Originally Posted by
Happy
BankDirect - if one already has a healthy balance of AA miles, there is no point to hoard it while given up the cash for other earning opportunities especially if one is in lower tax bracket. Hoarding miles with a calculated real cost, is never a good idea in my opinion because you do run the risk of devaluation.
I wouldn't say never
. But devaluation is certainly a risk that needs to be considered and discounted. It's much better if you have an immediate need for the miles
Originally Posted by
Happy
Like if someone already has 1 to 2 millions miles in his account, and said person is in low tax bracket, I do not see why he or she would still want to do the Bank Direct with his money - because the alternative could be, although not totally risk-free, use the money to buy a Blue Chip Name, High Dividend Yield stock that yields 4 to 5% dividend which is still taxed at a lower rate than ordinary income. Surprisingly in today's stock market, you can find those names quite easily. Of course, you would still be subject to the ups and downs of the stock market but choose carefully you would do fine even if we go back to a 2nd recession. I would not even go into using the money for trading which surprisingly is actually working with the market volatility. This is not for most people but would definitely be applicable to some who do trade the stock market. The return is far greater than your 2.4% after tax - for the whole year... It can be many times of that in a few weeks... but that is of course an entirely different subject.
In general I agree, but there's a reason why these companies are yielding 5%. Don't want to get into the efficient markets debate, but there is risk both of the stock decreasing in price and the companies cutting their dividends. That's not to say there aren't good buys out there, but there are people selling these companies with these yields also. Also don't forget that starting in 2011, tax rates on qualified dividends are set to go back to the ordinary levels unless things change.
Originally Posted by
Happy
Your thought is towards the right direction.
One key thing is - does one have an immediate need of the miles? If one already has a healthy balance, good for several r/t in premium cabins, I honestly dont see why one wants to pay calculated real cost to acquire more miles.
I probably wouldn't either at my costs. However, I've personally been using up pretty much all my airline miles (pretty much just left with spg points at this time), and I am spending some real $$ on leisure travel so would like to get miles ready for my next fun trip. Or to share w family & close friends
Cheers