Question: Does Forever stamp make sense?

Question: Does Forever stamp make sense?

	Published : Thu, 26 Apr 2007 02:23 By : Agencies Print this Story

(AP) - 0425bGoodQuestion

Q: Does it make financial sense to buy up packs of the U.S. Postal Service's Forever stamp?

A: Sometimes hard facts defy even the most seemingly commonsensical ideas. Take, for instance, the newly introduced Forever stamp, which will always be good for first-class postage regardless of how high postage rates go. Buying 1 cent stamps to bring old stamps up to the current rate will soon be just a faint, quaint memory.

If you buy the Forever stamp and rates go up, the value of the stamp arguably goes up. So it might seem a good bet to buy up a bunch of Forever stamps to lock in the lower rate. The USPS has set no limit on how many Forever stamps people can buy and has already printed five billion stamps, ready to print more on a quick turnaround.

The formula is not so simple, though, because by buying stamps that you don't use right away, you would be giving up the chance to use that money in another way. Economists call this an opportunity cost. Instead of sinking money into stamps that sit in a drawer until you finally get around to writing your holiday cards or thank-you notes, that money could be better used elsewhere, such as in an investment vehicle where it would earn more.

'I wouldn't buy it as an investment because it's a lousy investment,' Columbia University business school associate professor Harborne Stuart said.

On closer examination, it seems nearly any investment would be better than hoarding Forever stamps.

By Stuart's calculation, the post office has raised rates by about 3 percent a year since 1985. He chose 1985 because that was the first time the post office raised rates, to 22 cents, since it stopped taking a public service subsidy in 1982. From 1971 to 1981, rates were rising at 9.5 percent a year, Stuart calculated.

Assuming an average rise of 3 percent per year, most investments -- even an interest-earning money market account getting 5 to 6 percent -- would handily beat the Forever stamp.

What's more, a new law signed by President Bush in December means postal rate raises going forward will be even more predictable, since starting in 2008 they will be tied to the Consumer Price Index, a measure that tracks inflation.

The postal service can apply for one more rate hike before the end of December when the new law takes effect. That would be on top of a rate raise to 41 cents scheduled to go into effect May 14.

USPS spokesman Roy Betts said since the Forever stamp went on sale April 12, there hasn't been a rush to buy them, but he expects there could be one if the postal service announces it will seek another rate increase. It can take about a year to complete the USPS's current process to raise the rate.

'If anything, there's speculation the rush will come on the back end, when people hear there might be a rate increase,' Betts said.

Stuart, a professor in the school's Decision, Risk & Operations Division, said that while hoarding the stamp might not make financial sense, it might still appeal to the risk-averse consumers among us.

'If someone's going to torture themselves after the post office raises rates, for them, maybe they should buy a few extra,' he said.