Is the Forever Stamp Worth It?

A couple of websites this weekend suggested that the real payoff and value of buying the new "forever stamp" from the United States Postal Service would come in future years when the rate of a first class stamp increased. Obviously, at face value -- no pun intended -- this makes sense. If you buy a forever stamp today for $0.41 and save it until the postage rate increases, you will be sending your letters at a decreased cost. Several of these bloggers, suggested that you buy multiple books of these stamps today and save them for the future, essentially engaging in a hedging transaction (although the risk of value of a stamp is quite minimal).

My first reaction was to be standing at the post office when it opened this morning to buy several books of stamps, but then I thought about the ever present time value of money. The time value of money concept is the foundation of all finance transactions. It lies in tthe simple statement that a dollar is worth more today than it is tomorrow. The decrease in buying power is created by several factors, but the easiest to understand is inflation.

In order to determine whether or not I should buy the stamps, save them, and use them in the future, I decided to do a simple comparison. My analysis was based upon the follow assumptions:

• A book of 20 forever stamps costs $8.20. I would buy 10 packets for a total price of $80.20.
• The rate of inflation is traditionally around 3.5%
• I could use the same $80.20 for another investment that might generate 6% per year, (this seems to be fair, even though I have one that generates at least a 15% return each year).
• The cost of a stamp in 2002 (5 years ago) had a face value of $0.37 (the constant dollar amount was $0.21). Given the cost of a stamp increased
  
• It seemed fair to assume I could hold the stamps for five years, any longer and it might get lost.

I decided to scratch my calculation when I stumbled upon some very interesting information at wikipedia. Someone had posted a chart with the rates of first class stamps since March 3, 1863. It not only listed the face value, but it also provided the constant dollar amount, showing the purchasing value of the dollar on an even playing field. The value of the stamp has hovered around $0.21, never increasing beyond $0.24 and never decreasing below $0.11. In fact, since May 16, 1971, the stamp has never had a difference in value of more than $0.03. This essentially means, that the USPS simply raises the cost of a stamp to keep up with inflation. This is validated by the fact that the historical rate of inflation lingers around 3.0-3.5%.

What does all of this mean? The simple answer is that if the best investment you can find has a rate of return lower than 3.5%, then buy as many forever stamps as you can and hold them for as long as you can before you use them. But make sure you use them. Of course a United States Government Treasury Bill is notorious for producing this kind of return and is considered to be risk-free, so maybe you should put your money there.

All-in-all, do not change the way you buy your stamps unless you think the rate increase will spike so significantly (say 15%+ each year for several years) to make it worth it. I think this is little more than a marketing ploy. The Washington Post reported that the spokesman for the National Taxpayers Union thinks the forever stamp's demand will greatly exceed supply. I hope not.

I am reminded of one other advantage from my stamp collecting days as a child. Buy the stamp, put it in your stamp collecting book, and keep it in mint condition; you never know if it will be worth something to someone else someday.