Friday, April 25, 2008

Costco And Sam’s Club Memberships: Are They An Investment?

Typically I would shy away from calling things such as Costco and Sam’s Club memberships “investments,” but in light of recent events they might just be entering into that category. I read an article from the Wall Street Journal yesterday that opened my eyes to the concept. In the article, it is explained that food prices are increasing by so much that it makes sense for people to stock pile non-perishable food rather than put that money into savings or money market accounts.

According to the article, food inflation for the average American household is running around 4.5 percent right now. Many foods are seeing price increases much higher than that. Cereal prices are rising by more than 8 percent a year, and flour and rice are up more than 13 percent. Milk, cheese, bananas and peanut butter are all up by more than 10 percent. Eggs have increased 30 percent in the past year and ground beef and chicken prices are up 4.8 percent and 5.4 percent respectively.

It is obviously not possible to stock up on perishable items such as milk and eggs, but you can buy extra cereal, rice and flour. You certainly aren’t going to make 13 percent on any bank account, so in actuality using some of your savings to purchase extra food might not be such a bad idea, or investment, for that matter.

That is where the Costco and Sam’s Club memberships come in. These warehouse stores offer much better prices than typical grocery stores; the catch is that you have to buy large quantities of the items. If you are planning to stock up on certain staple goods, you can save money by buying at these stores. So let's say you can save 5 percent off of the items you purchase at Costco or Sam’s Club over your neighborhood grocery store (though, in my experience, buying in bulk at these stores should save you much more than that)--now your “investment” looks that much better. Instead of making a 13 percent return on your money, purchasing your rice now actually could earn you 18 percent. Obviously those numbers don’t take into account the cost of your membership, or any subsequent storage or other costs which may be associated with holding the extra food, but I think you get the picture.

Also, as an added bonus, you will be in good shape in the event of a complete economic collapse, as many Ron Paul supporters are predicting.

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