As the World Churns

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As a physician there’s the pervasive concept of continuing medical education. Because medicine is scientifically-based, and science is constantly evolving and changing, in order to practice current medicine you must continue to learn long after you’re done with your formal training.

So we doctors peruse scientific journals, we have journal clubs, we go to societal conferences, we study for and retake our boards, and we visit thought leaders in our respective fields.

But it seems to me, of late, that there’s another sort of CME that is also quite important.

Continuing Miles Education.

It is a truism that the miles game is ever-changing. And even as one door closes another will open. But it seems to me that lately lots of doors of been slamming shut even as new ones have been swinging wide open.

Call it the spring thaw.

Vanilla reloads have become obsolete. Airline currencies of been devaluated. Credit card companies have made previously churnable cards unchurnable.

But it’s all part of the game. And there are several exciting new developments that have piqued my interest.

Which is exciting and fun. This is what makes the miles game constantly entertaining.

So here are three new angles on meeting minimum spend requirements that have me very excited.

1. Shifting To Serve.

For all of you previous vanilla reload/bluebird users, today’s article from frequent miler should have you very interested. I’m certainly interested.

The keywords here are “Green Dot Moneypak” and “American Express Serve.”

I’m very excited that Walmart might become a destination of the past for me. (Note: you can not simultaneously hold Serve and Bluebird cards.)

2. Evolve money.

I’ve referenced this one before. It’s kind of a pure form of shifting your spending towards your credit cards.

Essentially the way it works is that you use your credit cards to buy Visa gift cards. Then use your PIN enabled Visa gift cards to pay your bills via I previously mentioned this as a neat way to fund the 529 from New York State.

The downside is that you can’t pay credit card companies by this method yet. But it’s worth checking out for mortgage or car loan companies.

3. Investing by credit card?

Brad from alerted me to a tremendous opportunity from a new company called loyal3.

The angle here is that you can buy stocks with your credit card. And if that’s not thrilling, I don’t know what it is.

For me this is kind of the holy Grail of manufactured spending. Because it’s not really manufactured spending at all. It is simply spending that I already do (investing) with my credit card.

I frequently put new money into the stock market. Every time I save money on a plane ticket. Every time there is a little bit of extra money leftover from my paycheck, I plug it right into the stock market. So getting an instant 2% dividend in the form of cash back or airline miles every time I put money into the stock market is a very exciting concept to me.

The loyal3 set up is this: you can buy fractional shares In any of 50 individual stocks of popular companies and there are no trading fees to do so. And you can execute all of your trades by credit card.

So the upsides are obvious.

1. Investing without any trading fees.


2. Investing by credit card. (which should give you a minimum 2% return on investment with your initial transaction)

But what are the downsides?

1. It ain’t passive investing.

Unfortunately you cannot buy ETFs (Mutual funds traded on the stock exchange) only individual stocks, so there’s going to be some degree of uncompensated risk (risk that can be diversified away) that you are exposing yourself to.

2. It’s tax inefficient.

Every time you sell a stock that has made a gain you will pay a capital gains tax on it. And every time your stock kicks off a dividend, you will be taxed on that dividend.

But it is also worth mentioning that every time your stock goes down and you sell it you can take a capital loss and you can use that to offset your other capital gains. So you should only lose some percentage of the money that you make in net profits.

3. You are exposing your “manufactured” spending money to the inescapable risk of the stock market.

Translation: do not play this angle with any money that you cannot afford to lose.

4. It probably will not last.

I cannot see any way that loyal3 will be able to keep this payment model going for any period of time. They are, after all, losing a significant amount of money to the credit card companies with each purchase. (I hope I’m wrong on this one, but I’m probably not.)

Needless to say, I will be partaking in this angle pretty heavily while the getting is good. But only after I have fully funded my backdoor Roth IRAs and HSA. Better to do the important stuff first.

And my strategy will be to periodically shift my investments made via  loyal3 into more classically passive low-cost index investments.

But in the meantime I ordered some books from my local library on a subject I never thought I would be interested in; stockpicking.

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23 Responses to “As the World Churns”

  1. Trevor April 24, 2014 at 7:10 am #

    Lots of interesting things happening. I’m surprised though that you are so bullish on Loyal3; the real concerning part for me is the lack of real time trades, although it looks like members of a few forums have figured out timing of when they run their batches – but I haven’t tried it myself.

    • Miles Dividend M.D. April 24, 2014 at 7:50 am #


      I was aware of the lack of real time trading but it doesn’t concern me much for these reasons:

      1. Most of my holdings are in mutual funds. As you know these trade at the end of the trading day. So the price could’ve gone up or down from the point at which you placed your order.

      2. In the era of high-frequency trading, real-time purchasing is an illusion anyway. Wall Street is already extracting their tax by beating even institutional traders for milliseconds on their trades.

      3. I believe the credit card Cashback dividend at the time you place your trade will more than offset the risk of buying at a price slightly higher or lower than The price at the time you place your order.

      4. Manufactured spending as I play it is a pretty conservative affair. I don’t manufacture spend with money I cannot afford to lose. And I don’t manufacture spend in amounts greater than my monthly salary. Many people manufacture spending in alarming amounts. This is a form of leverage. And manufacturing spending in the stock market in amounts you cannot afford to lose is a very risky proposition. The real risk is in the volatility of single stocks. Not in the minute fluctuations of the price throughout the day.

      Thanks for raising the point for my readers though.


  2. Robert April 24, 2014 at 7:36 am #

    Alex, thanks for bringing these to my attention. I looked up the link on Serve and noted particularly the first reader response there, warning of Serve cutting off users who violate terms of service, specifically, by withdrawing money to their bank accounts. It is considered a violation of their prohibition of using Serve to get cash advances from a credit card. So, as long as you spend the money in your Serve account you are OK, but looks like if you want to transfer it to your bank, it would be a problem, at least if you do it a lot.

    Loyal3 is a really interesting opportunity I had not heard about before. It reminds me of discount broker Folio(fn) in a way, because both do batch processing of trades. I suspect that like Folio(fn), Loyal3 is matching buyers and sellers internally (i.e., their own customers) and that saves most of the commission costs. That may be one reason for the limited stock selection (to maximize chances of their being matches among their own customers).

    It is a start-up company, and though a member of SIPC it does make me nervous to put lots of money in an account there, given that the shares are held in their name (which is typical of online brokerages, but here’s one with little history).

    I notice that they have some stocks that are from less well-known companies that are paying them to list them. (See the little double heart symbol). Listening to their CEO talk, they are focused on brand awareness. That, coupled with the low minimums ($10), I’m wondering if perhaps they figure that if a consumer owns $10 of AMC Theatres stock, for instance, they’ll be more likely to go to AMC than a different cinema. If stock ownership biases consumers, then maybe they can convince companies to pay them a fee to build brand awareness and brand loyalty through low cost stock ownership. I’m speculating, trying to figure out how they make their money.

    I notice that they intend to get stocks of companies that are most popular on Facebook, etc. This makes them likely go carry a lot of high-flying momentum stocks, I suspect. So, investors should be careful. Only invest the portion of money you want to in those types of stocks. Likewise, they say they’ll be offering IPOs. Those also are quite risky.

    Something that appeals to me and I think should to you, Alex, is that they are offering Berkshire Hathaway. BH, of course, is Warren Buffett’s company. What is appealing is that it is a highly diversified company because Buffett basically uses BH almost as a holding company–a vehicle for him to buy and hold various other company’s shares. Also, Buffett believes in not paying dividends, but rather doing share buybacks instead. So you have no taxable income from BH until you sell it, and then it is at capital gains rates. Contrast that to most mutual funds, where you have to pay taxes on ST and LT capital gains distributions. BH is more tax-efficient than even ETFs, since they still have some annual turnover whereas BH has none. Thus, I am intrigued with buying BH on Loyal3. No need to buy any of the others as there is plenty of diversification within BH itself.

    Now to the mechanics. I’m curious what the bid/ask spread is. How exactly does Loyal3 price stocks when you buy/sell them? I am reading more to try to learn (if you find out first, please post it!). If in their batch process they have a high bid/ask spread instead of using market pricing, then that could easily pay their cost of doing this and eat up our credit card rewards. So it is an important thing for us to find out.

    A downside of their daily batch process is that you can’t time the precise sell. Also, unless I read otherwise, it looks like you can’t place limit orders. i.e., you can’t say to sell my shares of XYZ for $15.25/share. You can only tell Loyal3 to sell them and you get whatever the price is at the time they do their batch process (minus the spread). This could be a problem if the stock is volatile or there happens to be a spike at the wrong time on the day you sell. In fact, Loyal3 could even take advantage of this to choose the time to buy/sell, to their advantage, if it isn’t a fixed time. There are various other manipulations possible, depending on how they route the orders. Witness the recent hot selling book “Flash Boys” on high frequency trading. Loyal3 could be routing to marketmakers that pay a kickback. Such things have happened. There are multiple ways they could be commission-free yet recovering costs from your pocket. In short, we need to learn more about the mechanics of the trades and order fulfillment process.

    Assuming it is all above board, though, and if somehow Loyal3 is making enough money to pay credit card fees and won’t terminate accounts of those who churn their cards/accounts, then it seems to me the potential here is enormous! Consider, for example, my Capital One card that pays 1.5% cash back on all purchases. If you bought a stock and held it for a month, sold it, then rebought it (or another), and did this every month, you’d earn 18% annually just on credit card fees, not counting any stock gain (or loss)! In stock market parlance, that is a “risk-free” 18% return. Unheard of. Which should make us deeply suspicious and skeptical (if nothing else, of Loyal3’s longevity). There doesn’t seem to be any limit, though, from what I’ve read so far. In principle, you could do this once per day (they only batch trade once a day), as long as you didn’t exceed credit limits (if you paid your card balance off daily, online, then presumably this wouldn’t be an issue). Since there are about 252 trading days a year, in principle you could earn 378% return annually risk-free this way. Crazy!

    So, I’m continuing to research this but hope you and others will chime in with what you learn. This is a very interesting opportunity but one I doubt will work for long if it works at all. They’ll cut back on credit card use, limit trading frequency, or SOMETHING. There is no way they can offer than kind of risk-free return to investors on an ongoing basis.

    • Miles Dividend M.D. April 24, 2014 at 9:55 am #

      Good point about the bid/ask spread Robert. I hadn’t considered that angle.


    • Miles Dividend M.D. April 24, 2014 at 9:56 am #

      One more thing… I would ditch the capital one card in favor of the Fidelity Amex. Fee free card with 2% cash back on everything.


      • Robert April 24, 2014 at 12:00 pm #

        good idea, but they don’t take amex

      • Andre LaPlume June 27, 2014 at 8:04 am #

        Just found your site, and I am late to this thread, but the Customer Service for the Fidelity Amex is abysmal. Not your typical Amex card. As a fidelity customer I looked into it but was scared off. Check the reviews.

        • Miles Dividend M.D. June 27, 2014 at 8:50 am #


          Thanks for checking out the site.

          I actually do not own this card. My go to is the “old” version of the American Express blue cash card which gives me 5% cashback a drug stores gas stations and supermarkets.

          But the 2% Fidelity cashback card has a lot of supporters in the blogosphere. And unlimited 2% cashback is a pretty simple concept so I can see it’s appeal.


  3. Robert April 24, 2014 at 7:46 am #

    Thinking about this a bit more, maybe what we’re missing is that the credit card companies won’t see this as a retail transaction and thus won’t pay any bonus. What do you think?

  4. Robert April 24, 2014 at 8:56 am #

    Looks like you could only do a round trip every week or so. That’s because they take a couple days to process your credit card. And then after the trade is executed, there is the standard 3 days settlement period.

    I also read that there is a limit of $2500 per stock per month. That would also constrain frequent buy/sell cycles, at least on a given stock.

  5. Robert April 24, 2014 at 11:59 am #

    hmmm….I knew there had to be a catch! I think I’ve found it, buried deep in their FAQ pages. See this page:

    Notice this text, which is applicable to their non-IPO stocks or stocks whose placement isn’t directly from the companies involved: “Payment. All purchases through LOYAL3 are paid for by electronic fund transfer out of your bank account or by charge to your credit or debit card. For automatic monthly share purchases at the preset amounts of $10, $25, or $50, you can pay by electronic transfer (“ACH”) from your designated checking account or by using your credit or debit card. One-time share purchases and “Custom” automatic monthly payments (other than the $10/$25/$50 preset amounts) may be paid for by ACH only.”

    In other words, you can do a max of $50/month per stock by credit card and must do so using an automatic share purchase program. One time share purchases or automatic purchases above $50/mo per stock would need to use a direct bank transfer. So…even if the transaction does get coded in such a way that the credit card company will pay the bonus amount, you are going to be very limited with this program in the amount you can invest. I’m really only interested in doing this with Berkshire Hathaway, but $50/mo isn’t worth my time. If you want to load up on a broad collection of all their stocks, if you bought 50 of them, you’d be doing $2500/mo, which would enable about a $37.50/mo cashback bonus on a 1.5% card like CapitalOne. That’s still hardly interesting as an investment, i.e., maybe you are getting 18% annual return but only on $2500 of working capital (assuming you sold each month as well), so your maximum potential gain is $500/year from cashback in that example. It might still be worth it as a way to reach required minimum spends on a credit card. But it requires you to set up automatic payments for each of those 50 stocks (can you say, “tedious!”?). And then you’d presumably want to cancel all those automated transactions after you reached your minimum spend.

    Another thing to remember is that each of these stock transactions will trigger a separate tax reportable transaction. On your Schedule D, you’ll have to report each of those 50 transactions for each month. In a year, that means 600 entries on a Schedule D! Sure, loyal3 will provide a 1099 listing the basis and gain on each of these, but you’ll need to transfer all that into your tax return. Is it worth that much work for a $500 annual gain? (I’m not counting the gain/loss you may experience on the stocks themselves; the $500 is just your cash back credit card bonus).

    If the limits for credit card transfers were much higher, this would be very interesting. As it is, with a $50/mo limit per stock, I think I’m going to push this to the back burner for potential reconsideration in the future if the terms change. (However, I suspect if they raise those limits they’ll also have to find a way to recover the credit card merchant fees).

    Alex, your thoughts?

  6. Miles Dividend M.D. April 24, 2014 at 12:16 pm #


    Good sleuthing but I think you may be mistaken. The other night I did a mock purchase of $2500 Berkshire Hathaway using my AMEX card and got all the way to the confirmation screen.

    I didn’t complete he purchase because I wanted to do due diligence. But it appeared that I could both buy $2500 by credit card and that I could buy it with an AMEX.

    Just my experience, and I did not complete The purchase.


  7. Robert April 24, 2014 at 7:14 pm #

    OK, I have a lot more information. I’ll try to save you research time by sharing what I’ve learned (payback for letting me now about this oppty!). I did an extended chat with support at Loyal3. I can send you a transcript if you want to see the full conversation, but here is what I was told:

    –You can purchase up to $2500 per stock per 30 day period and it is cumulative, not net purchases. i.e., can’t buy $1500, sell it, then buy it again, in 30 days.
    –Contrary to the FAQ I quoted above, you CAN purchase more than $50 per stock by credit card at this time. However, I was told “this feature will likely not last for much longer,” and, “Originally, LOYAL3 did not allow credit card purchases over the $50.00 preset, we made a recent change to accept larger amounts, but eventually, it will go back to being the original $50.00 limit. I cannot clarify a timeline on that though. It is just likely that the feature will not permanently be available for custom amounts.” Furthermore, for now, you can do this on a one-time basis, not just as automatic monthly purchases. (In other words, the above FAQ page is not correct in several aspects, as your test run suggested).
    –They make nothing on the buy/sell transaction, he said. They don’t pocket the bid/ask spread. They don’t internally match buyers/sellers, but rather, they route all buy/sell orders externally to NYSE. “You will receive the real time market price at time of execution.”
    –Buy orders are placed once in the morning and once in the afternoon; sell orders once in the afternoon. Orders are placed about the same time each day but it isn’t exact or designed to be. However, they aren’t trying to time the buy/sell by the market.
    –Buys take place at the market “ask” price and sells take place at the “bid” and all clients in a particular batch get the same price.
    –Credit card purchases are considered retail transactions and not cash advances by the credit card companies. (Good news for us!)
    –They only take Visa/MasterCard.
    –Credit cards take 1-2 days to process (they wait for funds to clear the system before placing the order).
    –“At this time” there are no limits on trading frequency. You can buy a stock and sell it as many times as you want. You just cannot exceed $2500 in purchases of a particular stock in a given 30 day period.
    –They don’t allow you to transfer a stock to an external account (you can only close and transfer your entire account). Neither do they support any besides individual accounts (no business accounts). Thus, there is not a mechanism to transfer appreciated stock to a charity (which is a nice tax-dodging trick, Mr. Liberal Hypocrite! 😉 ).

    I have also done some checking on background. They are on SIPC’s site as a covered entity. Their security certificate seems to match the available information. They have been written up in several media stories (Reueters etc). So I think they are legit. I asked the support guy about capitalization. User accounts are kept separate (by law), so he claims money is safe. I suppose, though if they went under it might take some time to get money back, I would think.

    I also read a thread on Mr. MoneyMustache where one person confirmed that he had received cash rewards for his credit card purchase of stock on Loyal3. Another person said they successfully charged an AMEX (which contradicts what I was just told by the support person). Yet others said AMEX doesn’t work (nor Discover).

    Alex, based on this feedback, I suspect this is a short-term opportunity, but I am going to go ahead and play with it. I just ordered $2500 of Berkshire Hathaway on a CapitalOne card paying 1.5% cashback and we’ll see how it goes. I’m interested in this as a long-term investment, not just a churn. If you try it on a 2% Amex please let us know if you are successful. There are mixed reports on the Mr. Money Mustache forum about that and the support guy told me they don’t take Amex. I’m thinking the time to purchase might be the Friday before options expiration date, since historically the week before is a down-week and the week of options expiration is an up-week. The end-of-the-month is also typically an up period. So if you wanted to churn this, you might place your order about 9 days before options expiration date, expecting it to be placed 7 days before, and then you can sell it (if you want) a few days into the new month. Rinse and repeat each month. Or, if you are accumulating shares (and doing so in Berkshire Hathaway wouldn’t be a bad choice), you can just hang on. That’s the safer strategy if you don’t want trouble (see below).

    Other tips gleaned from the Mr. Money Mustache forum:
    –If you are not buying and holding, but just churning the stock to get a credit card bonus, then avoid buying a stock around its earnings announcement time, when it is more volatile.
    –If you want to be able to take a capital loss on a sale, don’t buy the same stock within 30 days (to avoid the wash rule).
    –One user posted that they had received a warning message from Loyal3 about misuse of account and that they’d cancel it if that continued. This was someone churning stocks. So, it might be best to use Loyal3 for stocks you want to buy and hold, or else be prudent/discrete and use it only for periodic purchases to earn credit card sign-up bonuses, not for regular churning to earn periodic 1-2% cashback bonuses too frequently. (That user traded $35k in one month). Later, a few users posted about having their accounts abruptly closed. Churning seems to be a problem. Too many credit cards linked to the account may also be, though that is more speculative.
    –If you leave cash in your Loyal3 account, on your next purchase you’ll be forced to use those funds before any credit card can be applied.

    –Also, good news for tax returns starting in 2014. You can aggregate transactions so that there won’t be such a burden if you are churning stocks.
    –Personal opinion: If you want to minimize risk of capital loss (and gain!), spread small purchases over time. The time-averaging effect should smooth the volatility. i.e., it is dollar cost averaging. You might do the same on the sell side. Since no commission, there is no added cost to you to do multiple transactions.

    Hope this helps! Keep us informed if you use loyal3. And thanks again for alerting me. I see it was talked about years ago on FlyerTalk and MMM, but I wasn’t aware of it since I can’t possibly keep up with all the threads on those sites!

    • Miles Dividend M.D. April 24, 2014 at 8:13 pm #


      Great stuff. You are a mensch. Thank you for sharing your investigation with us.

      If I had five more readers like you I could start a forum!

      This is a terrific opportunity for putting big bucks on your credit cards. In the long-haul you will likely make money. And executing trades at zero cost alone is awesome, before even factoring in The clincher: credit card bonuses.

      I may just place an order tonight!

      As I mentioned in my post, this ain’t going to last long.


      • Robert April 24, 2014 at 8:56 pm #

        Glad I could help. Like I said, payback for alerting me to it! Not to mention payback for all the other interesting posts and discussions (and “discussions”!) we’ve had! :-)

        • Miles Dividend M.D. April 25, 2014 at 3:54 pm #

          Bought my fill of Berkshire Hathaway (2500$) last night on my Visa. (No luck on the amex.) Still waiting for the purchase to post.

          I’m getting in while the getting is good.


          • Robert April 25, 2014 at 4:43 pm #

            Hopefully if some of us don’t abuse the system, and buy and hold rather than churning, they’ll keep it going longer. If I can just buy and hold and thereby meet spending requirements and also make investments I’m interested in, then it is still a terrific deal, as far as I’m concerned. Better than hassling with gift cards, etc. (and free of fees). I was thinking about their motivation more today. I am guessing it is two-fold: (a) build their client-base and transaction volume to attract more funding and eventually IPO/sell-out; (b) build client-base so that they can sell their services to other companies wanting to IPO, in competition to investment banks. I suspect they make good money on IPOs, but they’d need a decent customer base for that. So, they are probably in a catch-22 phase of growth right now: not big enough client base to make companies want to use them for IPOs, yet not enough IPOs to attract a customer base from small investors who are normally shut-out of hot IPOs. So, by subsidizing the business through credit card fees, they are building a client base until they reach critical mass. Then they’ll be able to survive on IPO business and can reduce or eliminate the credit card subsidy. Just speculation, of course, but that’s the best I’ve come up with yet to explain their willingness to do this. The client base is probably more important to them than transaction volume, and that is why they would shut down churning accounts. BTW, I signed up to be notified of IPOs. It is doubtful I’ll gamble on those (it is a gamble), but I might put a small amount in ones that I really believe in. Incidentally, AMC is apparently the first IPO that Loyal3 offered. It has done well since the IPO, so at least their first offering was a decent investment. I’m more skeptical about Sandander Consumer (their second offering), since I have read that Santander is a troubled European bank with a lot of non-performing loans.

  8. Miles Dividend M.D. April 25, 2014 at 5:55 pm #


    Although my strategy will be much the same as yours, rest assured that “some of us” will abuse the hell out of this opening. It’s the tragedy of the commons.

    And this angle will get shut down, I believe.

    Betterment, another investment house that I like a lot had a similar deal where you could give The gift of investment to a gift registry using a credit card when they first opened.

    Just as this opportunity will shut down soon. Another will open. That’s what keeps this game so damned interesting.

    and I think your analysis of Loyal3’s reasons for engaging in this angle is spot on. This is their equivalent of a loss leader; The free turkey at Thanksgiving that gets you in the door to the supermarket.


  9. Robert April 29, 2014 at 11:17 am #

    Looks like we managed to “buy the dip”, Alexi! :-)

    • Miles Dividend M.D. April 29, 2014 at 6:26 pm #

      I know too little about individual stock selection. My impulse is to sell, pocket my 5 bucks, pay $2.5 in taxes, and pocket my 55$ in tax free arrival points and call it a day.

      • Robert April 29, 2014 at 7:21 pm #

        Sounds like the kind of churning that will jeopardize your account. So, proceed cautiously.

  10. Marie @ PF Pro June 26, 2014 at 10:53 pm #

    I’ve been investing with Loyal3 since the beginning and had some pretty good results. I just wrote an article about how I racked up 100,000 miles and $200 with Loyal3.

    • Miles Dividend M.D. June 26, 2014 at 11:22 pm #

      Thanks for commenting Marie.

      I saw your article yesterday and enjoyed it. Good idea with the batch purchases. That’s some actionable intelligence!


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