The Myth of the Forever Stamp

Another postage rate hike, another monthly bill cycle of foraging for 2¢ stamps. Monday, May 14th is when the US Postal Service introduces its new rates structure and begins allowing use of the new Forever Stamp.

The stamp became available for purchase on May 12th for 41¢ and can be used to mail a piece of first class mail at any point in the future regardless of here-to-come rates increases. There has been some talk about the value of buying a bunch of stamps at today’s prices to lock in your postage rate for years to come. That’s like buying fresh eggs today and being able to eat those eggs a hundred years from now when an egg may cost $1,000 due to an unexpected chicken extinction. The cost of a first-class stamp hasn’t decreased since 1919, and only because of a prior 1¢ rate hike due to World War I. It’s almost too easy. Time to do some numbers crunching.

Buy-and-Hold is a basic, but effective, investment strategy. It requires an investor make a sound initial investment action and sit on it for a long period of time, ignoring short-term fluctuations. In 1975, the cost of a first-class stamp was 10¢, by the next year the rate increased to 13¢. The rate before Monday's increase was 39¢. The 2¢ raise to 41¢ is a 5% increase. In 1975, the cost of a stamp was 10¢, by the next year the rate increased to 13¢. In the twenty previous years the rate elevated eight times to the current rate of 41¢, increasing at an average rate of 3.3% (2.6% in the last ten years and 2.1% in the past five years). If I purchased $1,000 of Forever Stamps today (2,440 stamps), I expect the value of those stamps in 30 years to be approximately $1,900, based on a 3.3% average stamp increase.

I think there are smarter places to put your money. Even placing your money in a savings account is a better option. The major drawback in stockpiling Forever Stamps is your money doesn’t compound, which is the better-than-gold standard of any smart investment strategy. $1,000 compounded at 5% over 25 years brings your investment to about $3,400. The other disadvantage of investing in the Forever Stamp is there is no guarantee that you will be getting market value for your stamps. There is no reason for me to buy a stamp from you at the same price that I would pay at the post office except that you happen to be standing nearby when I’m mailing my rent, and I’m only going to buy one, not a thousand of them.

There is no schedule for rates hikes, sometimes several years pass before rates increase and then there are years when the rates increase twice (1975 and 1981). The USPS raises rates based on costs of its operations, so it parallels inflation. Your investments are supposed to beat inflation. Just keeping pace isn’t going to take care of you in the high-price future.

The Forever Stamp is a great innovation from the USPS. It’s convenient and it is an indication the Postal Service, a governmental monopoly, is responsive to consumers’ needs. The USPS has lost lots of ground to private carriers like Federal Express and UPS, but they’re still the only ones that deliver our mail reliably and cheaply. Buy lots of the stamps, just don’t buy thousands of them. It’s called snail mail for a reason; you’ll be creeping into a decent long-term return by going out and buying a bunch of these stamps.

By: anh ta