Credit Card Churning vs. Sustainable, Efficient Sampling

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In investing, when a market inefficiency is made well-known and also easy to replicate, you can bet that inefficiency will soon disappear. I was catching up on my magazine stack and saw that Bloomberg Businessweek wrote about credit card churning, where people aggressively sign up for 16 credit cards in a year and bend the rules as far as they will go.

As someone who just came back from Costco, this made me think of their free samples. Manufacturers give out these free samples with the hope their upfront expense will be covered by the additional product sales. Most people will pass on by, some will take one sample, and a few will treat it like their personal buffet line. Now, there are no rules posted, but obviously if everyone takes 10 samples then the system falls apart.

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I’m not hatin’, just observin’. I’ve certainly gotten my share of bonuses in the past. I have a dedicated Google Spreadsheet and know that business card organizers are a great way to keep physical cards organized. (I used to use baseball card pages, but this is more compact and nothing falls out.) However, I am actually quite fine with credit card companies adding some limitations on their bonuses. As the saying goes, I’d rather shear the sheep many times rather than skin it once.

You don’t need to apply for 16 credit cards to earn a healthy dose of travel perks. Keep in mind that for many years, a sign-up bonus of $100 was noteworthy. Right now, I probably won’t write about something unless it is worth at least $500 in total bet value (taking into account both upfront and ongoing rewards, minus any annual fee). This is still a relatively good time for rewards, if no longer the absolute best.

At $500 a pop, just four cards per year will still net you $2,000 in annual perks. Consider it your reward for having a high credit score and good money management skills. (If you don’t have both, don’t do this at all.) Be a sustainable, efficient credit card sampler. Focus on the low-hanging, juiciest fruit only. High value, low work. It’s less stress, less risk, and you can still cover a big chunk of your annual vacation budget every year. I only apply for a maximum of roughly 4 cards per year for myself, and 2 cards per year for my spouse. For example, here are four cards that we have gotten recently that adds up to over $2,500 in value for us:

Back to the Costco free sample analogy. In end, if the product is good, it will be successful. If something isn’t good, giving away stuff won’t matter. For a long time, American Express had the “king” of credit cards points with their Membership Rewards points. But they starting chipping away at the value, and Chase introduced their brand-new Ultimate Rewards points and their Chase Sapphire Preferred card. These days, most people will tell you that Ultimate Rewards are a notch better because they are more flexible and have a higher base value per point.

When you apply for a card, your job is to both happily take the free stuff but also give them a chance to earn your business. Use it for purchases. Try their card website and see how easy it is to pay your bill online or set up automatic payments. Try their points website and see how easy it is to redeem your points. Call up their customer service and see how easy it is to dispute an incorrect charge. If it is a co-branded card, try out the hotels or airlines. See if it fits your lifestyle, be it Four Seasons or Motel 6.

Some can surprise you, especially if you learn about their lesser-known perks. For example, the American Express Delta Platinum SkyMiles card does not heavily advertise that it offers a free economy companion ticket each year upon card renewal. As a couple who regularly flies coast-to-coast on Delta, the free companion ticket has easily offset the $195 annual fee of the card and then some every year, while we also get free checked bags, priority boarding, and improved saver award seat availability.

The article focuses on customers getting stuff from credit card companies. Don’t forget there would be NO bonuses if credit card companies weren’t trying to get your money, either indirectly through the transaction fees you generate and your personal spending habit data, or directly through the interest you pay on your balances. Let them try to earn your business. Keep the good ones. Cancel the ones that fall short. There is nothing wrong with that.

Vanguard ETF and Mutual Fund Expense Ratios (Last Updated May 2016)

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May 2016 Update. Added announcement links for April 2016, which included expense ratio reductions in their biggest and most popular funds. Highlights from this latest update:

  • Vanguard Total Stock Market Index Fund. The largest stock fund, with $418.0 billion in assets, reported an expense ratio reduction for Investor Shares of one basis point, to 0.16%.
  • Vanguard 500 Index Fund. The second-largest stock fund and the industry’s oldest stock index fund, with $227.5 billion in assets, reported an expense ratio reduction for Investor Shares of one basis point, to 0.16%.
  • Vanguard Total Bond Market Index Fund. The world’s largest bond fund, with $158.0 billion in assets, reported expense ratio reductions for Investor Shares of four basis points, to 0.16%; for Admiral™ Shares of one basis point, to 0.06%; for ETF Shares of one basis point, to 0.06%.
  • Vanguard Total Bond Index II Fund. The second-largest bond fund, with $96.3 billion in assets, reported expense ratio reductions for Investor Shares of one basis point, to 0.09%, and for Institutional Shares of three basis points, to 0.02%. (This fund is only available inside
  • Many other ETFs had slight price drops, for example the Small Cap Value ETF (VBR) and Admiral Shares dropped to 0.08%.
  • Vanguard clients now pay an average asset-weighted expense ratio (the average shareholders actually pay) of 0.13%.

Background. When you invest in a mutual fund or ETF, the fund company charges you a fee for managing that basket of stocks or bonds. This is called the annual net expense ratio, usually expressed as a percentage. If you hold a steady $10,000 in a hypothetical fund with a 1% expense ratio, that would result in an annual charge of $100. These expenses are actually deducted daily day from the funds’ net asset value (NAV), and while the numbers can seem small they will compound quietly and relentlessly over time. Here is an illustration from the Vanguard website:

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Vanguard has a long history of lowering their expense ratios as their assets under management grow, whereas the industry average hasn’t changed very much.

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You don’t need to track every little change as an investor, but I subscribe to updates of their expense ratio change announcements anyway. Vanguard runs their funds “at cost”, so sometimes as their costs go up, the expense ratios can also rise a bit. I’ll try to keep this list updated, along with some brief highlights.

2015/2016 Announcement Links

  • April 2016. Lower expense ratios for 88 mutual fund and ETF shares.
  • February 2016. Lower expense ratios for 42 mutual fund and ETF shares.
  • January 2016. Lower expense ratios for 35 mutual fund and ETF shares.
  • December 2015. Lower expense ratios for 53 mutual fund shares, including 21 ETFs.
  • May 2015. REIT Index fund expense ratios went up. VNQ went up to 0.12%.
  • April 2015. Total Bond Market ETF (BND) and Total Bond Market Index Admiral Shares (VBTLX) dropped to 0.07%.
  • March 2015. Only one change: Lower expense ratio for Vanguard Convertible Securities Fund.
  • February 2015. Lower expense ratios for 6 international ETFs.
  • January 2015. Expense ratio changes for several actively managed funds.

Past Highlights

  • April 2016. Total US Stock, 500 Index, Total US Bond, and Small-Cap Value all lowered expense ratios in one or more share classes.
  • February 2016. Total International Stock, Total International Bond, FTSE All-World ex-US, and Global ex-US REIT funds all lowered their expense ratios.
  • January 2016. Target Retirement 2010-2060 Funds saw their expense ratio drop by 2-3 basis points to 0.14%-0.16%.
  • February 2014. Total US Stock ETF (VTI) was unchanged at 0.05%. Total International Stock ETF (VXUS) dropped to 0.14%. FTSE Emerging Markets ETF (VWO) dropped to 0.15%.
  • January 2013. Target Retirement 2010-2055 Funds saw their expense ratio drop by a basis point to 0.16%-0.18%.
  • May 2012. Vanguard REIT Index Fund, and Vanguard’s Short / Intermediate / Long-Term Investment-Grade Funds, Vanguard’s Short / Intermediate / Long-Term Treasury Funds, and a few other bond funds had expense ratio drops.
  • April 2012. Vanguard Inflation-Protected Securities Fund, Total Bond Market Index Fund, 500 Index Fund, Balanced Index Fund, Extended Market Index Fund, Small-Cap Value Index Fund, Total Stock Market Index Fund, and Value Index Fund had share classes with expense ratio drops.
  • February 2012. Vanguard Emerging Markets Stock Index, FTSE All-World ex-US Index, Total International Stock Index, and Total World Stock Index funds amongst others had share classes with expense ratio drops.

(Note that Vanguard chooses to delete their old announcements after about a year, so everything 2014 and before is now gone.)

In recent years as index funds have shot up in popularity, most of the major providers have introduced similar low-cost products (notably iShares, Fidelity, and Schwab). I think the competition is great and even Vanguard needs to be kept on its toes. However, with my own money, I think Vanguard has both the past history and better ongoing structure to keep costs low over the long haul. I have used both Fidelity Spartan funds and iShares ETFs as alternatives.

Grantham GMO Q1 2016 Quarterly Letter Highlights

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Here are my notes and takeaways from the GMO Quarterly Letter for Q1 2016, released May 10th, 2016. I always pick up something educational when reading these letters (previous editions may require free registration.) I already discussed their Q1 … [Read the rest]

Stash App Review: Simplified Investing on Your Smartphone

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Updated: Android app now available, new $5 offer for new client sign-ups. Got five bucks, a smartphone, and a bank account? You're just a few taps from investing and owning a piece of hundreds of businesses. Stash is a new smartphone app with a … [Read the rest]

Free 1,000 United Miles with Prosper Daily App (Expired)

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Promo expired early. Marketplace lender Prosper acquired the BillGuard app in late 2015, and has re-branded it as Prosper Daily. Right now, you can get 1,000 free United miles if you register here first with your United MileagePlus number, install … [Read the rest]

Free FICO Score For Everyone via CreditScoreCard, No Credit Card Required

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Discover has rolled out a new serviced called Credit ScoreCard, which provides everyone access to their FICO score for no charge with no trials or credit card relationship required. (Well, free in exchange for right to market things to you based on … [Read the rest]

Research Affiliates 10-Year Asset Class Forecast, Q1 2016

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Research Affiliates, an asset-management firm founded by Rob Arnott, also offers long-term forecasts across a variety of asset classes via their Expected Returns tool. Here is a paper explaining their equities methodology [pdf]. I would like to … [Read the rest]

Distribution of Lifetime Returns for Individual US Stocks, 1989-2015

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Have an individual stock idea brewing the in the back of your mind? Perhaps the recent LendingClub drama has you itching to buy a few shares of LC at under $5 a share? Above is an interesting chart that shows the distribution of total returns for … [Read the rest]

LendingClub Drama: Should Investor-Lenders Be Scared of Bankruptcy?

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As an early adopter and IPO participant of LendingClub, I was disappointed to read about their recent happenings. The major financial media outlets have been covering it closely, with summary-style articles from the NYT here and WSJ here. This is … [Read the rest]

Digit Review: “You Won’t Even Notice” Automated Savings Account

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Want to save more, but don't want to actually think about it? Digit is a fintech start-up that combines a free FDIC-insured savings account that want you to give it permission to tuck some of your own money away for you. There's mindless eating, … [Read the rest]

Qapital App Review: Rules-Based Automated Savings Account – Free $5 to Start

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Before we let them take over the world, computers must first prove their worth by helping us become better savers and investors. Importantly, we humans have a horrible tendency to put off saving when we have to manually do it each and every … [Read the rest]

Do What You Love – If You Can Work For Yourself

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"Do what you love and you’ll never work a day in your life." We've all read this saying, and it certainly sounds like a wonderful goal. But is it also being abused by corporate interests? Here's why I might change it to "Do what you love, if y … [Read the rest]