With the current state of the Canadian dollar, some people are adjusting their travel plans or reconsidering their strategies with reward points.
Did you know that it is possible to use credit card points to invest? If you don’t think you’ll need your points any time soon, it may be worth investing them in mutual funds. You can do this tax-free by investing your points in a TFSA, RRSP or FHSA, for example.
Many institutions offer the possibility of using your reward points directly to invest, whether for savings or financial independence.
Investing is a great way to take advantage of reward points when there’s no travel goal in sight.
Although the exchange rate remains higher when they are used against travel expenses, it is important to remember that this is sleeping money in the form of points.
Let’s take the example of the National Bank of Canada rate.
With 60,000 points, they can be exchanged for a $500 contribution to a TFSA account for investment purposes.
When compared to the “best rate” of 55,000 points against a $500 travel discount, at first glance, the points are not optimized. In fact, you “lose” 5,000 points, or a value of ~$45.
On the other hand, if there’s no trip on the horizon, it may be preferable to put that $500 to work, optimize our tax return or pay off debts (mortgage, line of credit, etc.) rather than leave it in the form of points.
According to Goldman Sachs Bank, the average annual return of the S&P 500 has been around 10.5% for the last 140 years.
To access financial products, you need to open an account and become a customer of the bank.
Here is the number of points required by each financial institution to invest or reduce your debt.
12,000 points = $100
or
11,000 points = $100 when redeeming over 55,000 points
15,000 points = $150
15,000 points = up to $350 for an airline ticket
10,000 points = $100
10,000 points = up to $400 for an airline ticket
As you can see, some exchange rates come close to being used against a Statement credit on travel expenses.
At the start of the pandemic, I had liquidated the majority of my reward points in order to increase my savings contributions and invest.
Over an 18-month period, my investments grew by more than 20%.
Since we didn’t know when we’d be able to leave again, I found another way to monetize these points despite a slightly disadvantageous exchange rate in the first place.
If you’re facing a significant increase in mortgage payments with skyrocketing rates, you can turn to your points to ease the burden.
However, when there’s a trip on the horizon, it’s really best to redeem reward points for travel discounts. Then, invest the amount saved.
It’s just a matter of perception, but there are two ways to look at it:
The basic rule of point hunting, remember, is not to create needs.
So, to optimize your points and your budget, use your points and cash back on expenses you would have made anyway.
During my trip to Turkey, I had booked a tour package with G Adventures. With them, there are several ranges of service for the same journey.
I carefully chose the one that suited me and then applied my National Bank rewards points to the fees.
I reiterate, I selected the circuit that satisfied me and not a more luxurious circuit simply because I had a “big discount”.
Secondly, would I have gone on the trip even if I didn’t have so many points? In my case, the answer is yes.
So by using my points to reduce the cost of my tour, I saved a $500 that I was going to inject into this trip anyway. So I deposited that same amount into one of my investment accounts.
This way of thinking applies to all reward point programs, but also to cashback. Credit cards allow me to save money while pursuing my dream trips.
Unlike direct methods, this allows me to invest my savings anywhere : Wealthsimple, Questrade, Qtrade Direct Investing, CIBC Investor’s Edge etc.
More cash flow from savings thanks to credit card points? As savvy investors, we have more money to invest in our long-term financial goals, such as retirement savings or financial independence,while enjoying life to the fullest.
To find out more about investing and personal finance, read our articles and guides:
The best way to invest with points is to use those you won’t be using for travel, and invest them tax-sheltered in RRSPs or FHSA. At present, many financial institutions allow you to use your points directly to invest. An interesting strategy is to use your points to maximize your tax refund. You can then reinvest this tax refund in your TFSA to grow your money tax-free. This approach optimizes the use of your points while maximizing the tax benefits of the various registered accounts.
Investing means making your money grow by strategically placing it to generate long-term returns. For beginners and experienced investors alike, it’s essential to define your financial objectives and risk tolerance before taking the plunge. Whether you’re looking to save for retirement or achieve financial independence, you have a number of options open to you: stocks, bonds, mutual funds or real estate. The important thing is to diversify your investments and maintain a long-term vision, while remaining faithful to your investment strategy despite market fluctuations.
To invest in the stock market, start by determining your risk tolerance and your financial objectives. Then, you’re ready to invest, diversify your portfolio between different asset classes such as stocks and fixed-income securities. Markets offer different opportunities depending on your investor profile. To achieve a good rate of returnfocus on a long-term investment strategy and avoid reacting to daily fluctuations. The online trading platforms make investing easy and inexpensive.
The most effective investment strategy is to combine your points and your money strategically. By using your points for day-to-day expenses, you free up cash for long-term investments. Your risk tolerance will guide the allocation between asset classes.
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