Using Your Credit Card Reward Points to Buy Hard Assets

Using Your Credit Card Reward Points to Buy Hard Assets

Money is tight for most of us these days.  So I know that advocating for people to buy hard assets – fine art, bullion or antiques – can seem a little unrealistic at times.  After all, who has extra money for a vintage fountain pen, much less an old mine cut diamond, when food, gas and the mortgage are so expensive?

And yet it is imperative that average, middle class people find a way to buy some hard assets.  While the Wall Street casino continues to pay out for the moment, it is only a matter of time before stock market investors roll snake eyes.  When that time comes, a few well chosen tangible assets will go a long way toward underpinning both your sanity and financial health.

Therefore, I’m always looking for new, innovative ways to fund fine art and antique purchases.  I explored one of these ideas in my article titled “Buying Fine Antiques on the Installment Plan“.  But that method has a significant drawback.  It assumes you already own a pile of interest or dividend earning assets like stocks, bonds or bank CDs.  For a lot of people, that simply isn’t the case.

But then I came up with another idea.  What if I said you could accumulate a stash of money that could be used toward a hard asset of your choice without using any of your own money?  Does it sound too good to be true?  Well it isn’t.  I’m talking about using your credit card reward points to buy bullion, fine art or antiques on ecommerce sites like eBay, Etsy or Amazon.

Many people are already familiar with credit card reward points programs.  Typically you accrue anywhere from 1% to 3% of the value of the items you purchase with your credit card.  These rewards programs vary considerably by issuer and individual card, with some being very restrictive and others offering more flexibility.  However, many programs will allow you to redeem your accrued credit card reward points for gift certificates to major e-tailers.  Sometimes gift certificates are not available, in which case redeeming points for a statement credit or cash can be used as a proxy.

In any case, using your credit card reward points as a slush fund to buy bullion, fine art or antiques is a no-brainer.  In many instances, people have a tendency to dribble these valuable points away on things like airline miles, hotel stays, concerts or other fleeting, intangible benefits.  This is less than ideal when these points could be redirected toward enduring hard assets that will appreciate over time.  Spending your credit card reward points on tangible assets is a great way to accumulate fine art or antiques with “found” money.

The amount of money that you can accrue with credit card reward points can be substantial.  For example, if you charge just over $2,000 a month to your credit card, that will total about $25,000 over the course of a year.  If your credit card reward program gives you a baseline 1% back, that translates into $250 every year for your hard asset shopping.  And you can easily enhance these numbers significantly by choosing a credit card with a good rewards program.

Maybe a few hundred extra dollars every year doesn’t seem eye-popping to you, but it is also completely free money.  So when you do use those points to buy a few one troy ounce American silver eagle bullion coins, it will be completely painless.  And if the amount of credit card reward points you earn over the course of a year isn’t enough to buy what you want, you can easily supplement your hard asset purchases with external, non-reward program funds.

To some extent, the best credit card reward points programs for buying fine art and antiques are also the best credit card reward programs, period.  Quite a few programs out there pay substantially more than 1% back, which should be thought of as a starting value.  In addition, many of these programs offer ancillary benefits such as travel perks or extended warranty protection on purchases.

First on our short list is the Capital One Quicksilver Cash Rewards Card.  It earns you 1.5% cash back on all purchases with no restrictions.  It also doesn’t have an annual fee or any foreign transaction fees.  As an added bonus, new cardholders can earn a one-time $200 cash bonus when they spend $1,000 on purchases within 3 months of opening the account.  I like this card because there are no special requirements to earn the hefty 1.5% cash back reward.  It applies to all purchases at all times.

Another credit card that works well with a hard asset accumulation plan is the Chase Sapphire Reserve Card.  This prestigious credit card earns 1 point per $1 spent on most purchases, but ups that to 3 points on travel and dining.  It also provides a massive, one-time, 50,000 point bonus if you spend $4,000 on purchases in the first 3 months after opening the account.

With the Chase Sapphire Reserve rewards program, every 100 points accumulated typically equals $1 in rewards, but that exchange rate is enhanced for certain travel perks.  The James Bond villain credentials of this covetable card are cemented by its recurring, $300 annual travel credit and heavy, all metal construction.  It is no wonder that many people, especially those who travel a lot, overlook the card’s hefty $450 annual fee (plus $75 for each authorized user).

But my personal favorite credit card reward points program for buying tangible assets has to be the Amazon Rewards Visa Signature Card.   This card will earn you a whopping 5% on all Amazon purchases (provided you are a Prime member; 3% if you are not), 2% on restaurant, gas station and drugstore purchases and 1% on all other purchases.  There is also no annual fee (beyond the $99 annual Prime membership fee if you want the 5% rewards on Amazon purchases) or foreign transaction fees.

Like the Chase Sapphire Reserve card, the Amazon Rewards Visa Signature Card is crafted from metal, which is a very nice, high-end touch.  In addition, points never expire and you’ll instantly receive a $50 Amazon gift card on approval.  Points can be easily redeemed on Amazon’s website or through the issuing bank, Chase, for other rewards.  If you are a frequent Amazon shopper, the Amazon Rewards Visa Signature Card is perfect for a guerilla fine art and antiques accumulation plan.

Unfortunately, as intriguing as using credit card reward points to fund your art acquisitions might be, it does have some drawbacks.  This strategy is only for people who pay off their credit card balance every month.  Any balance carried on a card will accrue interest at an unacceptably high rate, typically between 15% and 25%, thus offsetting any possible benefit.  Also, if you are already using your credit card reward points for other purchases like travel miles, hotels or dining out, then you might be reluctant to give up these perks.  In addition, points and points programs are completely at the discretion of the issuing bank and can be modified or even cancelled at any time.

In spite of these minor disadvantages, I feel that using your credit card reward points is one of the easiest, least intrusive ways to start building your hard asset portfolio.  In addition, sometimes you can stack rewards by using programs such as eBay Bucks.  In any case, no matter how you find the money, buying bullion, fine art and antiques is a good move right now.

The Long Overdue Death of the Penny

The Long Overdue Death of the Penny

The penny is dying.  I don’t use them in cash transactions anymore and I am far from alone in that regard.  Most people think of them as nuisances, fouling cash registers, wallets and purses across the nation with a coin that long ago lost is raison d’être.  Let’s face it; one (cent) is the loneliest number.

I first conceived of this article when I was helping to clean out my grandmother-in-law’s house.  She owned a beautiful American penny eagle – a wall-hung, decorative heraldic eagle made from hundreds of individual pennies skillfully glued onto a pine-wood backer.  Now, primitive, country-style antiques are not my forte, but this was a magnificent piece of American folk art.  I felt compelled to take it home.

But this unusual piece of Americana also got me thinking about the fate of the humble one cent coin.  The penny was the very first coin officially struck by the U.S. mint, along with its little brother, the half cent in 1793.  At that time, the over-sized, 13.48 gram (0.48 ounce) coin was known as the large cent because its diameter was only slightly smaller than a modern half-dollar.  By the early 19th century, the iconic large cent had evolved into a slightly smaller, but still hefty 10.89 grams (0.38 ounces) slug struck in almost pure copper.

In those days, a large cent’s bullion value as copper was nearly equal to its face value.  By the 1850s, rising cost pressures caused the U.S. mint to abandon the large cent for the small cent format we are all familiar with today.  The last large cents were struck at the Philadelphia mint in 1857.

The new small cent served the American public well until the late 1970s.  By that time, raging inflation, coupled with skyrocketing copper prices, made the U.S. penny’s future existence an open question.  After exploring various options, the U.S. mint finally decided to change the traditional 95% copper/5% alloy composition of the penny to a new and cheaper copper-coated zinc core.  Since 1982, U.S. pennies have been, ironically, made from 97.5% zinc and just 2.5% copper.  The penny has devolved into a small, ugly, debased monstrosity that reflects our modern coinage dark age.

Pre-1982 copper pennies, however, are actually worth more than their face value as copper bullion.  It only takes about $1.54 in pre-1982 pennies to equal one pound, but #1 scrap copper currently goes for about $2.50 per pound, leaving sizable room for profit.  Unfortunately, it isn’t legal to melt copper pennies (or nickels) for profit; the Federal government banned the practice in 2006.  Even so, some people stockpile and trade pre-1982 pennies because they are a widely recognized form of copper bullion.

And that brings us to today.  It may have been a long time coming, but the death of the penny is imminent.  This lowliest of denominations has finally, after decades of uninterrupted inflation, become almost worthless.  This wasn’t always the case, though.  According to the U.S. CPI inflation calculator, a penny in 1950 had the same purchasing power as a dime does in 2017.

I can actually remember the last time I bought an item that was priced at one cent.  It was 1986 and I was vacationing with a friend in the Appalachian Mountains.  We stopped in at a general store (yes, there were actually a few general stores left back then – usually in remote areas) and I picked out a handful of individually-wrapped candies that were priced at only one penny each!  But even at that time, penny-priced merchandise was an unusual situation.

Since the 1980s, the penny has collapsed into complete monetary irrelevance.  Inflation has continued unabated for the last 30 plus years, leading to the terminal decline of the penny’s real value.  In 1986 the penny was worth an already questionable 2.24 cents in today’s purchasing power.  By 1996, it was worth a mere 1.56 cents.  By 2006, that number had shrunk to a derisive 1.20 cents.

The death of the penny as a medium of exchange has already taken place.  Vending machines don’t take pennies.  Parking meters don’t take pennies.  Toll booths don’t take pennies.  Only Coinstar machines still accept pennies, undoubtedly because Coinstar’s parent company enjoys skimming 11.9% of the face value of your (and everyone else’s) useless penny stash.

The death of the penny isn’t just an American phenomenon either.  New Zealand ceased minting pennies for circulation in 1988.  Australia wisely abandoned its penny in 1991.  Even the United State’s northern neighbor, Canada, finally gave up the penny in 2013.

There are good reasons why the death of the penny is spreading throughout the Anglo-American world.  In addition to its miniscule buying power, rising commodity prices have rendered penny production a losing proposition.  In 2016, it cost the U.S. mint 1.5 cents for every penny struck.  These elevated mintage costs aren’t temporary either.  The last year the U.S. mint actually made a profit on the striking and distribution of pennies was back in 2005!

In a rational world, the U.S. would have withdrawn the penny from circulation sometime during the 1990s.  Unfortunately, this didn’t happen for two different reasons.  One is good old-fashioned pork-barrel politics.  Zinc producers have a lot to lose from the death of the penny.  Over 9.1 billion pennies were struck in 2016 alone, using more than 22,000 metric tons of zinc worth an estimated $70 million.  Unsurprisingly, one particularly vocal supporter of the U.S. penny is Jarden Zinc Products, the sole supplier of the copper-coated zinc planchets the mint uses to strike the coins.

But I personally feel that the real reason for the agonizingly slow death of the penny is that killing the smallest U.S. denomination would be a tacit admission of inflation by our political overlords.  After all, the penny is the United State’s longest running denomination, having been used by Americans more or less continuously for 225 years.  Being the politician under whose watch the penny finally dies sends all the wrong messages to your constituents.

It would be tantamount to announcing to every middle-class, voting American that inflation is alive and well and their money isn’t worth what it used to be.  These are not the themes that successful re-election campaigns are made of.  So instead we put on a happy face with talk of low inflation and ever rising stock prices.  And the inevitable death of the penny is deferred for yet another day.

In many ways the looming death of the penny is just a symptom of much deeper monetary problems facing both the United States and the entire developed world.  Global central banks have been recklessly expanding their balance sheets for years now, ostensibly to fight non-existent “deflation”.  The total aggregate assets of the U.S., European and Japanese central banks have increased from around $4 trillion in 2008 to about $14 trillion in late 2017.  This represents an almost 15% annualized expansion of the base money supply over the last 9 years.

While the negative monetary and social consequences of these actions have been largely deferred, they will come due at some point.  This is one of the reasons I advocate the purchase of fine art, antiques and other tangible assets for investment purposes.  The penny may be dying, but that doesn’t mean your financial dreams have to die with it.

Contemporary Men’s Walnut Valet Box by Ron Lentz

Contemporary Men's Walnut Valet Box by Ron Lentz
Photo Credit: RonLentz

Contemporary Men’s Walnut Valet Box by Ron Lentz

Asking Price: $149 (price as of 2017; item no longer available)

Pros:

-This sleek, contemporary men’s walnut valet box was handmade by Ron Lentz, an accomplished, self-taught woodworker operating in a small town just outside Richmond, Virginia.

–A valet is a dresser-top box used to store a man’s personal accessories, such as his keys, watches, cufflinks, rings, glasses and wallet.  A valet can be either a box with a lid, or a deep tray that is open on the top.  By keeping all of a man’s personal effects in one place, a valet can really help clean up a cluttered space.

-This men’s walnut valet is 12.5 inches (31.8 cm) long by 7.5 inches (19.1 cm) wide by 2.25 inches (5.7 cm) deep.  The interior of the valet is divided into three compartments that are all lined with green suede.

-This men’s valet is made from magnificently-figured solid walnut that has been carefully rubbed with natural walnut oil and wax to protect its surface.  The very best woodworkers never stain their fine woods, but instead allow them to show off their natural color and texture, as in this instance.

-This walnut valet combines a distinctly angular form with a sweeping, organic arc to create an unmistakably masculine work of art.

–I love a good hardwood box.  The finest examples are skillfully handcrafted from some of the most expensive woods in the world, including mahogany, cherry, ebony, walnut and cocobolo.  I’m certain the very best will eventually become heirloom quality antiques.

-This walnut valet is signed by the artist, Ron Lentz.  This is a very desirable attribute because really fine hardwood boxes aren’t simply woodworking or handicraft specimens.  They transcend those petty labels to stand as exquisite works of art.

-Unfortunately, if Mr. Lentz’ Etsy profile photo is accurate, he is getting on in age and I’m not sure how many more years of productive woodworking he has left.  This is yet another example of the coming crisis in contemporary art that I’ve written about before.

-This piece would make a great gift for a brother, father, husband or other man in your life.  Of course it would also make a satisfying treat for yourself too, if you are so inclined.  In light of the fact that this contemporary walnut valet is useful, stylish and even has the potential to appreciate in value as artwork, I think the $149 price tag is well justified.

 

Other Ron Lentz Valet Boxes for Sale on Etsy

(These are affiliate links for which I may be compensated)

 

Cons:

-Buying contemporary art is a high risk endeavor, at least from an investment perspective.  It is analogous to buying penny stocks in the stock market; you may do great, but don’t count on it.  Of course, the fact that this walnut valet is eminently functional certainly offsets some of the risk here.  Even if the piece ends up with no significant value on the secondary market in another decade or two, it will still have provided its owner with tremendous value through its organizational function and stunningly good looks.

-Walnut is the most expensive temperate hardwood generally available, but many varieties of fine tropical hardwoods, like mahogany, ebony, rosewood and bubinga, are all substantially more expensive.

The Truth about Hard Assets and the Zombie Apocalypse

The Truth about Hard Assets and the Zombie Apocalypse

After spending an inordinate amount of time in the dark corners of the internet, I’ve come to a conclusion.  The world is dominated by two kinds of investors: the “everything’s alright” crowd and the “prepping for the zombie apocalypse” contingent.  The approaches these two radically different groups take to investing couldn’t be more different.

The unofficial motto of the “everything’s alright” crowd is “buy stocks for the long run™”!  They believe the world is gradually evolving into a post-industrial, information-driven society.  Advances in technology, medicine and finance, coupled with the genius of our corporate and political leadership, will inevitably guide humanity into a permanent age of boundless plenty.  For the “everything’s alright” investor, stocks are the obvious investment vehicle to capture humanity’s infinite future potential.

The “prepping for the zombie apocalypse” faction takes a diametrically opposed viewpoint of the future.  They believe the world faces a comeuppance for its poor economic, political and social choices.  Some think widespread raw material shortages or environmental disaster will usher in an unfamiliar age of universal scarcity.  Others believe that the global economy has been terminally mismanaged and, staggering from crisis to crisis, is bound to eventually collapse with devastating financial consequences.  A few even believe the very roots of Western Civilization are being systematically eroded by ill-advised social engineering, inevitably resulting in a disruptive fragmentation of society.

The “prepping for the zombie apocalypse” crowd generally considers “stacking” to be the best investment for the trying times ahead.  “Stacking” is a term used to describe the orderly stockpiling of supplies for the future.  These necessities can be as diverse as non-perishable foods, ammunition and guns, or gold and silver bullion.  The idea behind this kind of investing is that basic food and materials will be much more difficult to obtain in a new, crisis driven world and whoever owns them will be well placed to prosper.

I want to focus on the investment assumptions underlying the “prepping for the zombie apocalypse” group in this article.  First, I should state that I am sympathetic to some of their arguments about humanity’s future direction.  I do believe that the global economy has been terribly manipulated by the world’s central banks and that we will one day pay a heavy price for that arrogance.

But the “prepping for the zombie apocalypse” crowd broadly shares many beliefs that I find highly improbable.  For one thing, their basic underlying assumption is that society will more or less completely disintegrate under the stress of the challenges to come.  This means they do not think there will be effective Federal or state government structures, although some form of local government may persist.  They also implicitly believe that food, energy and goods distribution networks will either cease functioning altogether or become highly impaired.

If you accept these “zombie apocalypse” assumptions, then preppers’ and survivalists’ insistence on stacking basic supplies like food, ammunition and precious metals make a lot of sense.  If the electrical grid permanently goes down and gasoline becomes unobtainable, then yes, a lot of people will starve and violence driven by desperation will be commonplace.  Such an event would almost undoubtedly be the end of the world – or at least the end of civilization – as we know it.

This “zombie apocalypse” strategy is best exemplified by the way survivalists and preppers approach investing in precious metals.  They typically like buying fractional gold and silver bullion coins, including old U.S. 90% junk silver, under the assumption that it will be easy to trade a real silver dime or quarter for a loaf of bread when the time comes.  They usually eschew numismatic coins and antiques because they feel these assets will have no demand in a world where starving people are desperate for food and little else.  Some preppers don’t even bother with precious metals under the hypothesis that in a crisis no one will believe your gold and silver coins are actually gold and silver!

But I don’t think a total collapse of society is a given.  In fact, I don’t even believe it is probable.  A look at history is informative in this situation.  The 20th and early 21st centuries have been packed full of some of the most disruptive periods in human history, yet only very rarely would a survivalist’s full-blown “zombie apocalypse” preparations have made sense.  In most instances, a less extreme approach was warranted.

Even the most extraordinary disasters are temporary in nature, rarely lasting more than a few years.  For example, Weimar Germany’s devastating hyperinflation of the early 1920s was only about four years long.  Yes, it was a miserable four years, but when it ended, it ended for good.

Calamities are also often localized or regional in nature as well.  The Yugoslavian civil war of the early 1990s is a classic case, with different hotspots flaring up at different times and locations in the fragmenting Balkan nation.  Yet the surrounding European nations were practically untouched by this conflict, only experiencing a rise in refugees.  World Wars are about the only exception to this rule, when entire continents became engulfed in conflict.

Finally, a number of catastrophes result not in bullets and chaos, but in slower, more manageable changes.  Argentina’s experience in its currency crisis of the early 2000s best exemplifies this.  Capital controls were imposed, prices rose and crime increased, but otherwise life went on.

We can draw some conclusions from these situations.  First, a protracted, slow decline is much more plausible than a total collapse, “zombie apocalypse” scenario.  In fact, “zombie apocalypse” conditions – like Berlin or Tokyo in 1945 where food is all that matters – are vanishingly rare and almost always highly localized.

Second, a healthy investment allocation to hard assets – bullion, gemstones, art and antiques – is a prerequisite to protect yourself financially.  However, there are a couple rules you must follow to maximize their benefit.  It is imperative you have enough liquid cash, savings or bullion to see you through a temporary crisis.  You don’t want to be forced to panic sell illiquid, high value tangible assets in the depths of a crisis.  A corollary to this rule is that stockpiling two or three weeks worth of food, bottled water and cash is always prudent.

Art and antiques are not investments meant to be liquidated in the midst of financial chaos.  Instead, they are a play on the inevitable recovery that comes afterwards, once the dust and smoke clears.  These precious tangible assets have been coveted and desired by the wealthy and sophisticated for many centuries.  And, as long as humans walk the earth, that is unlikely to change.