The best way in which savings can be invested is to use them in the extension of the business in which they were made. The wage earner and the individual on a salary cannot, of course, do this, but any self-employed person -- i.e. the small tradesman, the farmer, the mechanic -- may be able to. Therefore, before looking abroad for a field in which to invest their capital, such individuals should consider how best the money may be used right where they are.
One of the safest forms of investments is bonds, though, as with other forms of security, the rate of interest declines as the margin of safety increases.
If a well-established stock company should wish for any reason to increase its available cash, it may issue bonds, or certificates of indebtedness, bearing from four to five per cent interest and payable semi-annually. These bonds may be transferred in the same manner as stock. They are a good form of security when it is desired to borrow money from the bank, and for many purposes they are as available as so much cash.
Such bonds are issued for a specified number of years and have coupons attached, which are cut off when interest is due and presented to the treasurer of the company for payment. These bonds are secured by a mortgage or deed of trust on all the property of the corporation they represent. To redeem these bonds, when due, the company annually sets apart a sum, known as a "Sinking fund," for their redemption.
Such bonds are far safer than any form of the company's stock, for they bear interest that must be met, whether or not dividends are declared.
Every railroad in the country has been built and equipped by the sale of its bonds. In such cases, amounts of stock of the same, or approximately the face value, of the bond have been given to the purchaser as a bonus or inducement. Of course, the controlling stock is always retained by the promoters; and it is through the representation of this stock that all the business of the corporation is carried on. The cases are few where any money was paid directly for the original issue of any railroad stock.
Bonds sold to build a road are usually known as "construction" bonds. There may be another bond issue for equipment -- with a stock bonus -- and still other bonds, each series stating the property pledged and the purpose for which the money from sales is to be used.
The "Christian Herald," in one of its recent financial articles, clearly defines this species of bonds, as follows:
"Railroad bonds are usually pledged by the President and Treasurer of the railroad and by the Trustees, to whom the bonds are made out, and who must defend the rights of bondholders, should the company fail to meet any of the obligations it undertook in the mortgage deed.
"In other words, a bond is the Corporation's promissory note for the money originally paid by the investor, with interest for the same, to be paid to the investor in stated amounts at stated intervals; and to guarantee its good faith in the matter, the Company pledges the bondholder an interest in certain property in its possession. It follows that a bond has a first call upon the property rights of the corporation; that it represents something tangible; that it pays a definite amount of interest, and that it may be reduced at its full value at a certain time."
It is important to consider, though, that happiness in one's work means far more than the accumulation of a fortune in discomfort, and one way to assure your happiness is to ensure your business remains in good standing; having made your credit and business reputable and firm, you must keep them such by an adherence to the same means which brought you there.
If you can avoid it, do not loan your name to every needy friend that comes along. Your neighbors will question your good judgment every time you have to meet a note which you were coaxed into endorsing, and you would have saved yourself a great deal of trouble by loaning the money to them outright.
In addition, you should not deceive yourself into believing that you are making money when, as a matter of fact, you may be losing it instead. For example, if you buy an article for two dollars and sell it for two and a half, you may say to yourself, "I've made fifty cents, so I'm earning a profit. However, before crediting your business with that fifty cents, you should have considered these points: 1) The loss of interest you would have made on that two dollars if you had not bought the article in the first place; 2) your own time or other time paid for; 3) the capital you invested in items not sold; 4) the rent; and 5) additional overhead, such as transportation, insurance, heat, light, bad accounts, unsalable goods, taxes, public donations, and the purchase of additional items necessary to the proper functioning of your business.
Some additional points to consider are that you should make an inventory of your stock at least
once a year. Then, having done this, you should give your stock a fresh appearance, whether new goods be added or not, to indicate the quality of your items to the discerning consumer. Get rid of all the dingy, dirty, disreputable stuff that you either could not sell or give away, and which has clearly not enticed your customers.
Quite as important as keeping the stock in order is keeping the books in good shape, and you should make sure to keep an accurate account of your business. Weed out, at least once a year and preferably sooner, any outstanding items you are carrying; after all, why should carry as collectable those accounts which you have been assured, for years, would be paid and have not? The best thing to do is, if truly uncollectible, to wipe them out and charge them to profit and loss. It is only by annual house and account clearings that you can tell about how you stand.
