Wednesday, 23 February 2011

Stamps as an investment

In the UK since 1989 you have been able to buy a stamp that is simply called '1st' for 1st class post. These are known as 'forever stamps', (or the rather boring Non Value Indicator (NVI)) as they will forever pay for 1st class postage. The price of one of those 1st class stamps has risen from 20p to this year's (from April) 46p, a rise of 130% (inflation has been 75% on the CPI over that period).

So would it have been a good idea to buy those stamps in 1989 and hold them until today? The above chart shows the value of a 20p put into a bank account (or £20 or £20m etc) and the same amount of 1989 'forever' 1st class stamps. It's true the bank account would have done better, returning 61p today, enough to buy nearly 1.3 1st class stamps. However if you take off 20% income tax then the amount is very similar.

Furthermore stamps have clearly done better over the last few years.
This chart starts at 2005, and show stamps have outpaced even pre-tax bank accounts.

Stamps have other advantages. They are backed by the British government in a way - certainly there wasn't a run on them in 2008. They don't count against means tested benefits. They might (I've not checked) be good diversifiers.

Of course there are drawbacks. Stamps are not the most liquid of assets. You can use them, but you might not place 46p of value on them, or you can sell them (the Post Office won't buy them back). An auction just ending on Ebay is fetching 40p a stamp, a discount of nearly 2.5% on the current 41p price (for another month). Others show a larger discount. Stamps are quite bulky if you want to invest a lot.

A more major issue might be what you are buying. In a world of Twitter and email and so on one might think the value of posting a letter will not keep up with prices. That it has so far is no proof it will in the future. Another problem is default - the Royal Mail might go bust. More common is a change in the contractual terms - e.g. a restriction in what the stamp buys. In fact this happened on 21st August 2006 when the Royal Mail introduced a size limit on 1st class post - 240mm by 165mm by 5mm. However it also increased the weight limit from 60g to 100g. This makes comparing pre-2006 to post-2006 data difficult.

Maybe it would be easier to speculate. Buy up a lot at the current price of 41p, then sell them in April for a small discount on the 46p new price.