Yesterday I went to the post office to mail off the latest movies I cleared off my Greencine queue. I couldn't believe the line that was going out the doors. This was not the standard amount of people that should be in the post office on a Monday afternoon. The cause of the line, I learned, was the Forever Stamp.
The Forever Stamp is a good idea for the US Postal Service, as whenever they raise the rate of postage, there's this scramble to find 1 cent or 2 cent stamps to augment the new postage rate. The Forever Stamp solves this problem by saying "Okay, you need a stamp to send mail, this stamp covers first-class postage no matter how much the cost of a first-class stamp goes up". It's something that probably should have been done a long time ago.
What a lot of people have been telling each other is to buy lots of Forever Stamps, but to hold onto them. They think they understand the economics behind the Forever Stamp. After all, if you pay 41 cents for a stamp today, and the cost of the stamp continues to rise, following every price hike they've made money on every stamp that they've bought, so doesn't it make sense to buy a lot more to lock in at the 41 cent rate?
Absolutely not, and here's why.
Over the last twenty years, the cost of the stamp has risen from 22 cents in 1987 to 41 cents in 2007, and there's been 8 price hikes. Let's imagine for a moment that Forever stamps had existed in 1987 -- and you bought $999.90 worth of them (4545 stamps), before Monday's rate hike (at 39 cents) that would have been worth $1772.55.
People say to themselves "That doesn't look so bad... It looks like I've doubled my money", right?
Except if in 1987 you had taken that $999.90 and adjusted for inflation, $999.90 equals $1772.20. Investing in the forever stamps will beat inflation, but just barely.
Presently the inflation rate is around 3.4%, but any decent savings account will give you at least 4 percent, and CDs are above 5%. These are guaranteed, and best of all, they compound. Putting the money towards forever stamps is better than having your money stored away under the mattress or in an sock, but it's not better than a bank. Not even close.
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