This is a complete travesty of security. Not only does making the colour white only apply to viewing the text in TextEdit (the password will still remain visible in the file, after all) but changing the text to 'text only' is a trivial way of revealing what's there. Exactly the same argument would apply if the file were HTML, for example.

Apple ships 'Keychain Access' which is used to store passwords and other secure media in a way that can only be seen if you've logged in and supplied your password. Everyone has one of these set up by the system, but you can create additional keychains (each with their own master password) if you want. If you need to store passwords, then using anything other than Keychain access (or a similar tool, like gnupg) is a complete waste of time and security.

Frankly, this is not a hint that should be repeated to the internet at large and I urge the moderators to remove this, less a google search turns it up and people think 'oh yeah, that's a good idea ...'