top of the value you lost out on by not using them for travel. However if that investment goes up by 50%, doubles or triples in value then you come out ahead.
You may be thinking that this approach could be taken at any time so why is it different now? Because most investment tools will be offered at a discount compared to their recent levels. Bear markets offer investors a chance to lock in value buys.
Should We Cash In Our Points – My Thoughts
Hopefully I opened up a new line of thinking for you and presented the positives and negatives of the options before you.
I find myself still on the fence with it. There will be quite a few miles and points coming back to me from my cancellations. That means I am in a much better place for travel going forward then I would have been normally. Should I use some of that surplus to try to build monetary wealth outside of miles and points? I am going to wait a few more weeks and see how things shake out and then decide. If the downward trend continues, which appears likely after the dip again this morning, then I think I will cash in some of my chips and take my shot.
I also think there will be a lot of travel deals when the pandemic calms some which makes points a little less valuable. Especially if you were able to turn them into cash and you were able to make that cash grow. It would give you more buying power than just standing pat with your miles and points.
The risks can not be understated though. There is a chance that your investment loses money and your hard earned miles and points go up in smoke. It comes down to the question you have to ask yourself, is the juice worth the squeeze? Or are the potential gains worth the risk of the potential downside. Everyone has to answer that question on their own. Share your thoughts below.
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[…] in the points and miles space that have some similar thoughts about points and moves toward cash. Mark and Benji at M2M have some recent posts that are worth […]
It’s tempting to cash out at 1-1.25cpp and dream about making a fortune on the market, but that’s a long-term play at this point. Also, most savvy redeemers manage to get at least 2cpp+, which would be equivalent to a 100% ROI if invested in the market at a 1cpp cashout. Not to mention taxes on any dividends/capital gains, vs. no taxes on award redemptions.
I think I will be keeping my points intact for now, but my sidelined cash will definitely be put into play when the time is right!
In my ROI example, I had meant to imply that doubling or tripling your money via investing would be far more difficult and uncertain compared to redeeming at 2-3cpp, which would be the equivalent of doubling-tripling your point values.
Make sense Morris – thanks for sharing your thinking.
Time to double down. Stocks are cheap, travel is getting cheap for far out bookings.
There is gonna be a lot of opportunities both ways in the future for sure.
Not cashing points in but will be closing some of the unnecessary bank accounts. Putting all in one. Local.
I have started thinking about doing that as well as my bank bonuses post over the next few weeks.
Mark,
While I agree with you to a point, one could argue that this could apply to more than miles how about investments what would happen if the public began to do the something with their investments? I would suggest as a follow up you attempt to sell some points online to say ” mileage brokers” cut and paste their offer, if you get on. I am sure that by now the value of miles is down way down. This virus will end, and things will begin to get back to normal towards the end of the summer. In the meantime we all need to not panic
I don’t think of this as panicking in any way. This is simply looking at an opportunity and saying what offers me more value in the long term. That is exactly what this community is built on. Could investing this surplus of cash from points bring me a greater return than leaving them in their current form? If you think it could then you may consider doing it. If that 1 penny turns into 2 cents it would be worth more than most of the points in their current form. That is what I was trying to get at.