Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Report on Business

Economy Lab

Delving into the forces that shape our living standards
Best Business Blog, EPPY awards, 2011 and 2012

Entry archive:

Economy Lab has moved

Only Globe Unlimited members will now have access to a wide range of insightful commentary
and analysis on the economy and markets previously offered on this page.


Globe Unlimited subscribers will be able to read these columns,
written by some of Canada’s most deeply respected economists,
such as Christopher Ragan, Sheryl King, Andrew Jackson, and Clement Gignac,
as part of our ROB INSIGHT section.


All of our readers will still be able to browse the Economy Lab archives and read our
broader coverage of economic data and news by accessing their 10 free articles a month.


Learn more about Globe Unlimited and how to subscribe.

(Joe Raedle/Joe Raedle/Getty Images)
(Joe Raedle/Joe Raedle/Getty Images)

Economy Lab

U.S. stamp licks markets in race for investor returns Add to ...

When the U.S. Postal Service first introduced its “forever” stamp in the spring of 2007, some wondered: Can you invest in postage?



After all, the “forever stamp” could be used to mail a letter any time in the future, no matter what the future costs of a first-class stamp. An “investment” in a Forever Stamp would have some sort of return, based on increases on the cost of postage.



“Should you speculate in U.S. postage stamps?” decorated financial columnist Allan Sloan asked that spring in Newsweek magazine. His conclusion: “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.”



It was an outcome he didn’t consider likely, considering after-tax money-market fund returns at the time were about 3.5 per cent a year for someone in the 30 per cent 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.”



With the benefit of hindsight, however, we can say, sadly, that Forever Stamps have outperformed the money market and trounced stocks over the last four years.



Forever Stamps went on sale April 12, 2007 at 41 cents apiece. After increasing to 42 cents in 2008, first-class U.S. postage now costs 44 cents, an increase of 7.3 per cent from 2007 levels.



By contrast, the Vanguard Admiral Treasury Money Market Fund has returned just under 6 per cent -- pre-tax, not after-tax -- over the same period, according to Bloomberg. Through June, according to Vanguard’s own statistics, the fund has returned an annualized 2.01 per cent over the last decade.



Stocks? The Standard & Poor’s 500 Index is down about 20 per cent over the period, although dividend yield helps blunt the loss to the high single-digits.



Now, to be fair to Mr. Sloan, whom I consider a friend and mentor, no one was assuming we were entering a crisis period in the financial markets.



Rates for money-market funds dropped so low -- close to zero -- that many fund managers were forced to cut fees or see their returns go negative. Vanguard closed the Admiral Treasury fund to new investors in January, 2009.



Forever Stamps, however, are still on sale. The U.S. Postal Service, struggling to avoid insolvency, wanted to increase first-class rates to 46 cents earlier this year, but was denied by regulators. “Investors” in Forever Stamps at their initial price may be poised to increase their returns in coming years.



As for the rest of us ….?



Follow Economy Lab on twitter

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories