Investing Small Savings
( Originally Published 1918 )
By all who desire to invest their savings in a safe and profitable manner, the following suggestions and established principles pertaining to such business should be carefully considered.
A Good Broker Necessary. In the first place, it is essential that the investor should have a good broker. How can he become acquainted with one?
He may be recommended by a friend, and probably this is the safest way, because there are brokers and brokers.
If the investor writes to the secretary of the stock exchange he will simply get a list of brokers, no help being afforded him as to the particular members who will transact small orders. For it must be remembered that, as a rule, the inside broker does not care for small orders. On account of this fact the outside broker flourishes exceedingly, as he is prepared to execute all kinds of orders, small and great; sometimes he is an honest man, sometimes he is not, and the same may be said of the inside broker. The question of getting into touch with the right kind of a man is therefore all-important.
Ability to Read the Financial News Necessary. The next thing is that the investor should be able to read intelligently the news published in the financial columns of the daily press. This is explained in the Financial Guides, to be obtained at the book-stores.
A knowledge of the Guiding Principles Necessary. Having secured the right kind of a man and learned how to read the financial news, the next thing should be a mastery of certain guiding principles.
A Safe Investment. While, as a general rule, it is not advisable to invest in stocks or bonds except through the agency of an established broker, there is one class of bonds in which anyone may invest surplus earnings with absolute safety, and that is the class known as municipal bonds.
When these bonds are issued as the obligation of an entire community, as for water, sewers, schools, etc., they become practically a first mortgage on all the property in the town or city, as taxes have to be paid before anything else.
Municipal bonds are issued from time to time by towns and cities in all parts of the country, and persons having surplus earnings would do well to consult their bankers as to what municipal bonds are on the market. These bonds usually yield at least 5 per cent interest, and are just the sort of investment the savings banks make with the money of their depositors, to whom they return but 3 per cent interest.
Established Principles. The following are some of the established principles of investment which are well worthy of attention:
Don't buy shares in a company which is "about to pay big dividends."
Don't be led away by showy prospectuses, big names, and a lot of advertising. Know the man, the class of business, and the trade conditions.
Don't invest in a company with a bad history, however attractive the new regime may be. Follow successful men and companies with good records.
Ask: Is there a demand for the products this company deals in? That's a question which determines good investments from mere speculations.
Note the startling changes in prices and trace them to their origin; in a word, know what you are doing.