Taking Assessment of My Portfolio in 2006, Part 3: Cash Accounts

Its time to take a look at the return from my cash investments. Basically I am accounting for all the available cash I held in checking, savings, and money market accounts in 2006. Since some accounts (such as my free checking accounts) yield nothing, while others such as Emigrant Direct and HSBC yielded between 4.25-5.05% throughout the year, I am expecting only I small return on this money. After all, the point of having this money in these accounts is not necessarily to yield the best return, but to maintain readily available cash, not to lose value, and earn a risk free return on my investment.

I have decided to look at both the "Total Cash" return and "Net Cash" return to get a better idea how this money performed. My total cash is offset by 0% balance transfers, rental deposits, and estimated tax liability. The bottom line is this money only represents a really small portion of my net worth once the liabilities are accounted for.

Here is a table of the current liabilities that offset much of my savings:

 

12/31/2005

12/31/2006

0% APR balances

($28,811.00)

($61,902.00)

Rental Deposits

($1,000.00)

($1,400.00)

Earmarked Tax Liability

($3,000.00)

($760.00)

Total

($32,811.00)

($64,062.00)

The following table shows the total cash I had at on 12/31/2005 & 12/31/2006. It also includes a "Net Cash" line item which is the "Total Cash" minus the liabilities from above. Also note the "Net Cash" return is the same as the "Total Cash" since there were no carrying costs (as of yet) for any of the liabilities:

 

12/31/2005

12/31/2006

Contributions

Return

RoR

Dietz

Total Cash

$35,721.12

$76,351.06

$39,203.79

$1,426.15

3.99%

2.58%

Net Cash

$2,910.12

$12,289.06

$7,952.79

$1,426.15

49.01%

20.71%

I can't complain about the return on this money. My use of leverage (mainly 0% balance transfers) has allowed me to earn a considerable amount in cash investments for 2006. While this wasn't one of the main contributors to my net worth performance, it certainly did have a positive affect on the bottom line.

What might be worth further discussion at a later point is whether I should continue spend my limited time taking advantage of 0% balance transfers or instead spend that time focussing efforts that significantly affect my net worth performance.

I'll be continuing this series by looking at my 2006 returns for my investment accounts, ESPP & stock options, and rental property.

December 2005 Net Worth

$206,990

Part 1: 2006 Retained Earnings

+$65,579

Part 2: 2006 Retirement Accounts

+$17,504

Part 3: 2006 Cash Accounts

+ $1,426

Part 4: 2006 Investment Accounts

+ $7,951

Part 5: 2006 Company Ownership

+ $9,075

Part 6: 2006 Rental Property

 

December 2006 Net Worth

$317,904

Related in Net Worth Archive:

May 2012 Net Worth Update (-$28,098) (Jun 10, 2012) Highlights for MayWe like to take advantage of 0% APR balance transfers and other credit card offers for free money. We are actively looking at taking advantage of new credit card arbitrage opportunities. Our properties are listed on our...

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March 2012 Net Worth Update (+$22,032) (Apr 11, 2012) Highlights for MarchWe like to take advantage of 0% APR balance transfers and other credit card offers for free money. We are actively looking at taking advantage of new credit card arbitrage opportunities. We are close to earning ~$1,000...

Comments (8)


How many separate 0% transfers does that figure represent? I was curious how manage them all. Do you pay minimums out of the investment account, or do you maintain a separate cash reserve for making the min. payments on the credit cards accounts?

I currently have 4 0% balance transfers outstanding. I usually pay the min paymeny out of my monthly net income (equiv to savings the same amount each month) and leave the entire balance transfer in my savings accounts.

I use balance transfers in a different way. Some cards are both 0% APR and Balance Transfers and Purchases. So I would allocate money in a way that I could use the 0% Purchasing power to buy items at 0% and then turn around and make a profit which was greater than what I could of made on the 0% balance transfer. I guess it's the same thing as a BT if you look at it, but just a different way of looking at it. On top of that I get points/rewards back from the CC, so all in all I make more money than simply gaining returns through a money market or savings account.

Otherwise I would be utilizing BTs the same way that 2 million does.

=)

Have you looked at what doing these 0% balance transfers are doing to your credit rating? Just curious if you have tracked your "before" and "after" FICO scores?

Great results on your cash, but like you said the end result is a drop in the bucket. You correctly identified the diminishing returns on this strategy. Even if 100% of your return on cash could be attributable to balance transfer leverage, it would account for less than 0.5% of your total net worth. But I know how you feel--"free" money is just so hard to pass up.

I guess the value of it depends on how much of your time is devoted to reading the credit card agreement terms and conditions, signing up, transferring monies, making the minimum monthly payment, etc. And then there is the pesky problem of increasing your exposure to identity theft (more banks with your personal records, SSN's, etc.) I guess if you have the free time, why not?

Especially if you get approved for a $100,000+ credit line? :)

Last year I took out 4 0% ($40k in total) and managed to send my FICO plummeting from 785 to 685. Even after paying off nearly all of them (the promo period expired) I'm still only at about a 715 two months after paying everything off. So, I would caution anybody doing 0% arbitrage to make sure they don't plan on financing anything (cars, houses, rentals) for at least a year or two following the transfer.

$2M,
You know my feelings about this one.
In general, I think its a risky bet with issuer terms precarious and pernicious.
In specific, it's far too low a yield compared to the value of your time.
It would be much better spent finding, refurbishing and renting a new property or doing side work to earn more money.
Regards, makingourway

Your use of 0% balance transfers is a rather intriguing idea. I've never thought of using them in this manner but I like the idea of making interest off of "free" borrowed money. Do you have an estimate of the time you think you spend doing this? I am so protective of my credit score that I think this might make me very nervous. Definately food for thought. Thank you.

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A personal finance weblog of my journey to reach my goal of $2 million + the value of my primary residence.
Current Net Worth: $1,574,185

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