U.S. First Class Postage Rate Hike: Investment Value of the Forever Stamp
I’ve been honing in on my “soft” skills for the past week, so the analyst in me is just rarin’ to go and crunch some numbers. Rather than channel this energy for any real useful purpose, however, I decided to take a look at the U.S. Postal Service’s little innovation called the Forever Stamp.
In brief: After several successive (and annoying) postage rate hikes in the past 10 years, the U.S. Postal Service (USPS) finally decided to adopt an idea that several people had previously proposed, namely, that the USPS offer a thing called the Forever Stamp. The idea is simple: The Forever Stamp costs whatever the current standard First Class postage rate is (e.g. 41 cents), but can be used in the future, even if the rate increases (e.g. 42 cents starting May 12, 2008, as announced today).
What we, the USPS’s customers get from the Forever Stamp is the convenience of not having to worry if our standard First Class stamps are any good after a rate hike (I’ve still got some 37 centers lying around) … and not having to buy all kinds of pesky 1 and 2 cent stamps to compensate. (Meanwhile, email is free.) The USPS doesn’t really lose much money, because even if customers stock up on Forever Stamps immediately prior to the rate increase, these purchases act as an interest-free loan to the USPS, to say nothing of the “shrinkage” resulting from unredeemed Forever Stamps that get lost in the shuffle.
All this is obvious. And yet the analyst in me wanted to know EXACTLY how much one could save by stocking up on Forever Stamps. Help cure world hunger? Design a better CSS template for my blog? No. I think I’ll put together a Google spreadsheet. Here it is:
This spreadsheet illustrates how the “savings” that you get by stocking up on Forever Stamps will be quickly eroded by the cost of capital — ie, the tie-up of funds which could otherwise be used for other things, like municipal bonds, certificates of deposit, shares of Berkshire Hathaway or collectible Star Wars memorabilia.
Here’s a screenshot of the spreadsheet, using an example of buying 500 Forever Stamps, for a total outlay of $205 dollars.
In this example, assuming no monthly compounding, using even a modest 5% return on capital would mean that your savings on the Forever stamps would be gone after 6 months. Heck, the $5 you saved in the first place cost less than my making this spreadsheet and blog entry (although I haven’t played with Google spreadsheets in several months, so I count this exercise as an R&D expense).
In summary, if it makes you feel any better then, yes, go ahead and by a few hundred Forever Stamps before May, especially if you have a whole bunch of June wedding invitations to send out. Once you’ve done that, wipe the smug, miserly grin off your face and donate your $5 in savings to a worthy cause.
JULY 2009 UPDATE: Embarrassingly enough, this tongue-in-cheek post about the investment value of a Forever Stamp, has become the most popular post on this blog. So, just to clarify:
1) The U.S. Postal Service’s First-Class postage increases are indexed to inflation, see chart below.
2) Therefore, the Forever Stamp, viewed as an investment vehicle, is also indexed to inflation.
3) Therefore, the Forever Stamp is very much like certain U.S. Government bonds, with all the same currency risk exposure (i.e., their value is tied to the U.S. dollar and the U.S. government).
4) The main financial differences between Forever Stamps and U.S. Government Bonds: Forever Stamps can be bought in very small increments, and are redeemable only in exchange for a specific service (not cash). They also don’t have serial numbers tied to a specific beneficiary, so they’re easier to lose/transfer between owners.
5) None of this has anything to do with the romantic/emotional aspect of dusting off decades-old “Forever Stamps” in the middle of the 21st Century (assuming there still is a U.S. and a P.S.) and paying for $2+ First-Class letters with postage that cost less than half a dollar “back in the day.”
6) In fact, it will help the USPS better balance its budget if more people pursued a “buy and hold” investment strategy with Forever Stamps. If you think about it, the Forever Stamp is actually a really clever way to expand the total population of stamp collectors. Stamp collectors and junk mail marketers — two key elements to helping the government fund this simple, reliable messager service that we all take for granted.