Amazing Credit Card Rewards – Invest in Macroeconomic Trends

There are several reasons why being a Walmart greeter makes my retirement dream job list, right up there with working at Home Depot.

I could work part time. It would keep me active and get me out of the house. I would get to meet interesting people. Finally, most relevant to this article, it would give me a front row seat to monitor macro-economic trends.

Disclosure: I own all of the companies listed below except the ones I say I don’t. This is not a recommendation to buy or sell them. I’m not a financial adviser. Always research on your own before investing your hard earned money.

Observe How People Spend Money

Let’s start with a little exercise. Join me as I practice for one of my retirement jobs. Next time you go to Walmart, or any store, stop to watch people go through the line. What are they buying? More importantly, how are they paying?

Here’s one more exercise. Open up your purse or wallet. What do you see? Is it filled with cash? Perhaps you enjoy Dave Ramsey’s envelope system, which can be a great budgeting tool.

How many credit and debit cards do you have? Are they Visa, Mastercard, Capital One, Discover? What kinds of rewards do you get from these?

What kind of rewards could you get from owning the companies?

Every swipe, I hear, “Cha ching, cha ching.”

Credit Card

A Bit on Credit Card Rewards Programs

Before you feel like this is a bait and switch click-bait title, let’s talk briefly about credit card reward programs.

Credit card reward programs can be great. My Discover card gives me 5% cashback on certain types of purchases each quarter. I’ll get 5% on all my Amazon Christmas shopping.

I also have a Southwest Visa Rapid Rewards card from when I used to travel more. I’m thinking of getting rid of this because of the annual fee. Southwest doesn’t seem as cheap as it used to be, but I still prefer to fly with them when I do fly.

Despite careful budgeting, we manage to spend thousands of dollars per year on food, housing, travel, and other things we value. If we’re going to spend this money anyway, we may as well get 2% to 5% cashback on it when we can. I recently used reward points to book our upcoming flight to Orlando.

I’m all for collecting reward points as you purchase things that are valuable to you, but do not go into credit card debt. Pay it off each month. (See my post on various types of debt)

There are a ton of blogs that explain credit card travel hacking and how to find the best reward card better than I can. (Here’s a good one from Physician on Fire.)

This isn’t one of those posts, but I hope you stick around to read about a way to potentially earn even better rewards.

This is actually a post on why you might consider investing in credit card/ payment processing companies.

Why Pick Individual Stocks?

If you haven’t read my philosophy on investing, you can read it by clicking here.

I love index funds, but I also pick individual stocks because I know some stocks will consistently outperform the broader market over the next 20 years. Further, I think I can predict some of those companies.

I also pick individual stocks if I’m looking for certain attributes: dividend income, dividend growth, more safety, etc.

My portfolio is a mix of pure growth and dividend growth companies. One of the things I love to invest in is secular growth trends, essentially answering the question, “Which companies will dominate the world for the next 10-20 years.”

Financial Technology

Today, I want to talk about my strategy of investing in the growth trend that is the world moving from paper money to plastic money.

I categorize this section of my portfolio as Fin Tech or Financial Technology. I like to think of it as a home-made Fin Tech ETF. Combined, these companies make up over 33% of my individual stock portfolio (based on value).

Fin Tech companies are companies that create technology to facilitate the movement of money between people and businesses. With each transaction, they take a tiny piece of the pie.

What I like about these is that the pie is huge and getting bigger every day. It’s like the guy from Office Space getting rich from rounding pennies, except legal.

My first, and most trusted, Fin Tech company is Visa (V). I first bought Visa in 2013, and it has pretty much gone up ever since. That original investment is up 180% in less than 5 years. My only regret with Visa is that I don’t own more of it.

I also own MasterCard (MA). Visa and MasterCard are two peas in a pod. Which is better? I don’t know. Nor do I care. We own both to diversify in case one happens to have something crazy good or bad happen, like a data breach or developing a new payment technology.

Both pay quite small, but rapidly growing dividends. I think these will be much more substantial by the time I retire.

They make money each time one of their cards is used. These payment processing companies do not carry the credit card debt of people who like paying ridiculous amounts of interest. That risk is carried by whatever bank partners with them.

You can see in the chart below that they’ve pretty much outperformed the S&P 500 in unison.

Visa vs Mastercard

My FinTech team is also made up of Square (SQ), Shopify (SHOP), and PayPal (PYPL). I don’t trust these quite as much as they are younger and less proven, but I think 2 or 3 of them will be big winners for years to come. They have made it easier and more secure for small businesses and big businesses to accept payments online and/or via credit card.

FinTech Partners

We own other companies that I don’t consider pure FinTech, but they have some toes in the FinTech water. Apple (AAPL) and Google (GOOG) are among these with Apple Pay and Google Pay most obviously. Beyond that, there are all the online purchases these tech giants facilitate by creating mobile devices (with a credit card behind each payment).

A couple of my Chinese companies also cross into the FinTech realm. Baozun (BZUN) is often called the Shopify of China, though it is quite different. Alibaba (BABA), JD.com (JD) and TenCent (TCEHY) are heavily invested in E-Commerce and electronic payments across the pond.

You’re probably wondering why Amazon (AMZN) isn’t on here. Me too, me too. Despite buying my textbooks from them as early as 2008 and seeing their value, I never bought in. I’m a believer now but still haven’t literally bought in.

I think they will continue to do well, and I will likely buy at least a share in the next few months. Regardless of whether I own it or not, they have certainly accelerated the use of online shopping and paying with credit cards, which have benefited my other FinTech companies.

I also have Wirecard (WRCDF) on my watch list. This German based company is one of the fastest growing FinTech companies in the World with a heavy presence in Europe.

Risks

With any investment, there are risks. FinTech is no different, though I believe it will continue to grow. A market downturn won’t leave FinTech untouched. Today is October 10th; most of these companies fell more than 5%, with Square falling 10% in one day. Some of them are overvalued. The chart below shows the drop over the last 5 days.

There’s also the risk of a new technology making some of these obsolete. What happens if somebody new comes in and accepts an even tinier piece of the pie? What happens if there’s a data breach?

Last 5 days. FinTech vs S&P 500.

Conclusion

As you can see, I’ve fully bought into FinTech changing the world. I’ve seen charts (not 100% confident in their accuracy) that show credit card payments are only 10% of the payments in the world. There is a huge runway for growth.

Despite the rough week, I think they will be long-term winners. Below is a chart of the same companies over the past year. It helps put things in perspective. I would have used a longer time period, but a 600% return for Square makes the scale a little crazy.

$V, $MA, $SQ,
Past 1 year. FinTech vs S&P 500.

 

Credit Card Photo by rawpixel on Unsplash

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