Investing is often associated with complex financial instruments and strategies aimed at growing wealth over time. However, a simple consumer practice like buying in bulk can also offer financial advantages, albeit in a non-traditional way. This article examines the historical average rates of return for various traditional investments and compares them to the cost savings potential of bulk buying.
Traditional Investments: A Historical Perspective
After compiling research on the most common investment types. Read through the below investment types and think about the volatility in these markets,
Stocks: Historically, the S&P 500, a benchmark for the US stock market, has yielded an average annual return of around 10%, with inflation-adjusted returns falling between 6% and 7% per year1. This robust performance is based on data spanning from 1926 to 20231.
Bonds: While generally considered less risky than stocks, bonds have historically provided lower returns. Data from 1989 to 2018 suggests an average annual return of 6.1% for the Bloomberg Barclays US Aggregate Bond Index2. However, annual returns have fluctuated, ranging from gains of approximately 18% to declines of about 3%2.
Real Estate: The sources provide a detailed historical overview of US home prices, highlighting average annual appreciation rates between 4% and 8% since the early 1900s3. One source notes an average annual return of 10.6% for residential real estate in the United States4. However, it’s crucial to recognize that real estate returns are heavily influenced by local market factors and broader economic conditions45.
Mutual Funds: As these funds pool investments into various assets, their returns are contingent on the underlying holdings. While the sources don’t provide specific historical averages for mutual funds, they emphasize that their performance is dependent on market conditions and the fund manager’s investment decisions6.
Venture Capital: Known for high-risk, high-reward investments in startups, venture capital has yielded historical average returns between 15% and 17% annually, with top-performing funds achieving 20% to 27%7. However, this data is heavily skewed by a small number of highly successful investments, as most VC-backed startups fail7.
Annuities: These insurance products offer guaranteed regular payments in exchange for upfront investments, with historical average annual returns typically ranging from 4% to 6%, sometimes reaching 5.5% over extended periods8. Return variability depends on the annuity type, with fixed annuities providing more stability but lower potential returns compared to variable annuities8.
Bulk Buying: A Savings Strategy
Although not a traditional investment, buying in bulk can yield significant cost savings, outperforming inflation and many of the above in some instances. A 2023 analysis of 30 common products found an average savings of 27% when buying in bulk compared to standard quantities.
This strategy is particularly effective for non-perishable goods with a long shelf life. For example, bulk purchases of paper towels, water, and batteries can result in savings ranging from 54% to 63%.
Key Differences and Considerations
The primary distinction between bulk buying and traditional investments lies in their objectives and time horizons.
Bulk buying: Primarily aims to reduce immediate expenses for short-term consumption.
Traditional investments: Focus on long-term wealth accumulation through capital appreciation and/or income generation.
Liquidity: Financial investments are generally easier to sell than excess bulk purchases.
Risk: Traditional investments carry varying degrees of risk, often correlated with potential returns. Bulk buying involves the risk of waste due to spoilage or exceeding storage capacity.
Inflation Hedge: While bulk buying can help mitigate the impact of rising prices on certain goods, it’s not a guaranteed hedge against inflation. Traditional investments may offer better protection, though their performance during inflationary periods can vary.