Searching for Yield (an alternative for those who like to travel)

Last month I decided to become a classic idiot investor. I decided I was too smart for my own good and could time the market.

Since I started making a profit from betting, the majority of that profit has gone into the stock market. Down to pure luck, I have invested at a time where the stock market has performed exceptionally well. In the past 7 years, my stock portfolio value has increased by 150%. The aim of my portfolio is to amass about $2 million and retire on a 4% withdrawal rate ($80,000 a year).

I’ve felt for a while that the market is due for a severe correction. I could give you the reasons, but really, no one has any idea what the markets will do. So I won’t try and impress you with my thoughts. Instead, I thought I’d talk about what I did and my search for somewhere to park my money while still giving me some sort of return.

What I did

I withdrew 40% of my portfolio and needed to put that money to work. My only goal was to keep up with inflation. I had a few options.

1. Leave it in the bank where it would lose about 2% a year due to inflation
2. Put it in a term deposit
3. Buy bonds
4. or find other investments

This post is more about those other investments. But let’s see one of the usual options.

Term deposits

For all these examples, let’s say you had $100,000 to invest. The current best term deposit interest rate is 2.05% via Ubank. You need to lock your money up for at least 6 months to get that return, and as official interests rates keep going down, so too does the term deposit rate. It wouldn’t surprise me to see the rate closer to 1.5% by this time next year.

If you were to lock your $100,000 in for a year, this time next year you would have access to your initial $100,000 plus $2,050 more. This is interest, so you need to pay tax on it. At the average tax rate of 32.5% that would leave you with $1,383.75 or a real 1.38% interest rate.

Other options

There are a heap of high-risk options that could give you exceptional returns. Bitcoin and angel investing are two that I use. But I have enough risk in these options already. I’m looking for something that keeps my money liquid and gives a small adequate return.

I actually stumbled on the solution while on Reddit. I was in the FIAustralia channel and someone mentioned the Bankwest Qantas transaction account.

This account gives you 12 Qantas frequent flyer points per $100 you have in the account every month. So if you put $100,000 into the account, each month you would get 12,000 Qantas FF points.

Over a year that would be 144,000 points. If you use your points on a business class round the world flight, the value of each point is about 2c. So 144,000/0.02 = $2,880. There is no tax on these points and the value is more than double that of a term deposit (and will only improve as interest rates decrease)

There are easier ways to gain points, and I have talked about that before. I will continue to sign up to credit cards for the additional points as well.

Now, this will only make sense for people looking to travel business or first class in the next few years, as Qantas will continue to devalue their points over time.

I had a grand plan to travel the world for an entire year starting on Jan 1st 2020, but that has been derailed (article coming soon). Now that my year of travel has been pushed back at least a year, I can take that time to earn more points and make sure it is a very luxurious trip.

With a low-interest environment and Quantitive easing just around the corner, getting a decent return on your money is getting harder and harder. I feel the next few years could see a huge shock to the financial system, but once again, I am likely a classic investing idiot. To make sure my idiotic tendencies do not cost me too much, I have left 60% of my portfolio in the market.

I also believe that this printing and therefore devaluation of money is the next major step for Bitcoin. As money becomes worth less and less, it will likely increase the value of Bitcoin (in dollar terms) and that will start the next big bitcoin bubble.

But, once again… I am an idiot and have no real idea of what will happen. I just thought some other readers might be in the same boat and would like to hear of the alternative I decided on.

Let me know what you think is likely to happen in the future and what you are doing with your investments.