Last week we had a brief interlude about how an unredeemed point is worth nothing. It’s definitely true, but there’s a corollary for travel hackers:
Outsized Value Requires a Baseline Stash of Points
Chapter 6 Title from MEAB’s fictitious book, “Churning, Travel Hacking, and Selected Croissant Recipes”
Most bank points can be converted to cash for around 1 to 1.5 cents each, and most airline points have a baseline value in the same ballpark too. With that metric it’s easy to say that a credit card sign-up bonus of 90,000 points is worth somewhere around $900 to $1,450.
When you get a stash of points, it’s almost never a bad idea to cash out, invest that cash or use it in your velocity roll, and start earning a new stash. Then the value of your cashed out points grows with other investments.
You can take cashing out too far though. What if, for example, you’re in Germany on vacation and looking to fly home in the nose of a 747-800 in Lufthansa First? You could buy a ticket for over $10,000, or if you’re lucky you can grab a First Class award ticket for about 90,000 points with Avianca Lifemiles; but only if you haven’t cashed out all of your points. That redemption is rather outsized at more than 10 cents per point in replacement cost value, obviously more than the 1 to 1.5 cents value on a cashing-out basis.
It’s easy to see a strategy emerge: Keep a baseline of points big enough to meet your short term travel needs, and cash out the rest. What does short term mean? That depends on how quickly you earn points I suppose.
Happy Thursday!
A sample recipe from “Churning, Travel Hacking, and Selected Croissant Recipes”.