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Why Were Forever Stamps Created?
Throughout history, the United States has issued postage with a specific monetary value. As prices rose in the cost of sending a letter or other communication, these stamps retained their original value. This had the two-fold effect of frustrating consumers who purchased the stamps in the first place and required the post office to issue small-denomination stamps to compensate for the increased costs.
The US Postal Service had to print all new stamps every time a rate changed at the expense of the taxpayer and its customers. Small value postage, such as the one cent stamp, were required despite the fact that they eventually became obsolete for any purpose but to add monetary value to larger ones.
This changed in 1975 when the first non-denominated stamps were released for use during the Christmas season. Over the years, new versions of this concept were used, culminating in the creation of the “forever stamp" in 2007. The principle was simple: a stamp printed with no monetary value that could be used forever and purchased at current postage rates.
But how do the new forever stamps work when the rates change? They work just the same as ever. One simply uses the old stamp in place of a newly-valued one. Obviously, since costs were due to rise, investors looked at this as a possible instrument for financial gain. But is it?
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Benefits of Postage as an Investment
While there are some blatant risks to making US forever stamps an investment opportunity, there are many factors that support the concept.
- Buying forever stamps can be a short-term investment. One can purchase a large volume of stamps at a fixed price shortly before the price is expected to rise.
- There is no minimum investment. A person or company can purchase as many or as few forever stamps as one wants.
- The value of stamps is guaranteed by the US. This means that unless there is a major default by the federal government, postage is as valuable and assured as US Treasury bonds.
- Unlike Treasury bonds, there is no registration with postage. A person can transfer the investment without notifying anyone. This makes them even more equivalent to currency with a return.
- Finally, proponents of this form of investment point out the ultimate benefit – stamps never reduce in value. After a price for first class postage is set, it retains its value forever. Hence the name “forever."
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Drawbacks That Should Make You Think Twice
Many investors point to a number of other factors which make this concept a foolhardy venture:
- Forever stamps are generally used for sending personal letters or communication from small business. Larger firms and people with contracts with the Postal Service pay less than regular price anyway. This means it's harder to resell the actual postage when the price rises.
- Unlike originally thought, postage rates are not rising as fast as expected. When the forever stamp was conceived, the government assumed rates would increase slowly every year. This means investors need to wait longer to see if the payoff was worth their effort.
- Firms operating with this financial instrument generally charge fees. This means that a percentage of your profit can be wiped out very quickly. If you attempt to sell them yourself, you may face additional costs such as PayPal fees or bulk sale discounts.
- The only way to make a substantial profit is to buy large quantities. Any small purchase will only show modest gains. However, this can be true for nearly any investment.
- Finally, the general consumer need for postage is dwindling. Personal letters and bills are generally handled through email or online bill-pay. This means that people aren't paying for large quantities of stamps up front as they did in the past.
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Price Increase Only at the Rate of Inflation
Opponents of this method of investing point to one major problem: the Postal Accountability and Enhancement Act. Signed into law in December 2006 by President George W. Bush, the Act limits the rate of increase in the price of postage. In essence, stamps cannot increase at a rate higher than that of inflation. To many investors this means that purchasing forever stamps is not actually a good investment as other financial instruments theoretically work ahead of inflation.
To make the situation more complicated, postage is supposed to stay at the same rate for a brief period of time, even as inflation increases. Investors are essentially tied to the whims of political discourse and overarching economic factors rather than the normal movement of the market. Nearly any investor will tell you that staying behind the trend in the economy is the wrong place to be for investments.
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Extraordinary and Exceptional Circumstances
However, according to a provision within the law signed by President Bush, there are certain situations in which the US Postal Service can raise the price of the forever stamps beyond the standard rate. In 2010, Postmaster General John Potter requested a rate hike of 4.5 percent. He proposed to Congress that first class postage should be raised to 46 cents for a standard sized letter. In his statements requesting the rise in price, he pointed to a decline in overall mail volume and general financial difficulties the service is facing in the 21st century.
While many postal customers disagree with the use of this loophole, investors look at this possibility occurring from time to time as a major opportunity for a good return. A 4.5 percent increase in the cost of a postage stamp is well above inflation. In theory, an investor who buys at the right time could make more from the forever stamp market than many other opportunities.
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So, Is the Forever Stamp a Good or Bad Investment?
Like any modern investment scheme, forever stamps have their proponents and naysayers. There can be modest, guaranteed gains, but the concept also comes with pitfalls. Large-scale investments may be the only way to make a good return, but most brokerage firms require a large deposit before you can invest in stocks, bonds or other funds. While we know that forever stamp value will continue to rise, the question remains whether it makes sense to use it as an investment vehicle.
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NPR's Planet Money, http://www.npr.org/blogs/money/2010/07/07/128357292/stamp-prices-going-up-faster-than-inflation
USPS Postal Accountability and Enhancement Act, http://www.usps.com/postallaw/_pdf/Postal_Accountability_and_Enhancement_Act.pdf