From Forever Stamps to Airmiles

What’s a post on Forever Stamps doing in the Travel section?  Sadly it’s not a new trick to make points, nor is it relevant because you might need one for your post cards.  This is one of those, psuedointellectual posts that I pride myself on… bear with me, or, if that is asking too much here is a great video for you to watch.

The history of the Forever Stamp price changes (abridged)

I’m abridging it to the past couple of years- here goes:

• 2011 44 cents
• 2012 45 cents
• 2013 46 cents
• 2014 49 cents

Unlike those bastards at Delta, our fine Government tends to inform us of impending devalutions, and a common reaction (often led by the self proclaimed financially savvy) is to ‘Hurrrryy…..stock up on them now!’ But should you?

By shifting cash from it’s pure form (as found in your wallet, and Emergency Fund criteria meeting accounts: Checking, Savings, MMA, CDs) into another form you are making a decision to invest it.  If we take the biggest jump, 3 cents in 2014 that creates a discount of 6.5%, which isn’t to be sneezed at. So, should you put your entire 401(k) into Forever Stamps?

Whats the benchmark?

Here’s the subjective part of this post – if you refuse to invest in stocks then your benchmark for comparison is lower, but if you hold a single dollar in an investment account, your opportunity cost should come at that rate.  Inflation adjusted average rate of return for the Stock Market is about 8.6% per year – so do you want to have an investment that is discounted by 6.5%, or that offers a 8.6% ROR per year?

What about risk?

Stocks clearly are more risky than Cash in checking.  The 8.6% rate comes with a huge standard deviation through the volatile nature of the markets, would it be fairer to compare Forever Stamps with zero coupon Bonds instead? Perhaps.. but let’s not forget that in this day and age it is pretty hard to lose a bond or stock when it is traded and stored remotely -but a scrap of paper sitting around the house… that’s pretty easy to lose.  So to say stamps are as safe as a bond is perhaps untrue, unless you store them in a bank vault. Sadly, in this crazy world, even buying stamps is dangerous!

What about the value of your time?

If you don’t have enough stamps on hand to take care of business you can find yourself lining up constantly to buy in single transactions – a bit like lining up to buy SkyPesos perhaps?  Also, if you are in a pinch, you may have to pay over face value for them.  I have been stung with prices as high as 59 cents for a stamp that I needed.  These black market stamp vendors are ruthless.

Ultimately, buying ‘enough’ stamps is a good idea, but stocking up too far in advance has costs attached to it. In the world of stamps, you could be earning more money elsewhere (remember, every single penny that comes out of checking can’t go into brokerage) and you also take on loss risk.   When it comes to points, you lose the same opportunity to invest the money instead – if you have an opportunity to buy points on sale, consider how soon you will need them. Remember that you are forgoing the opportunity to earn at your highest rate of return.  If you have travel planned and an immediate need (or even an Emergency Points Fund replenishment need) then go for it, but if you are buying because they are on sale, you might be shooting yourself in the foot.

The notion I am describing here is like a cascading waterfall, many people think that if you take out of the highest level (Cash in hand) the opportunity cost is checking account interest at 1% or less. However, you should instead have a finite amount of money assigned to checking (monthly costs and whatnot) and anything above that should be invested in tiers.  The goal is to get as much into the final tier, which offers the highest interest rates – while reducing volatility risk.  That’s why there are Emergency Funds.