An Investment Strategy With High Returns: Stockpiling Household Goods

Based on research by Stephanie Johnson, Scott Baker (Northwestern) and Lorenz Kueng (Swiss Finance Institute)

• Strategic shopping methods like buying in bulk, using coupons and timing purchases to sales can offer higher returns than the stock market.
• Household goods are an overlooked form of wealth, especially for low-income households.
• Having cash on hand allows households to seize discount opportunities, making stockpiling a practical and nearly risk-free investment strategy.

As anyone who has visited a Walmart Supercenter during a Black Friday sale can tell you, just about everyone loves a deal. Those carts stacked with discounted cleaning supplies and bulk toilet paper are more than just obstacles in a crowded parking lot. Stockpiling household goods is a strategy that shoppers can use to keep their overall spending low. 

For households that stock up on goods at the right price, the gains can add up quickly. Recent research by Stephanie Johnson, Rice Business assistant professor of finance, shows that sales, coupons and bulk purchases allow households to achieve returns exceeding 30%. These benefits are substantial enough to encourage people to keep more liquid assets, like cash, on hand to take advantage of discount opportunities as they come up.

On average, households hold about $725 of consumer goods. For low-income households, these goods make up a large part of their wealth.

“A large number of American households have very limited financial assets, but all households have at least some consumer goods,” says Johnson. “You can stock up on things like dry grocery and frozen items, cleaning products or canned food and to a lesser extent, yogurt, cheese or eggs. The items that you have in your fridge or in your pantry can be a significant form of wealth that is not captured in widely used measures.”

Traditionally, wealth is calculated by adding up the total value of assets such as real estate, savings and equities like stocks. But that calculation fails to capture what’s in a household’s cupboards. For those in the lowest quintile of annual household income — less than $22,000 per year — these goods are a significant form of wealth and likely the most effective way for them to generate returns with their money.

In an article co-authored with Scott Baker (Northwestern) and Lorenz Kueng (Swiss Finance Institute), Johnson analyzes extensive data on consumption and consumer finances, including price scanner data from NielsenIQ and data from the Federal Reserve's Survey of Consumer Finances. The results of her model show two distinct strategies that can be effective at helping shoppers save: buying in bulk and stockpiling in response to temporary sales.

“When households take less frequent shopping trips but buy more on each trip, they can save in two ways,” says Johnson. “Because they are making fewer trips, their travel costs and cost of time are lower, and because they are buying goods in bulk their cost per unit is lower too.”

But for certain products, bulk pack sizes may be best suited to people who consume a lot of that thing, such as large families. For most people, a gallon of pasta sauce will spoil long before it has been fully consumed.

“In contrast, if you buy many smaller bottles of pasta sauce when they are on sale, you can get similar savings, but you also get more flexibility in how they are consumed.”

Strategic shopping offers significant returns. While these returns are similar across income levels, the benefits are greatest for the lowest-income households because household goods make up a larger portion of their overall assets. However, to buy large packs or capitalize on temporary deals, you need to have the necessary working capital — such as cash or cash equivalents like lines of credit. 

Johnson likens the savings achieved from strategic shopping behavior to the interest earned in a savings account, but at an average of 54% for the typical working capital investment, the returns far outpace any interest you could earn. The amount is also far higher than the average annual returns of 8% achieved by the S&P 500, a stock market index that tracks five hundred of the largest companies in the United States.

These returns motivate households to keep extra cash on hand, beyond what they might need for emergencies. This could help explain why some people choose not to invest in the stock market. For those with only a few hundred dollars, investing in household goods may make more sense than investing in stocks. While stock market investments always carry inherent risks, the returns from buying discounted products are known at the time of purchase and are nearly guaranteed. However, unlike a savings account, the returns decline with the amount invested.

“Returns are ultimately limited by how much households actually consume,” Johnson says. “Keeping some extra cash available as working capital can be a rational choice for many households. This allows them to take advantage of deals or buy their favorite products in bulk. What’s important to understand is these physical goods are also a form of wealth. Even if they cannot easily be resold, households can reduce spending in times of financial distress by drawing from their stockpile.”

Baker, et al. “Financial returns to household inventory management.” Journal of Financial Economics 151, Article 103758 (2024): https://doi.org/10.1016/j.jfineco.2023.103758.