Archive for May, 2008

Is a Costco membership worth it?

May 26, 2008


Yesterday’s post elicited a comment from a reader who wondered if it’s worth joining Costco because their prices aren’t always the cheapest and they offer a limited selection of merchandise. We have been Costco members for more than 10 years now and looking into Microsoft Money reports, we have spent more than two-and-a-half times at Costco than at the next highest retailer. Our purchases at Costco run the entire gamut – a furnace, a flat-screen TV, a bar fridge, automobile tires, furniture, diapers, over-the-counter medicines, groceries like milk, butter, olive oil etc.

The main reason to shop at Costco is the price – they simply have the best price on many of the items that we regularly buy and if you stock up on essentials like laundry detergent, soap, tooth paste and razor blades when they give out coupons, their prices are almost unbeatable. It is not simply anecdotal reports that bear out their low prices. A quick perusal of the financial reports for Costco and its competitors bears this out. Costco’s gross margins (net sales – merchandise costs / net sales) at 12% are lower than Wal-Mart’s 24% and Home Depot’s 34%.

Despite a regular membership that costs $55, shopping at Costco is likely to save money for most people. In fact, we have an executive membership that costs $100 and provides 2% cash back on most purchases. We shop enough that we’ve been getting back the entire membership fee for the past couple of years.

Another reason we really like Costco is their generous return policy. It’s true that they tightened up their policy on computers and electronics to 90 days but that’s still very generous compared to speciality electronics stores. We’ve bought books that remained unopened for months and didn’t have a problem returning them for a full credit.

It is true that Costco has a limited selection. If you prefer Pampers and loathe Huggies, you’re out of luck as Costco only carries the latter. But, we never found this to be a limitation and simply buy the brand or model we like at other retailers. In my opinion, for our household shopping, there are only two minor disadvantages to Costco: (1) As Costco carries many items for a very limited time, we tend to pick up goods that we really didn’t intend to buy. Costco shoppers should also guard against buying something, especially perishables, just because it is on sale. (2) The two local stores that we frequent are extremely busy on weekends and the aisles are packed with shopping carts. Still, the checkout lines move fast unlike other retailers like Wal-Mart.

This and That

May 22, 2008

  1. Jason Zweig stresses the importance of asset and time diversification when U.S. equity returns are puny as they are now.
  2. Tips to redeem airline rewards for free flights from the Globe and Mail. One sample tip: book 354 days in advance!
  3. Tim Cestnick on ways to pass the cottage on to the kids.
  4. Jon Chevreau reviewed the movie Maxed Out and pointed out the synonyms of frugality (check out the definition of thrift).
  5. Nine frugal ways to snag children’s books, courtesy of Mike from Four Pillars.
  6. Michael James on why combining your mortgage with other accounts could be a devastating financial mistake. Million Dollar Journey also pointed out the high cost of Manulife One account.
  7. Larry MacDonald harkens back to the Victorian era and takes a look at the personal finances of Benjamin Disraeli.
  8. The Dividend Guy on the top 5 ways to lose money in stocks.
  9. Canadian Financial Stuff on why his shredder is his financial friend.
  10. Preet shows how to calculate the standard deviation of your portfolio.

E*Trade Quietly Offers Limited Wash Trades

May 21, 2008


GK sent me an e-mail noting that E*Trade has joined TD Waterhouse and Qtrade in offering some form of “wash trade” capability when buying and selling US dollar stocks in a RRSP. A slightly edited version of GK’s note is posted below with permission:

I followed your post about Questrade allowing customers to hold US Dollar in their RRSPs, and I applaud TD Waterhouse’s automatic “wash trade” capability. I was under the impression that E*Trade didn’t allow wash trades, but when I switched to TD, E*Trade contacted me and asked me to come back.

I told them I left because E*Trade doesn’t do wash trades. I was told that yes, they do wash *rates*, but it requires a phone call after the trades are made, and the trades have to occur on the same day.

Since then, I have sold and bought US stocks, and have had success in getting them to wash the trades. Customer service has been kind of spotty, though, so I’ve had to be persistent. The occasional service representative says “We don’t do wash trades”. Eventually, I find someone who knows what they are doing.

I’ve since learned that this is a service they offer to people with over $25k invested with E*Trade. Also, there is no way of investing any left over USD in a money market fund, similar to TD Waterhouse.

I’ve done wash trades on three separate occasions now, and washing the rates has worked every time but I’m always a little worried that I’m going to have a problem with it. TD’s automated washing gives more peace of mind.

I look forward to a day when we are allowed to settle an RSP sale in US Dollars at any broker but I’m sure they will not be in a rush to offer this like Questrade has. It’s just too much of a cash cow: they make more during the double conversion than through commissions.

Thanks GK for your note. E*Trade’s website makes no mention of the “wash” capability but when I called E*Trade, the agent I spoke to confirmed that when US dollar denominated stocks are bought and sold in a RRSP on the same day and the client gives a call to request a wash, they are able to do it. The agent was a bit vague on a definite criteria saying that it’s offered for “certain clients”. Still, it is encouraging that E*Trade offers some form of wash trading capability, especially since their currency conversion charges are among the highest compared to other discount brokers.