(Update 12/5/14: Loyal3 no longer allows stocks to be purchased via credit cards.)
I wrote an article a few months ago about a new company called Loyal3 and how you can use a credit card to purchase stocks for free. Now I don’t really invest in many individual stocks due to the uncompensated risk, but I do like exploring new ways of ‘manufactured spending’. MS as it’s known in the travel hacking industry is the technique of spending money on a credit card without actually spending the money. Sometimes there are fees associated with certain MS techniques but the best techniques are free or cost you 1% or less. A 1% fee on $5,000 in spend isn’t too bad if it means you’ll get reward points worth $500-$1,000 tax free.
Since a lot of the top sign up bonus credit card offers require high minimum spends, the only way for normal people like me to achieve these are through MS techniques. I use two main strategies to MS: I send money (up to $1,000 for free per month) through Amazon Payments and I’ll buy prepaid debit cards and unload them through Bluebird (a free bill pay/checking service from American Express). The former is pretty easy but the latter can be kind of a hassle since it involves finding stores that accept credit cards for prepaid gift cards and then going to Walmart and dealing with those clowns to load the damn card.
The Original Plan
I’m kind of lazy so I like lazy MS techniques that let me sit at a computer. Making two trips to two different stores just won’t cut it for me. So when I heard about Loyal3 I was pretty excited since it would allow me to buy and sell stocks with a credit card with no fees. My plan was to buy the stocks one day and sell them the next but unfortunately Loyal3’s system doesn’t quite work that way. There is a 2-3 day lag time in-between placing orders and the actual purchase and another 1-2 days of lag time between the sell order and the actual sale.
If you could buy and sell stocks instantaneously with Loyal3, I’m sure they would catch on to what people like me are doing pretty quickly and they would shut that avenue down. But even if you’re ok with the short wait period, Loyal3 has still been flagging accounts for buying and selling too quickly. So in order to MS with Loyal3 you have to be ok with holding your stocks for a couple weeks and unloading them slowly.
My Latest Credit Card
At first, I wasn’t really ok with this method since I have alternative means to MS. But during my latest round of applications, I actually found out that you could apply for the American Airlines Citi Executive card more than once. If you recall, I applied for this card back in March since it came with a 100,000 point bonus after spending $10,000 in 3 months. I already had a few other cards that I needed to apply for but I decided to throw this one in anyways and this card put me way over what I can normally MS.
Related Article: Turn a 30,000 Starwood AMEX Offer into $1,750
So in this case, it made sense for me to try out MS’ing with Loyal3 since without them, I would not have been able to apply for my second AA Citi Exec card. As an even bigger bonus, if I was able to spend the $10,000 within 37 days of the annual fee posting (right around the date of the first statement) I could actually cancel the card, keep the points, get my $450 annual fee refunded and keep the $200 first purchase bonus. So basically I would get 100,000 points and $200 in cash if I could hit the spend quickly and then cancel the card.
When Does Loyal3 MS’ing Make Sense?
The way I look at it is I’m already getting $200 for free plus the 110,000 points (bonus + spend) so what price am I willing to pay for that amount of points? The price I’m willing to pay is how much I can comfortably lose with Loyal3 and break even. I wasn’t willing to risk all $10,000 at once so I bought in chunks of $2,000 between my two Loyal3 accounts (mine and my fiancee’s). So even if the market has an absolutely horrible week and drops 10% I still won’t be out more than a couple hundred bucks. Since AA points are valued around 1-2 cents/point I could probably ‘lose’ close to a thousand dollars and still come out ahead as long as I would be ok with exchanging cash for points.
My Strategy With Loyal3
Loyal3 used to have a $2,500 per stock credit card purchase limit but since writing my last article they dropped it down to $50 per stock. This isn’t the end of the world but it does make the process a little bit slower. I did a bunch of small test runs with Loyal3 but ultimately the strategy that worked best was buying stocks in groups of 10 per day. For 4 days in a row, I bought 10 different stocks with my credit card for $50 each. At the end of the week, I had $2,000 invested and I waited 1-2 weeks before selling. In the mean time, I went over to my second Loyal3 account and did the same thing. So the whole process ended up taking about a month and a half and I ended up investing close to $8,000 with Loyal3. I was able to do normal spending of around $2,000 during that month too to hit the $10,000 minimum.
What Were The Results?
This strategy worked pretty well although my second account did get flagged. I think it got flagged because I was trying to buy too many stocks at once. Once I started doing them in groups of 10 and 4 days in a row there were no problems. The markets had a pretty good run during the last month so I actually ended up making $50 or so.
At the end of the day I used Loyal3 to MS close to $8,000 and it took just over a month. My Citi AA Executive card statement closed on 6/18 with $10,750 worth of spending and the next day 110,000 points posted to my American Airlines account. I sent a secure message to Citi the same day and asked them to cancel my card and within a couple days I had my $450 annual fee refunded. The total haul for this credit card was 110,000 points and $200. And without Loyal3, none of that would have been possible. I’ll let you guys know if I decide to do a third card
Readers, what do you think about this MS strategy? Is it worth the risk for 110,000 points and $200 in cash or does it sound like something you wouldn’t be willing to do?
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-Harry @ PF Pro