Thinking about price compression

Travel hacking means never paying full price, whether it's for flights, hotels, rental cars, or any of the other travel expenses we develop techniques to minimize, evade or completely avoid. One interesting consequence of this is what I would like to call "price compression." There are two ways this phenomenon manifests:

• More expensive itineraries don't cost more miles or points. The classic example here would be an economy itinerary that costs $150 and a first class itinerary that costs $350: both would cost 20,000 US Bank Flexpoints, so the passenger wouldn't incur any additional cost by taking the more expensive, higher-earning flight. Another fairly common situation is with American Airlines award availability: there will be only expensive AAnytime availability for economy seats, but SAAver availability for first class seats. The difference in miles, and the cost of manufacturing those miles, is often trivial.
• The price ratio between expensive and cheap itineraries is the same, but scaled drastically downwards. For example, someone redeeming Chase Ultimate Rewards points earned with an Ink Cash, Bold, or Plus card at gas stations might pay roughly 1 cent for 2.5 cents in airfare. A $500 flight still costs twice as many Ultimate Rewards points as a $250 flight, but the numbers are scaled down, to $200 versus $100 in total out-of-pocket expenses. An even more extreme example would be Citi ThankYou points earned (starting April 19, 2015) with a ThankYou Premier card at 3 points per dollar spent at gas stations, then redeemed for 1.6 cents each on American Airlines or US Airways flights (with a ThankYou Premier card).

Think about out-of-pocket costs earlier, not later

Once you've earned miles or points, a common impulse among travel hackers is to assign value to them corresponding to their redemption value, rather than their acquisition cost. This was the theory motivating Frequent Miler's Reasonable Redemption Values, for example: the value of a mile or point is the value of the award that currency is typically redeemed for.

Only later, after booking an award redemption, do you hear people say "I paid $87.50 for a $5,000 BusinessElite ticket to Europe" (using Delta SkyMiles as an example).

What I would like to suggest is that price compression makes it worth considering your total out-of-pocket expenses earlier, rather than later, in the redemption process. It still makes sense to base your earning decisions on the imputed redemption values of your miles and points, but when it comes time to redeem them, it makes sense to look at your out-of-pocket expenses as well.

Price compression at work: paid tickets on American and Delta

Perhaps it's unsurprising why I've been giving this topic some thought lately: the recent massacre of Alaska Airlines Mileage Plan earning on Delta-operated flights.

On the one hand, the new Mileage Plan earning rates have made me more willing to book flights on American Airlines, since even slightly more expensive flights earn two to four times more Mileage Plan miles. On the other hand, it has made me more diligent about checking first class fares on the Delta flights I would, all else being equal, prefer to take.

An upcoming trip to Boston illustrates this point nicely (my earning as an Alaska Airlines MVP Gold 75k is in parentheses):

• A Delta flight in the "V" economy fare bucket costs $386, and will earn 1,222 (2749) Mileage Plan miles;
• An American flight in economy costs $540, and will earn 2,734 (6151) Mileage Plan miles;
• The cheapest Delta first class flight costs $697, and will earn 3,055 (6873) Mileage Plan miles.

That's a fairly significant range of prices. But what about the "compressed" prices of those flights — the out-of-pocket cost of the spend manufactured in order to purchase those fares?

If you're manufacturing Ultimate Rewards points with a Chase Ink Plus at 0.49 cents each, and redeeming them at 1.25 cents each, the three flights cost:

• Delta "V" economy: $151
• American economy: $211
• Delta first: $273

Here you can see the ratio between prices is the same, but the prices are compressed so there's a much smaller difference in the passenger's actual out-of-pocket expenses for the three flights.

Likewise, the three prices fall into three different US Bank Flexperks Travel redemption bands. If you're manufacturing Flexpoints at gas stations for 0.49 cents each (or grocery stores for 0.69 cents each), the three flights will cost:

• Delta "V" economy: $98 ($138)
• American economy: $147 ($207)
• Delta first: $196 (276)

Knowing your out-of-pocket costs promotes clear thinking

I'm not arguing that it's worth paying $98 for 4,124 Mileage Plan miles. At 2.4 cents each, that's fairly expensive from the perspective of manufactured spend. But of course you're not just earning redeemable miles; you're also earning elite-qualifying miles, helping you qualify or re-qualify for elite status.

If the status in question is Alaska Airlines MVP Gold 75k, then you'll receive an additional 50,000 bonus Mileage Plan miles when you qualify. That doesn't mean booking the most expensive flights available is always a good idea, but those bonus miles do mitigate some increased out-of-pocket expenses, once those out-of-pocket costs have been transformed by the miracle of manufactured spend.

You'd also be flying in first class. Whatever you think about free booze, checked bags, early boarding, and so on, they're not worth nothing.

Are you redeeming your miles and points fast enough?

I relentlessly advocate earning miles and points with specific redemptions in mind. But I understand perfectly well that that's not always easy to do. Your upcoming travel schedule may not be knowable in advance. Award space you were counting on may not materialize, leaving you with an unexpectedly large balance. And of course you may simply have access to more manufactured spend than you can reasonably plan redemptions around.

That being the case, taking a look at your out-of-pocket expenses may help you realize you can afford to travel more and travel better than you thought. Instead of comparing each redemption against some ideal redemption you read about online, try comparing redemptions against the price you paid for those miles and points. When it's a matter of a hundred dollars to fly across the country or world in a premium cabin, your economy cabin may be a false economy after all.

Developing: can new American Express for Target cards still be registered?

I haven't written much about American Express for Target cards since they've been thoroughly treated elsewhere in the blogosphere. I do, however, love them.

In general, each card allows you to manufacture up to $2,500 per month at a cost of about $24 and you can register up to 2 cards per Social Security number. Whether that's cheap or expensive depends on the cards you're using to load them, but suffice it to say that I find it cheap enough to happily take advantage each month.

My experience

I currently manage 3 American Express for Target cards: 2 in my own name and one in my partner's name. Out of a general reluctance to drag her along on my rounds, I never got around to registering a second card in her name until this evening.

A few months ago, a colleague sent me two unactivated American Express for Target "blanks," one of which I had used to register my partner's first card. When we brought the second blank to a local Target store this evening, none of the cash registers was capable of processing the registration transaction.

An American Express for Target blank has two exposed bar codes. One indicates what product it is, and is identical on all 4 blanks I used. The second bar code identifies the unique temporary card located inside the blank.

The Target cash registers, including at the Guest Services counter, were unable to process the first bar code, the one identifying the product. We didn't pass go and we didn't collect $100.

Instead, the register would briefly (for less than a second) flash the name of the product, then return to its resting state.

Three possible explanations

I haven't seen reports of this issue anywhere yet, so my own datapoint is the only one I've got. That being the case, three obvious explanations immediately suggest themselves, in order of seriousness:

• I got a bum American Express for Target "blank." This is the least likely explanation, since the registers didn't have any trouble reading the bar code — they were just incapable of processing the transaction. A possible variation on this explanation would be that existing American Express for Target blanks are periodically retired and new ones issued; the old blank I had lying around may have had its identifying bar code expire from underneath me.
• Some Target stores cannot process American Express for Target registrations. This is a possible, though still unlikely explanation. American Express for Target cards are not available nationwide. Instead, you have to use the "Where to Buy" tool on American Express's website in order to find a Target store location where you can find blanks. However, it's always been possible to register a blank at any Target register, whether or not the store itself carried them.
• The final, doomsday scenario would be that new American Express for Target cards cannot be registered. The American Express Campus Edition was recently retired for new applicants, so clearly American Express does at least periodically review their prepaid card offerings. With the launch of the Target Prepaid REDcard, American Express may intend to withdraw American Express for Target cards from the market.

Conclusion

Based on one datapoint, I'm categorically unwilling to claim any one of these explanations, or some other explanation, is the correct one for my experience today. But I admit that all else being equal, the third explanation seems to me to be the most likely one for now.

Needless to say, I'm eager to be proven wrong! So if you've registered an American Express for Target card since, say, January 1, 2015, please leave a comment or drop me a note.

We'll see if we can get to the bottom of this together!

Two weird redemptions I just made

I try to be as transparent as possible about my own mile and point redemptions because I'm absolutely atypical compared to most travel hackers: I don't have a family so I'm shopping for a maximum of 2 seats; I generally don't mind flying coach (as long as I get an aisle seat, preferably in an exit row); and I take 2-4 vacations per month, visiting friends and family all over the country, which means I need to stretch my miles and points as far as possible.

That colors my manufactured spend strategy, and makes my experience more or less irrelevant for some readers (you can't redeem SkyMiles for first class seats, so all my Delta posts are useless for those interested in flying in international first class cabins).

In that spirit, here are a couple weird redemptions I made on Saturday.

Ultimate Rewards points for a cheap American flight

Besides my Chase Freedom cards, these days I'm earning Ultimate Rewards points with a Chase Ink Plus card at 0.67 (office supply stores) and 0.49 (gas stations) cents each, and I have a lot of them. Those points can be redeemed for 1 cent each in cash, transferred to Hyatt, United, and Southwest for quite valuable redemptions, or redeemed for 1.25 cents each for paid airfare.

For an upcoming trip to Reno, I was looking at a $199.60 one-way flight on American Airlines (I had already booked the return with Flexpoints). I've long found these piddling airfares to be some of the most annoying to game: they're too cheap for 20,000 Flexpoint redemptions, but also too cheap to redeem a valuable mileage currency like Alaska Airlines Mileage Plan miles for. I could pay with my Barclaycard Arrival+ card, but I have plenty of travel purchases waiting for redemptions and don't need an additional one.

So instead, I redeemed 15,968 Ultimate Rewards points for the ticket. Those points cost me (on average) 0.58 cents each, or about $92 all together. In other words, I got a 54% discount on a paid ticket. That's nothing to aspire to, but there's a good reason why I did it: I don't need the points for any upcoming transfers and they're only worth 1 cent each when redeemed for cash.

PayPal Extras MasterCard points for an even cheaper flight

Here's one that readers might actually find useful, if they've been following my PayPal adventures for the last few months. A PayPal Extras MasterCard is permanently linked to the PayPal account through which you applied for it. But when that PayPal account is closed (or "permanently limited" in their jargon), the Extras MasterCard continues to work and, importantly, continues to earn points.

Ordinarily, Extras MasterCard points are worth 0.83 cents each in cash: you can redeem 6,000 points for $50 deposited instantly into the linked PayPal account. With all my PayPal accounts permanently limited, that wasn't going to work for me, so I started exploring the other points redemptions available.

It turns out that for the month of February, virtually all redemptions have been cut in price, in some cases dramatically. For almost all gift card and travel redemptions, Extras MasterCard points are worth 1 cent each in February.

Two of those redemptions are for "flight discounts" of $100 or $300:

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In late April I'm returning to Lexington, Kentucky, to visit an old friend and bet on some horses. I was able to easily book my outbound flight with 12,500 Delta SkyMiles, but there was no award availability for my return. There was, however, a perfect American Airlines itinerary that cost just $174.60. Whenever practical, my preference this year is going to be to book paid American flights in order to credit them to Alaska Airlines Mileage Plan.

So I redeemed 10,000 Extras MasterCard points for a $100 discount on the flight. When redeeming Extras MasterCard points for a travel discount, you're taken to an extremely primitive travel portal run by a 3rd party provider. Fortunately, that means you don't need to pay for your flight with your Extras MasterCard. That's unlike, for example, a partial Ultimate Rewards redemption, which requires you to use a Chase credit card for any remaining amount after applying Ultimate Rewards points.

I used my Arrival+ MasterCard, and the charge appears in my pending transactions as "American Airlines," so I'm confident I'll be able to redeem Arrival+ miles against the remainder.

Delta removed their award charts because no one understood them

If you were paying attention yesterday, you no doubt know that Delta has removed their brand new 5-tier award charts, in effect since January 1, 2015, from their website. The award engine is still pricing out awards according to the new chart, but by denying that there's is an official award chart, they've also removed the ability to challenge the award engine: the price you see is now the price you get.

There's no question that this is abhorrent behavior on Delta's part. I find some of the reactions a tad overblown, however ("Delta’s Missing Award Chart Is the Death of Aspirational Travel").

If I can venture into the realm of speculation, here's what strikes me as the most obvious explanation for the decision to remove published award charts from their website: Delta's new award charts were too complicated, they were producing unfamiliar results, and Delta's phone lines were being swamped.

You already have to call in too often

Although the Twitter team can handle a lot of simple requests, it's already necessary to call Delta a ridiculous amount of the time. Same-day standby, same-day confirmed, applying upgrades, and booking awards on many of their partners all require phone calls.

No one understood the new award charts

There was already no way to easily and accurately price an award in advance. Partner award space still booked at Level I, but if it was combined with a domestic leg in Level II-V, the entire award reprices at a higher level. Here's an award that just doesn't make any sense according to their published award chart:

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There is no entry on their award chart for a one-way flight to Europe in Business costing 130,000 SkyMiles. What seems to have happened here is the partner award on Air France is pricing out correctly at 62,500 SkyMiles, then a Level 4 BusinessElite ticket between LAX and JFK, for 67,500 SkyMiles was plugged in on top. But their award chart never did and never could reflect that fact.

Their phones were swamped

A complex published award chart, combined with an award engine that generates results incompatible with that award chart, meant that people were calling in to book even simple awards. Poorly trained agents would attempt to explain the situation, and after 15 or 20 minutes on the phone, the customer would hang up in frustration, keeping Delta from even recouping the telephone booking fee.

It's bad, but it's not a mystery

Delta was faced with a genuinely fraught business decision. Having decided to adopt and implement their insanely complicated award chart, and having invested in making their award booking engine work passably well, they found all that effort was wasted and they were instead facing longer and longer hold times at their call centers.

They could have abandoned the new award charts, which would have been an embarrassing retreat away from the revenue-based redemption system that's their ultimate goal. They could have hired more call center employees, although that's not cheap or necessarily easy to do. Instead they did what must have seemed like the least bad solution: remove the award charts, tell people the price the award engine comes up with is "the" price, and hope customers eventually stop calling.

So I don't think there was any nefarious plan to keep people from being able to accurately price their awards out in advance. That was already impossible, with or without published award charts.

My solution: earn low, redeem high

I have a Suntrust Delta SkyMiles World Check card, so my miles are about as cheap as they get. If you have an American Express Delta co-branded credit card and access to cheap manufactured spend, you may still find it worth earning SkyMiles in the interest of diversifying your mileage holdings.

But the days of earning SkyMiles by flying on Delta-operated flights are over, and the removal of published award charts has exactly no bearing on that fact: that was the result of revenue-based earning.

Here's when it really makes sense to make Evolve Money payments with credit cards

It's no secret that I'm proud of my initial research on Evolve Money soon after the service first launched. I experimented with and described a number of possible uses of Evolve Money, like making contributions to 529 College Savings plans and making mortgage and student loan payments. If you were buying prepaid debit cards with a 5% cash back credit card, or American Express gift cards, making such payments with Evolve Money might completely negate any interest on the underlying loan, or give your college savings a nice upfront bump in value (since your true basis in the savings would be lower due to your credit card rebate).

In conducting that research I even discovered (and shared in the newsletter I send out to blog subscribers), that Evolve Money accepted some Visa and MasterCard credit cards, and that such payments were processed as purchases. Pace affiliate blogger Daraius Dubash this was not a "short-lived" glitch, but rather one that worked continuously from the time I discovered and shared it on February 2, 2014, until a few days after he publicly and excitedly revealed it to his readers on May 15, 2014.

Now Evolve Money is again allowing credit cards to be used for bill payments, but with a 3% surcharge. This is a terrible idea, but you already knew that. Rather than tell you what you already know, I thought I'd brainstorm: when does it make sense to pay a 3% fee to charge bill payments to your credit card?

You need time to pay

On the one hand, paying 3% up front in order to take out a short-term loan is a terrible idea. It's loans like that which result in the insane interest rates you hear about on payday and car title loans.

On the other hand, if you don't have the cash available, I can imagine a few instances where the numbers add up. For example, if you're in a high tax bracket and your state allows you to deduct contributions to a 529 College Savings plan from your income, and you forgot to contribute until the end of the year, you might not have the cash for a contribution immediately available. Instead, you could make a payment using Evolve Money, taking a 3% hit up front but saving more than that when you file your taxes.

Likewise, if your landlord is a biller in Evolve Money, you don't have the cash available to make your rent payment, and your landlord charges more than 3% in penalties for late payments, you might come out ahead taking out a short-term loan by paying him using your credit card (keeping in mind that if your rent is less than $500, you'd be better off buying a prepaid debit card and paying with that).

You're incapacitated

If you're in an accident and wind up in the hospital, or you're stranded by an avalanche in a ski chalet with nothing but firewood, a bearskin rug, and your smartphone, you may find that you can't log into your accounts in order to make payments. As long as you have your smartphone, remember your Evolve Money login credentials, and have a linked credit card, you can make essential payments like your cell phone (or, given the first example, your health insurance). It's not ideal, but these things do happen!

You're abroad

Even if you find the last few scenarios outlandish, you might be able to relate to this one. If you're overseas and a big credit card signup bonus comes along, you might be tempted to apply, but not have access to the techniques you usually use to manufacture spend. There are a number of cheaper ways to meet minimum spend requirements (even if you're committed to using Evolve Money, you could fund a Nationwide Visa Buxx card and use that to make an Evolve Money payment for free), but as a last resort you could fund bill payments directly with your new credit card.

Likewise, if your credit card is lost or stolen shortly before the end of the period allotted to meet your minimum spending requirement, but you have the card's information recorded separately, you could use Evolve Money rather than wait for a new card to arrive in the mail.

Any others?

Hopefully these examples illustrate the outlandishness of funding Evolve Money payments with credit cards! Just go to the drug store, gas station, or grocery store, pick up a prepaid debit card, and pay with that instead.

Can my readers think of any other situations where a 3% fee would be a small price to pay?

Evaluating point transfers to airlines by alliance

Last month I wrote that the addition of gas stations to the Citi ThankYou Premier "travel" bonus category, and raising that bonus to 3 ThankYou points per dollar, had leveled the playing field between that card, the Chase Ink Plus, and American Express Amex Everyday Preferred, all three of which will have $95 annual fees starting April 19, 2015, when the ThankYou Premier card's annual fee is lowered from $125.

Of course, the definition of a card that earns flexible points is the ability to transfer those points to airline and hotel partners. So which airline transfer partners are best for each of the three rewards currencies?

SkyTeam

Chase Ultimate Rewards. Here you have just one transfer partner, Korean Air. The good news is, they have a pretty decent, zone-based award chart for SkyTeam partner awards:

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The bad news is, they pass along fuel surcharges on their own flights and SkyTeam partner flights. For flights to South Korea from the United States, one interesting option is paying 35,000 Delta SkyMiles and $24 for your outbound ticket, since Delta doesn't pass along fuel surcharges on Korean Air flights, and using SKYPASS miles for the return on Korean Air, where you'll pay just 83,100 Korean Won (about $75) in taxes and fuel surcharges. That's about $266 less than you'd pay booking the entire trip with SKYPASS miles, and only $14 more than you'd pay booking the entire trip with SkyMiles.

American Express Membership Rewards. Membership Rewards points transfer to Delta and a number of other SkyTeam carriers: AeroMexico, Air France KLM, and Alitalia. For most redemptions from the United States, you'll be best off redeeming Delta SkyMiles, unless you want to book First Class tickets, since Delta doesn't have access to those seats (they don't operate a First Class cabin themselves).

For redemptions originating outside the United States, you'll need to consider another carrier (or more realistically, another alliance), since Delta passes along fuel surcharges on those flights. Air France KLM and Alitalia charge punishing fuel surcharges even on their own flights.

Aeromexico is an interesting case. I was unable to price out any SkyTeam partner awards using their online booking engine, so I don't know if they pass along fuel surcharges, although that's my impression from the little information I was able to gather. If any readers have experience booking SkyTeam awards through Aeromexico, I'd love to hear it!

Citi ThankYou. In addition to Air France KLM, here you have the unique transfer partner of Garuda Indonesia. To quote from the GarudaMiles website: "Award Tickets redemption for any of Garuda Indonesia partner airlines, including Air France & KLM, can only be conducted at Garuda Indonesia Sales Offices." Unfortunately, that's not going to be very useful for most people, so your best best will likely still be Air France KLM.

oneworld

Chase Ultimate Rewards. British Airways is your only option here, and you know what that means: domestic economy flights on American Airlines or US Airways, transatlantic flights on Aer Lingus and air berlin, and transfers to Iberia Avios for redemptions on their own flights.

American Express Membership Rewards. Here you can choose between Cathay Pacific and British Airways (or Iberia) Avios. While both programs are distance-based, and both pass along fuel surcharges from partners, Cathay Pacific's award chart is based on the total distance traveled on an award itinerary, rather than the length of each segment, which should make awards that require connections cheaper. Additionally, on April 28, 2015, Avios redemptions for most long-haul segments in premium cabins will increase by 50% (Business) and 33% (First). That'll increase the value of Cathay Pacific miles compared to Avios. For example, a First Class redemption on American Airlines between JFK and LAX will cost 50,000 Avios (currently 37,500), but just 40,000 Asia Miles, as a "single carrier award." There's additional value in Cathay's multi-partner awards, though you'll see excessive fuel surcharges on many of those awards.

Citi ThankYou. Here you can choose between Cathay Pacific, Malaysia Airlines, and Qatar. Qatar Qmiles appear to be completely worthless. Malaysia Airlines has a distance-based award chart with fairly steep single-partner award redemptions (JFK-LAX on American Airlines would cost 132,000 Enrich Miles in First!), but much more reasonable multi-partner awards. Drew at Travel is Free has looked at a number of routes where Malaysia Airlines miles are competitive, particularly on their own flights, so I'll call this a tie between Malaysia Airlines and Cathay Pacific.

Star Alliance

Chase Ultimate Rewards. Between United and Singapore Airlines, you'll typically want to transfer your Ultimate Rewards points to United, since they don't pass along fuel surcharges on partner awards. The most popular exception is if you're committed to redeeming Ultimate Rewards points for Singapore Airlines Suites Class redemptions, since you may find KrisFlyer miles more useful because of their increased access to those seats.

American Express Membership Rewards. With the same caveat as above, Air Canada Aeroplan miles will usually be more valuable than Singapore Airlines miles, since they don't pass along fuel surcharges on many of their partners, although ANA can make sense on Star Alliance routes with fuel surcharges where their distance-based award chart requires fewer miles than Aeroplan, or on United, where ANA passes along low or no fuel surcharges.

Citi ThankYou. Citi has two unique transfer partners in Star Alliance, Thai Airways and EVA Air, in addition to Singapore. Thai Airways recently gutted their award chart, and EVA Air passes along fuel surcharges, so if you have to redeem ThankYou points for Star Alliance travel, Singapore is likely to be your best bet.

Conclusion

The point of this post is to emphasize that bonused earning rates, like those at gas stations, change the value calculus of various loyalty programs.

Much hay is made of the fact that Starwood Preferred Guest Starpoints have a 20% transfer bonus when transferred in increments of 20,000, or that Membership Rewards points can sometimes be transferred to British Airways with a 40% bonus.

But if you're earning 2 Ultimate Rewards points, or 3 Membership Rewards or ThankYou points, per dollar spent at gas stations, you should be putting equal weight on the 100% or 200% "transfer bonus" that category spend gives you; after all, the Starwood Preferred Guest American Express earns just 1 Starpoint per dollar spent everywhere.

Finally, this is not encouragement to sign up for all three cards that earn bonus, flexible points at gas stations. On the contrary, it's an invitation to take a look at your upcoming trips, the award reservations you intend to make, and the loyalty currencies that can make that possible. Then find the credit cards that offer bonus points in the categories that are going to get you those points as easily and cheaply as possible. If you have access to cheap gas station manufactured spend, it might be one of these cards. If you don't, then you'll need to keep looking!

Personal finance digression: my beef with Future Advisor

This isn't a personal finance blog, or a financial independence blog, or an early retirement blog. But I understand there's a lot of overlap in interest between those subjects and travel hacking, so every once in a while I let myself vent about the personal finance industry (see: "Pound Foolish" is a pretty good book").

I was complaining on Twitter about Future Advisor the other day and got into a back-and-forth with their social media team. I want to expand on my point and explain why Future Advisor does not and cannot do what they claim to do: "actively monitor and manage our clients' IRA, Roth, and taxable accounts from a household-wide, long-term perspective."

How Future Advisor works

When you create a Future Advisor account, you're asked for just three pieces of information: your current age, your target retirement age, and your risk tolerance ("Conservative," "Moderate," or "Aggressive"). Based on that information, Future Advisor creates a "Target Portfolio" and a recommended asset allocation. Here's their recommended asset allocation for me:

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Next, Future Advisor asks for your current "financial profile." You can either manually input your current investments, or enter your login information and Future Advisor will download the details of your investments automatically. Here's my current financial profile:

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Once you've completed those two steps, Future Advisor gives you an "Action Plan," telling you what to do with your current assets in order to bring your plan in line with the asset allocation they recommended based on your age, target retirement date, and risk tolerance. Here's the action plan for my Vanguard Roth IRA account:

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Future Advisor does not consider interest earned on cash savings

Note in the current asset allocation picture I showed above, Future Advisor only allows you to add "cash you would like to invest."

The cash I have in my Mango savings account is not "cash I would like to invest," however. It is cash I already have invested — in a 5.28% (after $36 in annual fees) APR savings account! There's no way to tell that to Future Advisor. On the contrary, if I input the value of my Mango savings account, I'm told to move it all into investments that mirror the original target asset allocation Future Advisor proposed:

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The explanation for this recommendation leaves me (almost) speechless:

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Future Advisor is projecting an average growth of 5% in my cash — cash I'm holding in a savings account that already earns more than that!

This means Future Advisor cannot do what it claims to do

While looking at your target asset allocation, you can see an explanation of each proposed investment. Here's the important part for my point:

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The "green" portion of my recommended asset allocation (15% of the total in the first picture) is intended to "reduce overall risk" and "offer growth in bear markets." If I have $5,000 invested in an FDIC-insured savings account with a high, fixed interest rate, and the goal is to reduce overall risk and offer growth in bear markets, logically I shouldn't invest any money in "Investment Grade Bonds," "Inflation Protected Bonds," or "International Bonds" until the total size of my portfolio is over $33,333 (15% of which would be the $5,000 balance in my high-yield savings account).

By ignoring the interest rate on my cash savings, Future Advisor gives inappropriate advice given its own stated investment objectives when designing a target portfolio.

What I'm saying (and what I'm not saying)

Let me be perfectly clear before this becomes a discussion of ideal asset allocations: I am not saying that the target asset allocation designed by Future Advisor is a "bad" asset allocation.

I'm also not saying that my current asset allocation is a "good" asset allocation. Indeed, the same criticism of Future Advisor could be applied to the target retirement date mutual fund my Roth IRA is invested in: since that target retirement date fund also has a bond component (10.1%), I would logically be better served by replicating the stock holdings of the target retirement date fund, while using my high-yield savings account to replicate the bond component with higher yield and lower risk.

I'm not going to do that, but it's a legitimate suggestion.

What I am saying is that Future Advisor, which claims to provide exactly that kind of advice, is incapable of providing it since it doesn't ask what the current yield is on your FDIC-insured savings accounts. Without having that information, it provides bad advice by its own standard of optimizing your holdings across all "IRA, Roth, and taxable accounts from a household-wide, long-term perspective."

In fairness, Future Advisor's social media team doesn't even dispute this.

The only remaining question, then, is why they are still in business?

American sure makes buying tickets confusing

Regular readers know that my plan for air travel in 2015 is simple:

• I requested a status match to Alaska Airlines MVP status, and received MVP Gold 75K status, valid through 2015.
• Until the end of 2014 I continued to credit my paid Delta travel to Skymiles, and reached Silver elite status for 2015.
• For award flights on Delta, and paid flights where I know I'll have to check bags, I'll continue to enter my Skymiles number in order to check a bag for free.
• For paid flights on Delta without checked bags, and all paid flights on American, I'll credit my miles flown to Alaska, in the hopes of earning MVP status again for 2016.
• I don't fly United.

Since I love flying Delta, and live in the upper Midwest, until this year I only rarely had any reason to stray.

Now that Alaska has gutted mileage earning on paid Delta flights, however, I'm looking at more American flights. After all, a 1,000 mile Delta ticket in an "L" fare class will earn just 500 Mileage Plan miles (1,125 after the MVP Gold 75K 125% mileage bonus), while the same flight on American will earn 2,250 miles. The farther the distance traveled, the more valuable an economy ticket on American is, compared to the same distance flown in a cheap Delta fare bucket.

But American's website is a terrible place to buy American Airlines tickets!

There is way less going on than meets the eye

Here's the first flight option for an upcoming trip I'm planning:

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If you're used to any other airline, you might assume these are 4 different fare classes, at 4 different price points. You'd be absolutely wrong. The first three options all book into the "O" fare bucket. Rather than different fare classes, they're different fare basis codes, which indicate to American what services are bundled into your ticket. Here's Choice Essential:

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In other words, on the one-way flight I searched for, you can prepay your checked bag fee and pay an extra $4 for Group 1 boarding priority. I get free checked bags through my Alaska status, and priority boarding isn't a big deal for me, but many people seem to love boarding early, so maybe it'll makes sense for them.

And here's Choice Plus:

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On the flight I looked at, for $80 you can get all the benefits of Choice Essential, plus a 50% AAdvantage mile bonus and free same-day travel changes. Paying $51 for 1083 AAdvantage miles is not a good deal. But if you anticipated making same day travel changes anyway, the bonus AAdvantage miles would be a nice touch.

The problem is that to earn them, you'd need to travel under your AAdvantage member number, instead of your Alaska Airlines Mileage Plan number, defeating the purpose of flying American to begin with!

Why does it matter?

There are a few reasons why it's good to understand what's going on here. First of all, so you don't unwittingly book one of these Choice Essential or Plus fares!

But secondly, you might actually want to book one of these fares, and you definitely don't want to do it through American's website. Since Choice Essential and Plus fares have unique fare basis codes, travel agents should be able to manually book these fares over the phone.

For example, when searching the Chase Ultimate Rewards travel portal or US Bank Flexperks travel portal, you won't see these fares since they are all in the same "O" fare bucket. 

But by calling in to Chase (866-951-6592) or Flexperks (888-229-8864), you should be able to ask the agent to book your ticket into a specific fare basis code, not just fare bucket. It's safe to assume not all phone agents will know how to do this, since it's a bit of an odd request, but if you try a few times you'll hopefully get one who can help you.

The obvious reason to do this is if you're planning to credit a flight on American to the AAdvantage program, and the flight you want is towards the bottom of a Flexperks Travel redemption band. By booking your ticket on a more expensive Choice Plus fare basis code, you'll earn the bonus 50% AAdvantage miles, without spending any more Flexpoints.

Conclusion

Choice Essential and Plus fares are overpriced, and strike me as a fairly shameless cash grab by American. But that doesn't mean there aren't situations when we can use them to squeeze a few more cheap miles out of the airline. The benefits seem to be primarily for passengers who credit their miles to AAdvantage (and don't have elite status), so I doubt I'll personally be taking advantage of these fare options.

Should all manufactured spend go through American Express gift cards?

Earlier this week the BeFrugal shopping portal temporarily raised their payout on American Express gift cards to 2.2% from 1.5%. Several shopping portals (including my favorite, TopCashBack) periodically raise their earning rates on these cards, so many folks wait to buy their American Express gift cards until payouts are increased.

I don't write very much about American Express gift cards because I don't use them very much, but they're extremely popular, and for good reason.

Why buy American Express gift cards?

The argument for buying American Express gift cards is simple: they turn every credit card into a cashback-earning American Express card. Instead of just earning United miles with a Chase United MileagePlus Explorer card, you can earn United miles and 1.5% cash back.

If that sounds to you like it's too good to be true, then you're in good company! Lots of travel hackers find it worthwhile to direct much or most of their manufactured spend through American Express gift cards.

Why not buy American Express gift cards?

There are a number of potential issues to be aware of if you're considering using American Express gift cards:

• The gift cards are (obviously) American Express cards. Some techniques for liquidation either don't allow American Express cards to be used, or specifically refuse gift cards for purchases (some Simon Mall locations are notorious for this). Plan in advance which merchants you'll spend the gift cards at;
• The cards are shipped out activated and ready to use, and in my experience usually don't require a signature for delivery. If you have a day job, you may not feel great about having thousands of dollars left out on your doorstep all day.
• If you order personalized cards, they can take anywhere from a few days to a week to ship and be delivered. You'll need to build that dead time into your strategy, and be willing to tie up the available credit on your cards for days with nothing to show for it;
• Finally and most importantly, orders are often denied for little or, most frequently, no reason at all. After moving in May, I couldn't get a single order approved for months, although my approval rate has noticeably increased lately.

There is so much more to say about American Express gift cards, and fortunately most of it has already been said by Frequent Miler! Check out that page for a tremendously helpful resource.

Should all manufactured spend go through American Express gift cards?

In recent months I've done as much as possible to tighten up my own manufactured spending strategy.

First I should say that unlike many of my readers, I don't place a high value on my time, or rather, I don't treat manufactured spend as a time "suck:" I do much of my manufactured spend on foot, which makes it feel vaguely healthy; I listen to funny and educational podcasts while I work; and I'm always gathering more news and updates for this blog, increasing the value I provide my readers. So I don't feel the need to put a dollar cost on my time spent, since I love my job!

At the same time, I do put a dollar cost on my dollars, and aim to maximize the value I get from each dollar spent manufacturing spend. For me, that means using cards exclusively at merchants where my spend is bonused, while using my cash back cards at cheap, unbonused merchants and for American Express gift cards.

The interesting thing about American Express gift cards, however, is that just as you can impute redemption values by comparing a 2.22% cashback-earning credit card to a hotel's co-branded credit card, you can also impute redemption values by comparing your bonused earning rates to American Express portal payouts.

For example, when you use an American Express Hilton HHonors Surpass at a grocery store, you earn 6 HHonors points per dollar spent. When purchasing American Express gift cards through a 1.5% cash back portal, you earn just 3 HHonors points per dollar spent — and 1.5 cents in cash back.

In other words, your "bonused" earning rate allows you to buy HHonors points at 0.5 cents each, which is at the high end of the range of real-world Hilton redemptions.

When portal payouts on American Express gift cards are raised to 2.2% cash back, spending with your card becomes an even worse deal, allowing you buy HHonors points for 0.73 cents each. Realistically, you're not going to consistently redeem your HHonors points for that much value.

Within reason, more points are more valuable than fewer points

Everything I've said so far is true, and you can take a look for yourself at the numbers — and the potential problems I outlined — to see whether American Express gift cards make sense in your own miles and points strategy.

However, there's one final issue that's worth mentioning. As regular readers know, I'm the biggest advocate of earning only as many miles and points as you can reasonably expect to redeem, since an unredeemed mile is worse than worthless: it actually cost you the cash back you could have earned instead.

At the same time, within reason, at the margin points become more valuable the more you have of them: 12,499 Delta SkyMiles can't be redeemed for travel, but 12,500 can. In that situation, the last SkyMile you earn is in a concrete way the most valuable SkyMile, since it unlocks the value of all the other ones!

How about a concrete example? I have an upcoming Hilton stay I'm currently saving up HHonors points for:

• I'll redeem 200,000 HHonors points for a 5-night stay in New Orleans that would cost $820, or roughly 0.41 cents per HHonors point;
• At 6 HHonors points per dollar spent, that's more valuable than a 2.22% cash back card;
• But if I instead earned 3 HHonors points per dollar spent on American Express gift cards, I'd fall short of the 200,000 HHonors points I need to receive the 5th night of my stay free, and have to pay 50,000 HHonors points per night instead;
• 3 nights would cost 150,000 HHonors points and I'd be saving $492 for those three nights, a redemption rate of just 0.32 cents each.

I'd be better off using a 1% cash back card!

Note that these numbers are specific to my own situation. That's exactly why I preach that miles and points shouldn't be earned speculatively, but rather with specific redemptions in mind.

Of course, the other possible conclusion you could reach is that Hilton HHonors points just aren't very valuable!

Using my Barclaycard Arrival+ PIN in Italy

If you're a citizen of the United States, the Barclaycard Arrival+ card is likely the only "chip and PIN" card you carry. These cards are popular outside of the United States, but for economic and historical reasons they have not and, in my only-slightly-educated opinion, likely will never dominate the credit card market in the United States: plans by several issuers to issue chip and PIN cards have already fallen through; merchants have no interest in buying new equipment; and Americans just don't travel internationally very much!

But Barclaycard issues one, and it happens to be a card lucrative enough (because of the 10% points rebate on travel redemptions) that many travel hackers carry it.

Set your PIN online

One thing I didn't realize until I received my chip and PIN card is that the PIN is not hard-coded onto the chip. My understanding was that US-based issuers were resistant to adopting chip and PIN technology because their customers would be frustrated if they had to memorize a different PIN for each card. But with Barclaycard, you can set your PIN to the same number you use for all your other cards (and your phone, and your bank accounts, and your home security system...), and you can do it online.

Just go to "Account settings" in your online account and look for "Manage your PIN:"

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Use your PIN at unattended kiosks

I used my PIN exactly twice in Italy: buying a train ticket from Milan's Malpensa airport into town, and buying a train ticket from Rome's Termini train station to Fiumicino airport. Both times were at unattended kiosks: I inserted my card, left it in the slot until prompted for my PIN, entered my PIN, then withdrew my card when prompted.

I had read a few posts around the blogosphere suggesting that the first time a card is used abroad, the cardholder has to sign the purchase in order to "activate" the card's PIN. That's completely incorrect: the first purchase I made on arrival in Milan was a PIN transaction at an unattended train station kiosk.

Sign everywhere else

I was surprised to find that every other merchant we visited in Italy had signature-compatible terminals. Some of the merchants themselves seemed surprised when the receipt printed with a blank space for my "firma," but we had no issues with acceptance.

This won't be true everywhere: I've visited Russian grocery stores that flatly refused to process signature transactions, so you still shouldn't travel abroad relying completely on your credit cards.

Bonus: Bluebird is still awesome for foreign ATM withdrawals

I mentioned this once before during a trip to the Czech Republic, but Bluebird is still a slam dunk for ATM withdrawals while traveling abroad.

I withdrew 200 euros twice at ATM's, and the total charges to my Bluebird account were $240.48 and $238.98, including all ATM fees. That gives exchange rates of 1.202 and 1.195 euro per US dollar, both within 2% of the financial market rates on the days in question (according to xe.com).

It's hard for consumers to exchange currency at the prevailing market rates, and ATM fees can add substantially to currency exchange costs, while Bluebird offers exchange rates very close to market rates, along with flat international ATM fees. Unfortunately, not all ATM's are configured to process American Express withdrawals, so it may take some trial and error to find ATM's you can use your Bluebird card at (my card was rejected at one of the ATM's I tried).