BONDS The Bond must be as good as the Word.
Not until very recently has the attention of the public been called to bonds as an available means for the investment of small savings. Formerly, the majority of bonds were issued only in comparatively large denominations. Even issues as low as five hundred dollars were too large for the wage earner or the man of moderate salary. Of late, however, considerable attention has been paid by bankers and brokers to the needs of the small investor, and, in consequence, there is now a considerable choice of bonds in the denomina tion of one hundred dollars, and a few mu nicipal and industrial bonds in still smaller denominations.
These bonds are being offered to a new class of investors. They are people who never before purchased bonds, and whose savings were confined to the savings bank. A wide spread campaign of education is being di rected toward this class of investors, which undertakes to show why a hundred dollars is better invested in a good bond than left in the savings bank. Several points are em phasized in this educational propaganda that merit the attention of anyone who is able to save even small sums regularly.
It is pointed out that a bond pays interest from the day you purchase it. On the other hand, a savings bank often holds money sev eral weeks before it admits it to interest earning.
A bond pays interest to its holder up to the day he sells it. But interest is credited to deposits in a savings bank only on specified dates, and if withdrawn wholly or in part be fore these dates, the interest is sacrificed.
By reason of fixed interest dates, the sav ings bank gets the use of considerable sums of money over a considerable time, and pays nothing for the privilege. In fact, the sav ings bank does not pay any return whatever on a large sum of money belonging to its de positor, but which it uses to earn money. But this peculiarity of savings bank interest is a matter of contract, clearly stated by the bank and subscribed to by the depositor.
In states in which the laws governing sav ings banks are strongest, the depositor is as sured of the first qualification he must seek in an investment—safety. Now, a high degree of safety in any investment is always ac companied by a comparatively small interest return.
In the case of the bonds now being offered to the man of small means, it is pointed out that while the savings bank pays only three and a half to four per cent., bonds may be purchased that yield as high as six per cent. It is the temptation to secure a high interest rate that leads many people of small means into embarrassing situations that rarely come about through the savings bank.
The small investor must, if he prefers to purchase bonds, acquaint himself with a few facts that will help him to keep clear of financial disaster. There are several classes of bonds—known as (a) First Mortgage, (b) Convertible, (c) Equipment, (d) Debentures, (e) Refunding, (f) Convertible Debentures, (g) Collateral, (h) Private Lien, etc. These, and several other terms descriptive of bond issues, are designations that specify the place of the bond in its claim against the property of the issuing company. First mortgage bonds, as the term implies, are a direct claim upon the whole, or a specified portion, of the issu ing company's physical assets. Another form of bond, the general debenture, for example, carries absolutely no mortgage guarantee, and is generally issued against the credit of the company. Such bonds, are in reality, a form of preferred stock, the interest upon which is safe in good times, and no more certain than that of stock, in bad times.
It is essential for the small investor, in buy ing bonds of low denomination, to get a definite statement as to the kind of bond he is offered. If he does not know how to as certain the status of a bond, he should in quire about it. Let him submit it to an officer of his savings bank, and to a business man of integrity who is in no way interested in the bond or in the company issuing it. While no bank can guarantee the future of a bond it sells to a customer, the bankers of the best class leave no stone unturned to be assured be fore they offer it that it is worthy of their handling. The best bankers take the most scrupulous care to offer only high class bonds. Hence, the small investor should make it a rule to buy no bond, even if it be only of fifty dollar denomination, of any but a bond dealer of the very best reputation.