A technique for the bravest of arbitrageurs
Stoozing is the most advanced of the arbitrage methods that Average Joe will share with you. It is a simple technique. But, not everyone can or should do it. The payoff for stoozing is free or almost free money courtesy of the credit card companies. But, you have to be at your very best for this technique. It is not one for the weak of heart or those who are not willing to do their homework.
The Phrase of Stoozing – The word “stoozing” came into existence from posts on the Motley Fool UK discussion boards in early 2004. Many people were earning money on 0% deals before 2004, but one discussion board contributor, Stooz, was apparently prolific in this. This person’s technique therefore came to be referred to as “doing a Stooz”.
The Technique – Stoozing is the process of borrowing money at an interest rate of 0%, a rate typically offered by credit card companies as an incentive for new customers. Each credit card company offers different terms of repayment, so shopping around is critical for the best deal here. The money is then placed in a high interest bank account or other investment vehicle in order to make a profit from the interest earned off of that investment vehicle.
The Payoff – The “Stoozer” allows the interest to accumulate in his investment vehicle avoiding the temptation to dip into it and spend the accumulating money. The “Stoozer” then pays the money back to the credit card company before his or her introductory 0% period ends. The borrower does not typically have a real debt to service, but instead uses the money loaned to them to earn interest.
The Risk – If you go beyond a savings account as your investment vehicle, the market could turn on you and you could easily lose some or all of your capital, leaving you with owing the credit card company some serious money. That is why this technique is really for those who fully understand what they are doing and understand how to park their money into an investment vehicle that is suitable for their risk tolerance.
My Example – I recently borrowed $3,000.00 dollars. I took this money and divided it into two camps. I placed $1,500.00 into one high yield account yielding 16.6% and it pays a dividend on a monthly basis. The other $1,500.00, I invested in another account yielding 6.78% and it also pays on a monthly basis. Between these two investment vehicles I earn $28.67 per month.
Now, instead of using money from a credit card company, I borrowed the money from a lender who offered me very acceptable terms and conditions (Average Joe never turns down an offer for money). My investment vehicles have some risk assigned to them. In fact, in my first camp, I have ‘lost’ some principal (principle can and does fluctuate). However, I feel comfortable with the companies and understand I will keep my money parked for some time. The interest I am earning is paying off my costs of borrowing. So, in effect I am getting free money.
Is This for Everyone – Absolutely not. You have to be a very disciplined Average Joe for this process to work for you. You have to pick a very safe investment vehicle. You have to borrow from the right credit card company/lender. And, you have to be willing to accept some risks with this process just in case things go bad.
Average Joe has referenced some materials here from Wikipedia (giving credit where credit is due).
This is a multiple part blog:
Stoozing: The Greatest Arbitrage Opportunity Since Slice Bread, Part 1.
Stoozing: Growing Money from Nothing, Part 2, examines different scenarios.
If you are Stoozing, I would like to hear from you and how has the technique worked out for you?