The constant theme for the past year or so with my blog and with my personal finance is returns on fixed rate investments stink. The head of the NY Federal Reserve even stated this morning on CNBC, one of the purposes of quantitative easing is to force people to invest in riskier assets. No surprise there, but this just makes it official. As I’ve mentioned recently a few times, prepaying your debt is one option to “invest” in the current economic environment. Prepaying your mortgage is a guaranteed return on your money invested, and compared to other safe returns, it may make sense at this point in time. What’s the other “investment” many others haven’t considered?
Consume. Go out and buy products and goods. The Federal Reserve wants people to either consume or invest. With their monetary policy, they do not want consumers to save. I got this idea about “investing” after reading this Bogleheads thread. I’m not suggesting buy that big screen TV necessarily, though that’s more of a personal decision. With the heated debate between the WSJ and Sarah Palin about inflation and the fact that all commodities have soared in the past year, maybe it makes sense to buying staples for the house. If you think we will experience inflation in the next year, you might want to buy food ahead of time. Unlike Glenn Beck, I’m not suggesting to stockpile food for fearing Armageddon. Buying food insurance is a crock, and a waste of money. I’m looking at it purely from what’s the best way to maximize the return of my dollar. Granted, buying food with the intent of consuming isn’t exactly investing, but it can have positive returns nonetheless.
From my estimates, we approximately spent $11,000 on groceries in the past 12 months. That’s with 2 adults, one 4 year old, a 18 month old, a 3 month old baby, and a partridge in a pair tree. It’s not the biggest expense we have, but it’s in the top 5. Let’s say we get 5% inflation in food within the next 12 months. A quick back of the envelope calculation shows that next year, if everything remained the same in our consumption, our food bill would be $11,550. If we bought some items in bulk ahead of time could we reduce that increase or even decrease our bill from last year? It’s time to become a smarter shopper. Regardless of inflation or not with our ever growing children, our food expenses can only go up. If we see a great deal on something we constantly buy, we’ll stockpile it. Granted according to the Labor Department food is only up 0.6% YOY. At least from our anecdotal experience, we’ve seen slightly higher inflation.
Do you believe with the Federal Reserve’s QE2 we will experience inflation, or even worse, stagflation. What can you do about it? Get yourself a membership to either one or all of the buy-n-bulk stores:
- Sam’s Club
Granted, like stock picking, you must know what’s a good deal and what isn’t. Bulk purchases can be deceiving. That lifetime supply of Hellman’s Mayonnaise isn’t really going to save you money because it will more than likely spoil before you finish it. Not everything is cheaper in bulk either. In some cases we’ve found better deals at our local supermarket buying in smaller quantities. As of recent, even Tarzhay (otherwise known as Target (TGT) to English speaking folk) is trying to compete with the bulk stores. Target started offering a 5% REDcard off credit card for all purchases. I recommend getting that credit card and paying off the balance monthly.
Unfortunately, in the NY area, Wal-Mart is a non starter. When going to college in the South my first experience with Wal-Mart store was a pleasant experience. Their stores were clean, well organized, and the people were friendly. The Wal-Mart stores in the NY area for some reason are awful, and I avoid them like the plague.
Our visits to CostCo, and the local supermarkets we seem to stockpile up on:
- Baby food
- Can goods (tuna, soup, etc.)
- Grains (cereal, and pasta)
- Condiments (mayo, ketchup, mustard, pickles, etc.)
- Drinks (soda, juices, wine, and beer)
- Paper goods (toilet paper, tissues, napkins, paper plates and paper towels)
For meat, we’ve thought about buying an extra freezer for the basement. We are still on the fence about this because of the additional costs for electric. I need to calculate this if it’s worth the expense.
Readers: Do you think this is a good idea? If so, what are you stockpiling?