A few months ago NPR did a piece on non-traditional investments. One of the ideas they discussed was buying bulk as a hedge against inflation. It’s an interesting idea. As inflation makes things more expensive, if you already have it, you are saving money.
Of course, unlike traditional investments, it is a one time return. If you buy trash bags and save them for when trash bags are 5% more expensive, then you made a 5% return on the money you spent, but only once. Once the trash bags are used up, you get no more return on the investment. Meanwhile, investing in stocks, bonds, or cash accounts will provide you with a return for as long as you hold them. And if you reinvest, the returns, they get compounded. With the trash bags, you could reinvest your return in more trash bags, but the original investment will never gain any more.
How to invest by buying bulk
To invest your money in a hedge against inflation by buying bulk, you need to pick items that will experience a rise in inflation. A can of corn really hasn’t changed price much in the last 20 years. That would be an investment that lost money compared to inflation!
Trash bags, however, are made from plastic. Plastic is made from oil. As oil gets more expensive, plastic will get more expensive and things made from plastic will get more expensive. Plus, trash bags are pretty compact and store well. And if you can manage to pick them up on sale and with a coupon, you could easily double your money by buying them now and sitting on them for a year.
Obviously, durable goods work better than perishable goods. Food prices probably aren’t going to rise very much over the short-term, despite what the news reports about droughts affecting harvests. (hint, don’t worry about rain affecting the price of your corn flakes. Each box only contains about 10 cents worth of corn)
You will also need somewhere to store the stuff and wait for prices to rise. Buying storage space or storage products adds to the cost of your investment and decreases your return. But simply stacking stuff in the corner of your basement would work.
Some people claim that all storage has a cost, because if you didn’t need it, you could simply downgrade your living space to something smaller. That sounds good on paper, but it rarely works that easily in real life. Home sizes simply don’t scale that evenly. And smaller living spaces tend to have a higher cost per square foot. That is because some expenses are fixed regardless of home size. Things like building permits and utility taps don’t change. Heating and cooling systems vary in cost based on their size, but still have some component of their price that has little to do with their capacity.
What this means is that the difference in price between a 2000 sq ft home without a finished basement and a 2000 sq ft home with a finished basement is not going to be all that much.
Do you try to buy bulk items to save against price increases in the future? Would you consider this an actual investment?