Ok. you're sitting around dealing with big Financial Questions. Where's the stock market going? Will your 401(k) be fat enough for you to retire on caviar rather than cat food? How are you going to pay your kids' college tuition? Forget all that small stuff. Your new Big Economic Challenge for 2007 comes down to this: should you speculate in U.S. postage stamps?
Stamp speculation usually means buying collector-quality issues and seeing whether they rise in price. But starting this spring, the U.S. Postal
Service will offer you a new way to play the stamp market: the Forever Stamp. It's a stamp that will forever be good for mailing up to one ounce of first-class mail, no matter how high the cost of stamps rises. These new issues are scheduled for their initial public offering at about the same time the price of a first-class stamp is scheduled to rise to 41 or 42 cents—the price hasn't yet been determined—from the current 39 cents. "You just can't lick this stamp," quips Postal Service spokesman Mark Saunders. (Yes, you can groan now.)
Horrible puns aside, this stamp offers you an opportunity to beat the system—maybe. It's like loading up on train tickets or toll-road tokens to beat future price increases. You not only save a few bucks, but you feel good about yourself (as long as you don't do what I did: switch to E-Z Pass electronic toll payments before discovering a roll of Garden State Parkway tokens that I bought back in the day but now never remember to use). Yes, people correspond more and more by computer every day, but to judge from the mail that piles up on my desk, everyone still needs stamps.
So, should you trot down to the post office and stock up on Forever Stamps when they go on sale, probably in April or May? Buy a few hundred—or a few thousand, although your post office won't sell you that many at once—and you'll have locked in your cost of mailing checks or birthday cards or whatever else you entrust to the Postal Service. What's more, with the Forever Stamp, you won't have to stand in endless post-office lines every few years when the next two- or three-cent rate increase comes along.
The Postal Service says this is designed as a customer service to reduce post-office trips and lines—not as a way to get interest-free loans from customers trying to beat the system. But if you're into finance, you can't help but think of the cost-benefit ratio of buying these stamps. Assuming, of course, that you don't misplace them in a drawer or leave them somewhere where your dog can eat them.
If you could buy Forever Stamps at 39 cents now, it would be a can't-miss speculation—like buying subway tokens (in systems that still take tokens) just before a fare increase. But the Postal Service will sell these stamps at the new, higher price, not today's price. That cancels your chances for an immediate windfall.
Hoarding Forever Stamps makes financial sense if you think postal costs will rise at a higher rate than your after-tax earnings on a money-market mutual fund—currently about 3.5 percent a year for someone in the 30 percent tax bracket. For you to make the same kind of return on Forever Stamps, stamp prices would need to increase another three cents in just two years, and keep increasing a few pennies every couple of years after that. (Based on my estimate, money funds have been a better deal in recent decades.) I'm using after-tax numbers because stamps are an after-tax expense.
Buying Forever Stamps when they first come out will reduce your ultimate annual return, because you won't make money on them until the next rate increase, at which time the price of the Forever Stamp will go up to the then prevailing rate. To maximize your return, you should buy them when the next postal-rate increase is on its way. Indeed, the Postal Service's Mark Saunders says that's when sales of such stamps peaked in two markets the service studied: England and Canada.
Terrance Odean, a University of California, Berkeley, professor who specializes in behavioral finance, doesn't think much of Forever Stamps as a financial play. You can't buy enough of them to make any serious money, he says, and you can't sell them at a profit. However, Odean says, "There is some psychological benefit you feel if you think you're being clever and getting a good deal." But then, he hastens to add, "You'll feel less than clever if you're the last person left using postage stamps to mail in your utility bills when everyone else is paying them online, postage-free." Killjoy.
The bottom line: unless you time your purchases right, Forever Stamps aren't a good financial speculation. But you can't lose money, either—you can always use them to mail letters. Besides, in a world where so many things seem to come and go, isn't it nice to contemplate something that's Forever?