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RSSTaking 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:
| | | |
| 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:
| | | | 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% |
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.
| $206,990 | |
| +$65,579 | |
| +$17,504 | |
| + $1,426 | |
| + $7,951 | |
| + $9,075 | |
| Part 6: 2006 Rental Property | |
| $317,904 |
by 2million on
01/31/07
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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?
Posted by Mission Debt Freedom | January 31, 2007 9:44 AM
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.
Posted by 2 million | January 31, 2007 10:47 AM
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.
=)
Posted by Ray | January 31, 2007 12:21 PM
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?
Posted by Dorky Dad | January 31, 2007 3:25 PM
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? :)
Posted by Jonathan | January 31, 2007 5:47 PM
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.
Posted by CPA1298 | January 31, 2007 7:52 PM
$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
Posted by makingourway | February 1, 2007 12:37 AM
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.
Posted by Amillionby40 | February 1, 2007 2:19 PM