Unusual Investments

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Does it Ever Make Sense to Invest in Forever Stamps?

Forever Stamps

Not If You Expect Your Investment to Beat Inflation

The short answer is “No,” it doesn’t really make sense to invest in Forever Stamps and here is why.  Even though it seems like the price of stamps goes up all the time, it actually cannot go up beyond the rate of inflation.  This is due to the Postal Accountability and Enhancement Act which was passed by Congress and signed into law in 2007.

Long story short, it caps how much the Postal Service can raise the cost of stamps to the rate of inflation.  So the Consumer Price Index says inflation is 3%, then the most the USPS can raise the cost of stamps is 3%.  So your “investment” is designed to never beat the inflation rate.

Now even though that law is in place, there was an above-inflation increase in 2014 where the Postal Regulatory Commission allowed prices to go up 1 cent for inflation and 2 cents as a temporary 2 year measure in order to shore up the USPS’s precarious financial condition after the Great Recession.

This 6.5% increase was above the 1.5% rate of inflation in 2013.  While its possible that the government could keep authorizing temporary measures, the Postal Accountability and Enhancement Act would probably need to be scrapped or changed at some point if this were to continue.

Best Time to Buy

The time to buy Forever Stamps is just before a price increase and the time to sell is immediately after one.

This is because inflation is consistently happening in the economy, but the cost of Forever Stamps goes up in a stair step fashion.  Flat for a while, then up 1 or 2 cents, then flat, then up 1 or 2 cents, etc.

An economist went through the process of profiting off buying just before an increase and selling right after one.  He specifically focused on the the 2014 increase when the price jumped from $0.46 per stamp to $0.49 per stamp (increases are usually smaller than this an thus that much harder to profit off of).

Very Impractical to Capture a Profit on a Small Increase

In this exercise, he mapped out what would be necessary.  First, raise money in order buy $4.6 million worth of stamps (they suggested using a crowdfunding website – good luck with that).

Next, buy the maximum of 1 million stamps per order at the USPS website.

It would take 10 orders to get to $4.6 million (shipping is a nominal amount of $1.75 per order).

Selling the stamps would be a massive challenge.  Companies that spend a lot on postage usually print their own stamps at a USPS bulk mail discount.  Individuals don’t need that many stamps.  You would have to sell them to a wholesaler, convenience store chain, etc. but they would probably only buy from you if you offered a significant discount, say $0.475 for a $0.49 stamp.

If you could somehow move all of them, you could potentially make a $150,000 profit minus whatever the cost to borrow the $4.6 million.

They used the example of an 8% interest rate and 1 month to sell everything; this would be just $29,000.  The idea that someone would lend you this much money when you have no money at risk is obviously ridiculous.

What Makes Sense

While flipping Forever Stamps is impractical, it definitely makes sense to stock up right before an increase if you use a lot of stamps personally or in your business.

Compared to leaving your money in a checking account and earning a pathetic <1% return, it is a good inflation hedge.

Like many other investments, you are giving up liquidity.

If you are going to leave your money in cash for any significant length of time, you are probably far better off with your money in a high yield checking account or an account that offers an opening bonus.

Also, if you think hyperinflation is coming and you think the US Government can weather the storm, then it might be a viable way to at least break even on inflation.  This assumes that the Post Office will still be functioning and that there still will be a demand for sending letters and that all relevant laws would be unchanged.

If you are just using Forever Stamps as an inflation hedge, that still seems like a bit of a gamble.

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