BONDS AS INVESTMENTS
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 man on a salary cannot, of course, do
this, but the farmer, the small tradesman, and the mechanic, who
is his own employer, may be able to do so. And so, before looking
for a field for investment outside, such men should look about
them and consider how best the money may be used right on the
ground.
AS TO BONDS
But after considering the points suggested, the man who has some
money may not be able to find a secure and profitable place for it
in or near his own home. 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 certificate of
indebtedness, bearing from four to five per cent interest, payable
semi-annually.
These bonds may be transferred the same 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.
As with a real estate mortgage, the property pledged in the bond
should be defined.
RAILROAD BONDS
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."
BUYING BONDS
Bonds, like wheat, have their selling prices quoted from day to
day, and they are equally a thing of purchase and sale.
There are banks and brokerage firms that make a specialty of
bonds, and most of these houses are entirely reliable; still, the
novice in such things would do well to investigate for himself
before investing in any bond recommended by any seller.
It is the purpose of the seller to sell; it should be equally the
purpose of the buyer not to be "sold."
Our government, state and municipal bonds speak for themselves,
and in the main require no examination as to the security, though
there have been cities and even states that have defaulted in
their payments.
Bond houses and banks of established reputation cannot afford to
deceive; they receive their compensation in the way of commissions
on sales, and their characterization of the bonds may be accepted
without question, for they invariably investigate the bonds,
before they lend their names to them by offering them for sale.
If there is any doubt in the mind of the would be purchaser as to
the character of the seller, that should be the first thing
investigated.
What the buyer must satisfy himself of is:
1. Who is the seller?
2. What do the bonds represent?
3. Are they negotiable? and
4. Can they be sold again for about their face value?
Every one who has saved money, it is to be supposed, has a bank
account and is acquainted with the president of his local bank.
When in doubt, the advice of such a man may be of great help.