Dapatlah.com

Home > Business

Custom Search

The Businessman's Encyclopedia

Investments 101

Those having money to invest may be classed in three groups: First, those persons who wish absolute safety of principal, permanency of investment, and regularity in the payment of dividends; second, those persons who are willing to take some risk, looking to a higher dividend rate, and other incidental benefits, such as business association with other stockholders, gain of knowledge of corporation affairs, etc., to indemnify them for lack of absolute security of the principal; third, those having a comparatively small amount for investment and willing to risk their money in concerns openly promoted for the purpose of enriching the backers if lucky, and with the expectancy of reaping large profits in a new and untried field—not properly called investments. Classes of Investments. Investments are of two classes: First, the class in which the investors become the absolute owners of the securities, as in purchases of real estate, government bonds, etc.—these being purchase investments—and second, the class in which investors advance money upon the promises of borrowers to return the money with interest, and upon the securities which the borrowers pledge or bind in support of their promises, as in loans upon mortgages,—these being loan investments. Margin of Safety. In determining the worth of an Investment, the difference between the actual and permanent values of securities and the amounts of the corresponding investments is taken, this being termed the margin of safety. It is evident that this margin will vary in a direct ratio with the rate of income. A United States Government bond, for instance, yields less than 2 percent to the investor, a state bond may pay 4 percent, and a western farm mortgage 8 per cent. Public Securities. Government bonds open to purchase have the advantage of safety, but the rate of interest is so low as to put them out of the investment class except where unconditional security is a prime requisite. The bonds of states which have borne a good financial reputation are comparatively safe. Municipal bonds are now very popular investments, yielding 3˝ per cent to 5 per cent to the investor and at the present time are good and safe. Real Estate Securities. Contrary to the general opinion, real estate, improved or unimproved, is often a poor investment. Improved property, subject to taxes, depreciation, repairs, insurance, etc., often disappoints the owner. Real estate bought to lease for others to build upon is a good, but necessarily limited form of investment. Farm lands in the middle west have made fortunes for many in the past ten years, but taken year in and year out they may be said to be only a fair investment. Farm mortgages are among the best investments for safety, convenience and rate of income of any line offered the investor. Such investments should be passed upon by competent authority as to their legality, title to property covered, whether first or second mortgage, etc. Certain states have laws so framed that foreclosure is difficult and designed to protect the debtor. Loans in such states should be avoided except under exceptional conditions. Extracted from "The Businessman's Encyclopedia". Download the complete ebook from SuccessEsource.com for $5 (PDF format).

Back

| Home |

Contact Us |

Site Map |

Disclaimer | Privacy Policy | Copyright Notice | Terms & Conditions