stockpiling http://www.wisebread.com/taxonomy/term/7888/all en-US Stockpiling Is Rarely the Answer http://www.wisebread.com/stockpiling-is-rarely-the-answer <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/stockpiling-is-rarely-the-answer" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/5455724146_e1b89f863a_z_0.jpg" alt="shopping" title="shopping" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>If the answer is stockpiling, you've probably got the question wrong. (See also: <a href="http://www.wisebread.com/the-second-best-way-to-make-your-household-more-secure">The Second-Best Way to Make your Household More Secure</a>)</p> <p>Now, I'm not talking about having a well-stocked pantry. Having the things you use every week on hand in quantities that ensure that you won't run out makes your household run a lot more smoothly.</p> <p>I'm also not talking about stocking up when you can get a good price on things you're going to use anyway. That yields <a href="http://www.wisebread.com/huge-tax-free-investment-returns">huge tax-free profits</a>.</p> <p>I'm talking about the people who view stockpiles as insurance against things like natural disaster, civil unrest, or social collapse. Once you're stockpiling more than you're going to use anyway (and especially if you're stockpiling stuff that you wouldn't ordinarily use), I think you're wasting time, money, and storage space &mdash; plus doing a <a href="http://www.wisebread.com/the-ethics-of-hoarding">disservice to your neighbors</a>.</p> <p>Stockpiles add resilience in the very short term. If there's a natural disaster &mdash; a flood or a blizzard or an earthquake or a hurricane &mdash; there may be a period during which you can't get to the store, or the store can't get resupplied. In that circumstance, a stock of the things you use every day is great. But it doesn't need to be a large stockpile. Even the smallest kitchen has room for all the stockpile you need to get through a brief period where the power is out or the roads are impassible.</p> <p>For a short-term negative event, a modest stockpile makes good sense. Stockpiling is much less useful as a way to deal with a longer-termed negative event.</p> <p>Long-term events often require relocating, which takes you away from your stockpile. It's bad enough to have to abandon your home to move to higher ground. Having to abandon hundreds or thousands of dollars worth of stockpiled goods would make it that much worse. But the sorts of disasters where problems go on longer than two or three weeks tend to be just the sorts of disasters where you end up needing to move elsewhere.</p> <p>For a short-term negative event, it doesn't matter if your stockpile doesn't have everything you're going to want. Even if it's missing essentials &mdash; well, you can get along even without essentials, at least for a little while. But over the longer term, you really need every essential, and some necessities don't stockpile well. This includes things as diverse as fresh fruit and gasoline. Storing supplies that will last for days is easy. Storing supplies to last for months is much more problematic.</p> <p>If you think a larger stockpile makes sense, give some careful thought to the sort of negative event you think you're protecting against. A one-year supply of food could help you through a severe recession where all the income-earners in your family lost their jobs. But other things you could do with that money, space, time, and effort would almost certainly help more. Here are some alternative suggestions:</p> <ul> <li><strong>An emergency fund.</strong> <a href="http://www.wisebread.com/figuring-the-size-of-your-emergency-fund">Cash in the bank</a> may be of little help if you're trapped by flood waters &mdash; but it will be of great help if rising water forces you to flee your house.<br /> &nbsp;</li> <li><strong>An investment portfolio.</strong> In much the same way that having a well-stocked pantry makes your kitchen run more smoothly, having <a href="http://www.wisebread.com/on-the-importance-of-having-capital">a little capital</a> makes your whole financial life run more smoothly.<br /> &nbsp;</li> <li><strong>Additional skills.</strong> <a href="http://www.wisebread.com/best-investment-yourself">Investing in yourself</a> is at least as likely to pay off in an emergency or a disaster as an extra hundred pounds of wheat or lentils &mdash; with the bonus that it also pays off when there isn't an emergency.<br /> &nbsp;</li> <li><strong>A network of friends and neighbors.</strong> In almost any kind of emergency, having <a href="http://www.wisebread.com/the-second-best-way-to-make-your-household-more-secure">people</a> who owe you some favors is going to be as useful as a stockpile of stuff.<br /> &nbsp;</li> <li><strong>Tools.</strong> Being able to do stuff yourself is always useful. (Tools that are <a href="http://www.wisebread.com/why-dont-people-share-more">yours to share</a> are also a way to build that network.)<br /> &nbsp;</li> <li><strong>A fruit or nut tree.</strong> Over time, something that grows food will beat any stockpile of food.<br /> &nbsp;</li> <li><strong>Energy savings.</strong> <a href="http://www.wisebread.com/fix-energy-in-tangible-form">Fix energy in tangible form</a>. A well-insulated house will be more useful than any practical stockpile of fuel &mdash; likewise a fuel-efficient car, or a bicycle, or a bus pass.</li> </ul> <p>Just like with a stockpile, all these things have diminishing returns. An emergency fund with three-months spending is vastly more useful than an emergency fund of $20. An emergency fund with six-months spending is even better &mdash; but it's <a href="http://www.wisebread.com/just-saving-more-is-not-the-answer">not twice as much better</a>. Having the skills to get different job is great. Having the skills to get eight different jobs is better yet, but does not make you eight times more secure.</p> <p>Once you go beyond stockpiling the things you were going to use anyway, you're stockpiling things that you'd only use in an emergency &mdash; things that will simply go to waste if there is no emergency. And even if there is an emergency, it may well be a different kind of emergency than the one you prepared for.</p> <p>Anytime you're tempted to stockpile items beyond those you'll use anyway, consider that the time, money, space, and effort can probably be used more effectively elsewhere.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/stockpiling-is-rarely-the-answer">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/huge-tax-free-investment-returns">Huge Tax-Free Investment Returns</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/emergency-plan-better-than-an-emergency-fund">Emergency Plan: Better Than an Emergency Fund</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/contingency-plans">Contingency Plans</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/pets-old-cars-and-3-other-common-money-pits">Pets, Old Cars, and 3 Other Common Money Pits</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-financial-experts-people-in-their-40s-should-follow">5 Financial Experts People in Their 40s Should Follow</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance emergency plan pantry stockpiling Fri, 07 Dec 2012 10:36:39 +0000 Philip Brewer 955730 at http://www.wisebread.com Are You an Ant or a Grasshopper? http://www.wisebread.com/are-you-an-ant-or-a-grasshopper <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/are-you-an-ant-or-a-grasshopper" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/ants2.jpg" alt="Ants stockpiling for winter season" title="Ants stockpiling for winter season" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p>This classic fable illustrates the fundamental difference in savers and spenders. Spenders live for the moment, frittering away their earnings on things like technology gadgets, eating out, and bills they&#39;ve created for nice cars, expensive homes, etc. Savers prefer to get by on less and save their additional money for a rainy day (or a <a href="http://frugaldad.com/2008/04/28/save-it-for-a-sunny-day/" target="_blank"><strong>sunny day</strong></a> ). For those who don&#39;t remember the details of this little story, here&#39;s a version I found via Google:</p> <blockquote><p><strong>The Ant and the Grasshopper</strong></p> <p>In a field one summer&#39;s day a Grasshopper was hopping about, chirping and singing to its heart&#39;s content. An Ant walked by, grunting as he carried a plump kernel of corn.</p> <p>&quot;Where are you off to with that heavy thing?&quot; asked the Grasshopper.</p> <p>Without stopping, the Ant replied, &quot;To our ant hill. This is the third kernel I&#39;ve delivered today.&quot;</p> <p>&quot;Why not come and sing with me,&quot; said the Grasshopper, &quot;instead of working so hard?&quot;</p> <p>&quot;I am helping to store food for the winter,&quot; said the Ant, &quot;and think you should do the same.&quot; <br />&quot;Why bother about winter?&quot; said the Grasshopper; &quot;we have plenty of food right now.&quot;</p> <p>But the Ant went on its way and continued its work.</p> <p>The weather soon turned cold. All the food lying in the field was covered with a thick white blanket of snow that even the grasshopper could not dig through. Soon the Grasshopper found itself dying of hunger.</p> <p>He staggered to the ants&#39; hill and saw them handing out corn from the stores they had collected in the summer.</p> <p>Then the Grasshopper knew: It is best to prepare for the days of necessity.</p> </blockquote> <h2>The Grasshopper</h2> <p>At some point in most of our lives we&#39;ve lived the life of a grasshopper. <strong>When I was young I spent most of my earnings and justified it by telling myself I would start saving &quot;when I got older.&quot;</strong> Well, before I knew it I was older, and I still didn&#39;t have a fully-funded emergency fund in place, and my retirement savings were anemic, at best. I should have been storing my own kernels away while the getting was good. </p> <h2>The Ant</h2> <p>It comes as no surprise that the ants are used to describe the hardest working of the two characters. The work ethic of ants is well documented. Unlike the grasshopper, <strong>the ant in this story works through the good times to prepare for the bad times</strong>. He knows that when winter comes his source of food disappears and he must survive on what he was able to stow away in the warmer months. The story ends without telling us the fate of the grasshopper, but I suspect the ant would share some of his reserves with the grasshopper, assuming he has learned his lesson.</p> <h2>The Moral of the Story</h2> <p>When we are young, and times are good, it is hard to imagine needing to live off cash reserves or saving for a retirement a few decades away. However, bad things happen when we least expect them and it makes sense to prepare for their inevitable arrival. This idea is at the very core of living a frugal lifestyle, because by living frugal you should be able to maximize resources without spending more money. With the realized savings start <a href="/the-ethics-of-hoarding"><strong>stockpiling</strong></a> for the winter season of your life - it will turn cold before you know it.</p> <p><em><strong>Which character best represents you? Are you an ant, or a grasshopper?</strong></em></p> <p>Story source: <a href="http://www.dltk-teach.com/fables/grasshopper/mstory.htm" target="_blank">dltk-teach.com</a> </p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/jason-white">Jason White</a> of <a href="http://www.wisebread.com/are-you-an-ant-or-a-grasshopper">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-ways-to-get-your-toiletries-for-cheap-or-even-free">6 Ways to Get your Toiletries for Cheap or Even Free!</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-does-ymmv-mean-the-official-guide-to-decoding-the-language">What Does “YMMV” Mean? The Official Guide to Decoding the Language of Frugality</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/chinese-money-habits-how-my-culture-influences-my-attitudes-toward-money">Chinese Money Habits - How My Culture Influences My Attitudes Toward Money</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/will-a-dental-discount-plan-save-you-money">Will A Dental Discount Plan Save You Money?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-nifty-tips-for-getting-the-most-from-an-all-you-can-eat-buffet">8 Nifty Tips for Getting the Most from an All-You-Can Eat Buffet</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Frugal Living frugality savings stockpiling Tue, 20 May 2008 09:00:11 +0000 Jason White 2105 at http://www.wisebread.com The ethics of hoarding http://www.wisebread.com/the-ethics-of-hoarding <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-ethics-of-hoarding" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/bags-of-rice.jpg" alt="Bags of rice" title="Bags of Rice" class="imagecache imagecache-250w" width="250" height="157" /></a> </div> </div> </div> <p>In the Philippines, they&#39;re threatening life sentences for traders hoarding rice.   In the United States, grocers need to put limits on rice purchases just to keep their shelves stocked.  Philippine traders are now afraid to fill their warehouses, for fear of being called a hoarder.  Even ordinary US shoppers are worrying that buying a big bag of rice might make them a hoarder.  In this climate, it&#39;s worth thinking about what hoarding actually is.</p> <p>Let me start by saying what it isn&#39;t.  Stocking your pantry with goods that you&#39;re going to use isn&#39;t hoarding.</p> <p>Hoarding is buying goods and storing them in the hope of selling them at a higher price.</p> <p>Of course, there&#39;s an aspect to that in practically every business.  Ordinary business behavior is different from hoarding mainly in that most businesses add value--the baker transforms the flour into bread, the butcher cuts up a carcass into steaks and chops.  Just repackaging can add value--the wholesaler buys rice by the railcar and sells it in 50 pound sacks to the grocer who then sells it to shoppers by the pound.</p> <p>Ordinary businesses also have a steady flow to their buying and selling.  The gas station may have thousands of gallons of gasoline in its underground tanks, but that gasoline is for sale every day, not held off the market waiting for the price to go up.</p> <p>A hoarder, though, doesn&#39;t add value by transforming the product in some useful way, nor does he make his money on the markup from wholesale to retail.  He just buys stuff and holds on to it, hoping to sell after the price goes up.</p> <p>Merely doing that is ethically neutral--often, in fact, beneficial.  A clever hoarder will buy when prices are low (which is a source of price support for suppliers who would otherwise be suffering) and then sell when prices are high (providing supplies when there would otherwise be a shortage).  If he makes a profit, it&#39;s a legitimate return on the capital that was tied up during a period of low prices.  Buying low and selling high is not just a way to make money, it also helps stabilize the market, protecting both suppliers and consumers.</p> <p>Hoarding becomes ethically objectionable when the hoarder waits until prices are already high, and then buys goods in the hope that prices will go even higher.  That&#39;s not stabilizing.  That can turn tight supplies into shortages and send prices up to where basic staples are beyond the means of all but the wealthy.</p> <p>Note that this sort of hoarding is also not a very good way to make money.  If supply and demand are already clearing, at whatever price, there&#39;s no particular reason to suppose that prices will go even higher.  In fact, over the medium term--once suppliers have a chance to grow more or make more, and once consumers have a chance to adjust their habits to use less, you can expect prices to go back down.  Hoarders buying at that point may drive the price up in a speculative frenzy, but once they start selling, the price will go right back down again, meaning that most of them won&#39;t make any money.  They will, though, make the price gyrate.  It&#39;s those price gyrations, together with the shortages caused by taking the product off the market, that make hoarding objectionable.</p> <p>From an ethical point of view, there&#39;s no reason for ordinary consumers to worry that they might be doing something bad by stocking up.  In fact, the stockpiles of ordinary consumers are a positive, stabilizing force when there are supply and price shocks, because the consumer with a stockpile will naturally limit purchases when there&#39;s a shortage.  It&#39;s only the consumers with bare shelves who are buying when the price has just shot up.</p> <p>Hoarding is a bad word, though--something that you wouldn&#39;t want to be accused of, even if you could make a reasoned argument about the stabilizing effects of stockpiles.  In the US, we&#39;re not at the point of ugly mobs forming when someone carries a couple extra bags of rice out of the grocery store, but Americans are as good at forming ugly mobs as people anywhere.</p> <p>Ethics aside, as a simple, practical matter, you don&#39;t want to be trying to build your stockpile after shortages are already in the news.  Once that happens, cut back on use to make your current supplies last.  Switch to stockpiling stuff that&#39;s still cheap--there&#39;s always something, unless times are very bad indeed.  Especially during a time of shortages and soaring prices, there&#39;s <a href="/huge-tax-free-investment-returns">no better investment</a>.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/the-ethics-of-hoarding">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/in-times-like-these-separate-the-want-from-the-need">In times like these, separate the want from the need.</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/debit-or-credit-which-one-should-you-choose-at-the-checkout">Debit Or Credit? Which One Should You Choose At The Checkout?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/lower-your-credit-card-interest-rate-and-reduce-your-phone-bill-immediately-and-easily">Lower Your Credit Card Interest Rate and Reduce Your Phone Bill, Immediately and Easily</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-stuff-i-try-never-to-buy-new">The stuff I try never to buy new</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/beware-the-nasty-secret-of-the-craigslist-free-section">Beware, The Nasty Secret Of The Craigslist Free Section</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Budgeting Consumer Affairs Food and Drink Investment Shopping hoarding rice stockpiling Sun, 04 May 2008 20:40:24 +0000 Philip Brewer 2065 at http://www.wisebread.com Non-financial investments http://www.wisebread.com/non-financial-investments <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/non-financial-investments" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/garden-gateway.jpg" alt="Gateway in formal gardens at Allerton Park" title="Garden Gateway" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>Talk about investments and most people think stocks, bonds, and mutual funds, plus maybe real estate and commodities like precious metals. Let's call those &quot;financial investments.&quot; You buy them with money and you hope that they will eventually return money in the form of interest, dividends, rent, or a profit when you sell it. Financial investments are great, and everybody should have a plan for building a portfolio of them, but there are also non-financial investments, and non-financial investments can often yield a higher return.</p> <p>I divide non-financial investments into two categories. One kind you buy with money, but get your return not in cash but by avoiding future expenses. The other kind may well pay your return in the form of money, but at least part of your investment is not.</p> <h2>Ones that you buy with money, but the return comes in avoiding future expenses</h2> <p>Whenever you're in a situation where you can pay money now that lets you avoid spending money later, it's possible to evaluate the expense as an investment. For example, you can buy a gift card or other sort of stored-value card, and then use it to get stuff at some future time. On the face of it, it's a terrible investment--you turn perfectly good money into crappy non-money that can only be spent at a limited range of places (and that can lose value in several different ways). On the other hand, if you can buy a $25 stored-value card for $20, your investment return may well outweigh those disadvantages.</p> <p>There are investments of this sort that are huge wins.</p> <h3>Energy savings</h3> <p>Money that's invested in things that avoid future energy costs, especially the less expensive such things like insulation, weatherstripping, compact fluorescents, or a bicycle that you commute to work on, will almost certainly provide a higher return (in the form of lower energy bills) than investing the same money in stocks and bonds.</p> <p>At the more expensive end of the range of such investments, such as new doors and windows, a car that gets better milage, a windmill or solar cells for home power generation, they probably don't provide a greater return than a diversified portfolio of financial investments. But they do add considerably to your diversification, and there are some scenarios in which those investments might beat the market (in particular, if the market does poorly, or if energy prices rise sharply).</p> <p>All of these can pay off in non-financial terms as well. A snugger, cozier house is worth something beyond the lower energy bills, as is the fitness that comes from bicycling to work.</p> <p>The key to this category of investment is that you're using (still relatively) cheap energy today to avoid the need to pay for more expensive energy in the future. I've written about this topic before in <a href="/fix-energy-in-tangible-form">Fix energy in tangible form</a>.</p> <p>This is an especially big win if energy prices are going to continue to increase, which I think is rather likely.</p> <h3>Stockpiling products that you use</h3> <p>You can invest in stuff that you're going to use anyway, by buying it ahead when it's available at a good price. The return comes in the form of using the cheap stuff you've got instead of going out and buying the stuff when it would be expensive.</p> <p>I've written before about the <a href="/huge-tax-free-investment-returns">Huge tax-free investment returns</a> this strategy offers. It only applies if you buy stuff that you'd buy anyway, but the investment return can easily beat anything you'll find in the stock market. This kind of investment is an especially big win during times of inflation.</p> <p>It's easy to fool yourself when you're thinking about spending money this way. There is really no end to the range of possibilities where you pay now to save money later, but in most cases, the savings is small (or even imaginary). Timeshare vacation homes, for example, were sold this way, but almost never provided a return as good as putting the money into a bank account and then using it to pay for your vacations. (Many didn't provide a return as good as putting the money down a rat hole, because they left you on the hook for unending future expenses. With a rat hole, at least you can stop putting money down it.)</p> <p>Is it an investment when you buy a tool that lets you do something yourself, rather than having to pay someone to do it for you? When you buy a new interview suit to improve your chance of getting a better job? When you buy a Bowflex so you don't need a fitness center membership? Maybe--but you need to evaluate it like any other investment. A new interview suit is not a liquid investment.</p> <h2>Ones where the return is money, but that you don't pay cash for</h2> <p>Working for wages or a salary isn't really investing (although proving yourself a competent, diligent worker can pay dividends in the form of a higher pay for future work). However, it's often possible to turn your work into something that pays an on-going return.</p> <h3>Investing only time</h3> <p>The purest form may be royalties on a copyright or a patent. You create a book or a song or a useful invention, after which people pay you to use it. This is so cool that it tempts people into spending huge amounts of effort with nothing but a vague hope for some future royalties.</p> <p>If you evaluate it as an investment, the return per hour spent writing or performing or inventing is pretty poor for most people. The problem is that you're competing with people who will do it for free. Even if many of them are lousy at it, there so many of them that a few will probably be better than you.</p> <p>The bottom line is that this sort of investment is hard to justify in economic terms, unless you have a track record of success. Still, if it's something that you enjoy so much that you'd be willing to do it for free, then by all means go ahead and do so--that's how you develop the sort of track record that lets you know that this may be a good investment for you.</p> <h3>Investing time and money</h3> <p>If you're able and willing to invest a little money along with your time, there are lots of ways to make outsized returns:</p> <ul> <li>Working at a family business (or starting your own)</li> <li>Being a landlord</li> <li>Buying run-down houses cheap and then fixing them up</li> <li>Going back to school for a degree that will let you earn a better income</li> <li>Selling your <a href="/make-your-hobby-pay-its-way">art or craft items</a> (or garden produce at a road-side stand)</li> </ul> <p>The &quot;outsized&quot; part of the return comes from your own labor. Don't expect to come out ahead if you buy a run-down house and then hire a contractor to fix it up for you.</p> <p>Like any investment, these all have risks. There are lots of people who bought run-down houses and fixed them up, only to find that a really nice house doesn't sell for as much now as a run-down house sold for a year ago. You can tie up your capital and invest your labor, and end up with a smaller return than a savings account, a negative return, a total loss, or even worse (if your business fails but still owes money on a lease, for example).</p> <p>Many people treat this sort of investment as an all-or-nothing choice. Starting a small business can easily take all your capital plus every working minute of every day to make it a success. But that's not the only way to do it. There are all manner of very small business that you can start with minimal effort and capital that can earn a good return. For some examples of that category, see Tim Ferriss's <a href="/book-review-the-4-hour-workweek">The 4-Hour Workweek</a>.</p> <p>Anything that you buy or make that either pays you a return or reduces future expenses is an investment and can be (and should be) evaluated as such. All the same considerations that apply to any investment--risk, return, liquidity, diversification, tax implications--should be taken into account when you make a non-financial investment.</p> <p>Don't discount such investments, though, just because they're non-financial. Especially those first few I mentioned, such as improving your insulation and stocking up on sales, will probably pay a much better return than you can expect in the financial markets.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/non-financial-investments">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-4"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-game-over">Book review: Game Over</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-make-the-most-of-your-401K">How to Make the Most of Your 401K</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-investors-with-better-returns-than-warren-buffett">5 Investors With Better Returns Than Warren Buffett</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-cheap-easy-ways-to-invest-your-first-1000">4 Cheap, Easy Ways to Invest Your First $1000</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-save-26000-in-5-years-or-less">How to Save $26,000 in 5 Years or Less</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment energy extra money investing non-financial save energy stockpiling Fri, 29 Feb 2008 17:24:00 +0000 Philip Brewer 1865 at http://www.wisebread.com Huge Tax-Free Investment Returns http://www.wisebread.com/huge-tax-free-investment-returns <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/huge-tax-free-investment-returns" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/pantry.jpg" alt="Kitchen pantry" title="Kitchen pantry" class="imagecache imagecache-250w" width="250" height="323" /></a> </div> </div> </div> <p>What sort of investment return would it take to get you excited? You can get 5% or so on cash these days. The average return from the stock market runs in the 10%-12% range, depending on how you measure it. The fact is, though, you can pretty easily get 30% or more on investments that are not only very safe but come with built-in inflation protection.</p> <p>Don't get too excited--this isn't a new idea. It's just working through the math on an idea that you already know: buying in bulk and stocking up during sales saves you money. If you calculate the money savings as an investment return, it turns out that stocking up on groceries and other things you use will yield a much better investment return than your mutual funds are likely to.</p> <p>Suppose your household drinks a $9 bottle of wine almost every day. Now suppose that you negotiate a 15% discount for buying 30 cases--a year's supply--all at once. Saving 15% is well and good, but it's not an investment return to get all excited about. But if you do the math, your annual return is quite a bit better than that. In fact, it comes to over 33%.</p> <h2>The math</h2> <p>If you have a financial calculator, here's how to do the calculation. (If you don't, there are plenty of <a href="http://www.arachnoid.com/lutusp/finance.html">financial calculators</a> on the web.)</p> <p>Your investment is $2754 ($9 times 12 bottles-in-a-case times 30 cases = $3240 minus your 15% discount), so plug that in as the Present Value. Your Future Value will be zero (once you've drunk the wine, it's gone). Your Payment is $9 (the value of the bottle of wine that you take out of your wine cellar each day). The Number of Payments is 360 (the number of days your investment pays off). Hit the Interest Rate button to find that your return per period is 0.092644%. Multiply that by 360 to get an annual rate and you get 33.35%.</p> <p>It's not just a fluke, by the way, that the investment return is about double the discount: your return is steady day after day, but on average over the course of the year you've only tied up half your investment. (That is, on day one you've tied up $2754, but a day later you'd have bought a bottle of wine, so that's $9 less that's tied up. After six months you'd have bought 180 bottles of wine so that's $1620 less that's tied up in your wine cellar.)</p> <p>You don't have to buy a full year's worth of something in advance for this to work. In fact, if you can get the discount on one case at a time, the investment returns are much larger on an annualized percentage basis, because you have so much less &quot;invested&quot; at any one time. If you can get 10% off by buying one case of wine, and then repeat the transaction every two weeks, you're getting an annualized return of 260%. (It's basically pay-day loan math, but in your favor.)</p> <p>It works for small transactions as well. If tomato paste usually costs 45&cent; a can and you find it on sale for 33&cent; a can and buy a year's worth, your &quot;return on investment&quot; (treating each can taken from the stockpile as being worth 45&cent; until, a year later, they're all gone) comes to better than 65%.</p> <h2>Advantages beyond the outsized return</h2> <p>The &quot;investment return&quot; isn't the only advantage to buying cheap and stockpiling. Your investment is also:</p> <h3>Tax-free</h3> <p>Suppose a bank would take your $2754 investment and give you a CD that paid $9 a day for 360 days. No bank would offer you a deal like that, but if you found one that did, it would report the $486 in interest you got as taxable income. Taking a bottle of wine out of your cellar, though, incurs no tax liability.</p> <h3>Secure</h3> <p>Your wine cellar is not going to abscond to Rio nor declare chapter 11. It's not going to take a beating if the Fed raises interest rates or oil prices go though the roof. It's just going to sit there letting you take $9 bottles of wine out all year. It's vulnerable to ordinary hazards like theft and fire, but you are protected by your homeowners insurance.</p> <h3>Inflation-protected</h3> <p>Even if you could get that imaginary CD that paid $9 a day, if prices go up to where wine costs $10 a bottle, you're still out of pocket an extra dollar every day. Your wine cellar, though, will keep giving you bottles of wine. If you care to, you can whip out your financial calculator and calculate that your average return just got even better.</p> <p>There are also some non-financial advantages. Your whole household runs more smoothy when you don't have to rush to the store to pick up something you've run out of. And, with staples on hand, you're a lot less vulnerable when a blizzard or a flood prevents suppliers from restocking the grocery store.</p> <h2>Disadvantages (obvious and not-so-obvious)</h2> <p>There are also disadvantages. They don't invalidate the strategy, but you need to be aware of them. Some key ones are:</p> <h3>Illiquid</h3> <p>If you need the money for medical bills or a car repair, you're not likely to be able to sell the wine or tomato paste to raise cash.</p> <h3>Bulky</h3> <p>There's no way I could fit 30 cases of wine in my apartment. (I could probably fit one case, though.)</p> <h3>Changed tastes</h3> <p>Suppose a month after you lay in 30 cases of wine you convert to a religion that prohibits drinking alcohol? Or you quit eating beef and what had been enough red wine to last a year is now a lifetime supply? Or you simply decide that the robust shiraz that you liked so well lacks subtlety--leaving you with 24 bottles that you're never going to want to drink.</p> <h3>Increased consumption</h3> <p>Suppose you drink a bottle of wine once a week or so, and decide to buy four cases, thinking it will last you almost a year. It could very easily turn out that, having just the right wine already on-hand each day at mealtime, you find yourself opening a bottle way more often than when you had to make a special trip to the store to pick up a bottle. The investment return is still there, but it (and more) will end up being eaten up by your increased standard of living.</p> <h3>Risk of spoilage</h3> <p>Wine keeps pretty well. So do cans of tomato paste. But other things don't, and if you try to stockpile something that goes bad, you can lose much or all of your investment.</p> <h3>Research costs</h3> <p>Success depends on buying things at a good price, so you need to know what a good price is. (There' s no point in stocking up on 69&cent; cans of tomato paste from the convenience store.) You could spend quite a bit of time and effort tracking prices and still occasionally make a mistake and buy a bunch of something that you could have bought a lot cheaper later. (Of course, that's true of Wall Street investments as well.)</p> <h3>Deflation</h3> <p>Just as the system shines during a period of inflation, it does poorly if prices are falling. If something is going to be cheaper in a few months anyway, why not just wait until then to buy it?</p> <h3>It's not sexy</h3> <p>When a guy at a party mentions that he's got a 50% gain in some biotech stock people will be a lot more impressed than when you claim that you've made 65% in tomato paste. Bring out a financial calculator to do the math for them and their eyes will glaze over. Short of claiming that you've made 65% in tomato paste futures, I'm afraid you're stuck.</p> <h2>Not a solution to all your investment needs</h2> <p>The investment return on stockpiling your ordinary goods when you can get them at a good price is a lot better than most people will get on most of their investment portfolio. And yet, people still invest in stocks and bonds. There are two big reasons for this.</p> <p>First, a stockpiling strategy is inherently limited. It's limited by storage space, shelf life, and the fact that tastes do change, making it unwise to buy a multi-year supply of almost anything. It's also limited by the size of your budget: these outsized returns only apply to the things you actually use--there's no advantage in stockpiling stuff you're not going to use, no matter how good the discount is.</p> <p>Second, stockpiling won't make you rich. When people invest in the stock market, it's with the dream that they'll eventually be millionaires who can quit worrying about whether 38&cent; is a good price for tomato paste.</p> <p>What stockpiling can do is free up a lot of money without reducing your standard of living at all. Look at that money as an investment return, and maybe it will motivate you to grab some of it--which you can then invest in something that does have a chance to make you rich.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/huge-tax-free-investment-returns">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-5"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/stockpiling-is-rarely-the-answer">Stockpiling Is Rarely the Answer</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/contributing-to-a-roth-versus-paying-down-debt">Contributing to a Roth Versus Paying Down Debt</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/best-of-personal-finance-credit-where-credit-is-due-edition">Best of Personal Finance: Credit Where Credit Is Due Edition</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/pets-old-cars-and-3-other-common-money-pits">Pets, Old Cars, and 3 Other Common Money Pits</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-financial-experts-people-in-their-40s-should-follow">5 Financial Experts People in Their 40s Should Follow</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance APR investment return pantry stockpiling Sat, 29 Sep 2007 00:47:14 +0000 Philip Brewer 1228 at http://www.wisebread.com