When thinking of getting started with investing in the stock market, there is a lot of initial fear for some.
Stock Back Rewards?
What is Stock Back? Stock Back is the process of receiving Stock, back, as a reward for your everyday purchases. It is essentially a Loyalty Program that gives you shares of Stock in a business instead of points, discounts, or cash back. Most people are familiar with Cashback Credit Cards and Rewards Points. You swipe your card, the credit card company provides you with a cash reward, typically 2% or less. There are some credit cards which will give you a higher cash back rate on specific categories, or during specific times of the year. Then you have your rewards points credit cards that give you points, which may vary in value depending on the credit card. These points are used towards Flights, Hotels, Rental Cars, or Gift Cards to your favorite stores.
But with Stock Back, instead of receiving cash or rewards points, you receive shares of stock! Well not Full Shares of Stock, obviously you won't get an almost $2000 Share of Amazon stock for buying the latest New York Times Best Seller for $20 with your Amazon Prime Membership. You will receive a percentage of that $20 purchase, which will go towards purchasing a Fractional Share of Amazon Stock (see video)! This can add up much faster than you would think. Imagine if you are a person who spends, conservatively, $1,000 a year on Amazon.com . If you were to get just 1% back on those purchases, as stock, you would own about $10 worth of Amazon stock at the end of the year. Not only that, but that $10 could have grown to about $12 worth of Amazon stock if Amazon's value were to increase by 20% during that year!
Why is it better than Cash Back?
This is a better option than Cash Back because your cash does not increase in value on it's own. Starting from a standpoint of not taking additional action, if you were to receive Cash Back deposited into your account, you then have to take an additional step to use this cash to increase its value. Many people may put this cash into a checking or savings account, earning at best an average of 1% to 2% with a high yield savings account. With Stock Back, you automatically receive your reward as shares of stock in the companies you are spending your money with. So without taking any additional action, your stock back will grow at the exact rate of the companies value in the stock market! It's AutoMagic! I love any option that allows me to automate my investing, or paying bills!
Now of course with Cash Back, you do have the option to take the cash you receive and then go invest it into the stock market. But this is a manual process that many individuals won't take the time to do. You have to transfer the cash back from your credit card account, to your bank account, and then to your investment account. Plus you have the decision fatigue of having to decide what stocks to then buy with the cash back you received. These small but necessary hurdles trip up a lot of people, preventing them from benefiting from investing their free cash.
Can Investing Get Any Easier?
This has to be the EASIEST way to get started with investing. All you literally need to do is sign up for a Stock Back App like Bits of Stock or Bumped, connect the credit cards you use to make every day purchases, then sit back and watch your shares of stock increase over time! Within each of these apps there is an option to select the Brands you spend money with the most. For a short review of these two apps, checkout my Blog Post on the Top 7 Cash Back Apps for more details. Once you've selected the companies you want to receive stock back from, every time you shop with those businesses, you will receive a percentage of the purchase back in cash which is then used to buy that same cash value as a fractional share in the brand. It's that simple! No need to login to the app and make the actual purchase of the stock on your part. The Apps automate the buying process! All you need to do is link your credit card so your transactions are recognized.
The first photo above is the value of my Stock Back Rewards from using the Bumped App. I've used their App since August of 2019, and as of Dec 14th 2019, I've gained just over $6. This includes my actual rewards received plus or minus the gains in the stock market, and any dividends earned. Now over the course of 4 months, that's not a lot at all! However it is $6 more than I would have earned otherwise! However, with the Bits of Stock App in the 2nd photo, I've gained over $20 in just 1 month! The huge difference in value for each app is solely due to the way each app allows you to select the Brands you will receive Stock Back from. As well as what Brands are available in each app. I explain those details in this Blog Post, but essentially the difference is one app allows you to pick 1 Brand per category (10 Categories), and the other allows you to pick 15 Brands no matter their category. There are over 100 Brands to choose from. In Bumped the main places we spend money outside of our mortgage are Costco and Amazon, and these two companies are not available to ME within the Bumped App. Both companies are an option on their platform, it's just not available to me at this time as the App is still in Beta. Maybe in the future this will become an option, and I'll be able to gain much more Stock Back like I do with Bits of Stock!
What's the Catch?
There's no catch really. It's just a different type of loyalty program from your traditional cash back or points rewards systems. However, with all things involving credit card usage and rewards programs, you have to worry about the same things.
Overspending: don't buy stuff just for the purpose of receiving stock/cash/discounts back. If you stick to your normal spending, that's when the true benefit is achieved. No change of behavior for you, yet an increase in what you receive back as a benefit. Don't increase your spending just to get more cash back...that's Cash Backwards!
Credit Card Debt: You have to use a credit card (or run your Debit Card as Credit) in order for these apps to recognize the transactions, and provide you with the stock back rewards in your account. You need to use your Credit Cards responsibly in order to receive the true benefit. This goes back to not overspending.
Stock Losing Value: Because you are receiving shares of stock back as a reward, it is possible you could lose value. Stocks go up and down, but over the long term stocks typically increase in value. If you are looking to make a quick buck by selling these stocks, then this isn't really for you. I personally plan to hold onto the stocks I receive back for the long haul! I mean, I didn't really invest my own money, so I'm not technically losing anything! All of the stocks I receive as Cash Back can literally go bankrupt, and it won't effect me in any sense. I received these stocks through the process of my normal spending, vs how we would normally invest with income we earned from working our day jobs (or night). If you do decide to sell immediately, just realize that you are taxed more if you sell within a year vs holding it for longer than a year. Income Taxes vs Capital Gains Taxes.
Limited Investment Choices: Since you are only able to receive the stock of the actual companies you spend money with (in most cases), and those companies are limited based on what is available in the app, you don't have a lot of companies to choose from. In the Bits of Stock App you get to choose 15 Companies from a total list of about 100 available Brands. In the Bumped App you have 10 Categories, and you choose 1 Brand per Category. This means out of the over 5000 available publicly traded companies in the United States, between the two apps you have a combined total of 25 Companies to receive stock from. That's assuming your apps don't overlap, which is actually not a bad thing! What if you could choose 10 of the same companies in both apps. That's rewards stacking at its finest!
However due to the fact you can only receive stock from the stores you shop with, this means there are some companies that will likely never be available on these platforms. When is the last time you shopped at Coke, Pepsi, Nvidia, Wells Fargo, Bank of America? You don't, even if you use their products and services everyday! You may have Coke or Pepsi when you go out to eat at Chipotle, Burger King, or McDonalds, which are brands available on these apps, but there aren't Coke and Pepsi stores available all over the US for you to shop with. However companies like Exxon Mobil, Amazon, Costco, Walmart, Chipotle, are all companies which you can walk into their stores or use their websites to make purchases with every day! Now you can get back stock as rewards, in addition to cash back your credit card may already provide.
How Do I Select Brands
Now that you have decided to use Stock Back Rewards, you may be wondering how you should make a decision on what brands to choose. Should I choose a brand based on my perception of what their stock price will be in the future? Should I select stocks which pay dividends vs stocks which don't and focus on growth? Or do I make a decision based on my shopping preference? These are all decisions you will need to make. I do believe that the best decision is to decide based on where you already spend most of your money in order to maximize the benefit of Stock Back Rewards. There is one exception I'd like to talk about however, which may change your shopping habits.
Public vs Private Companies
To drive home this point, I will use 3 Mexican Fast Food restaurants as an example. At some point throughout the year, I will eat at all of these restaurants: Taco Bell, Chipotle, and Moes. Now my personal rankings of these 3 restaurants is: 1. Moes 2. Chipotle 3. Taco Bell. My wife has Chipotle as number one, so we end up going to Chipotle more often since I'm less picky :-D. But the major difference from our Stock Back perspective is that one of these 3 companies is not a Publicly Traded brand...Moes!
What if you were deciding to buy food and you liked both Moes and Chipotle? Moes isn't a publicly traded company, but Chipotle is and they're available via the Bumped App to receive Stock Back. Or what if you don't mind Taco Bell, even if you like Moes better, and Taco Bell is available in both Bumped and Bits of Stock? Would this make you change where you eat because you will receive stock back as a reward? These Brands are hoping that you WILL change where you eat and shop due to the fact you receive some reward. This is why companies have loyalty programs in the first place, to attempt to keep you shopping with them instead of their competitors. Stock Back Rewards is just another way to try and make the bond stronger for you as a customer.
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Why Not Combine Stock Back, with Cash Back?
Actually...you should! Check out my previous Blog Post for my Top 7 Cash Back and Stock Back Apps! You can combine, or STACK, these with your Credit Card Cash Back and Rewards Points. Let me know what you think in the comments!
AJ Mobile Money
Husband | Father | YouTuber | Former ATLien
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