Part 2

_2 Adults, 3 Children: $50 Weekly_

Shelter 25% or $12.50 Food 18% or 19.00 Clothing 19% or 9.50 Operating 13% or 6.50 Savings 3% or 1.50 Advancement 2% or 1.00

_2 Adults, 3 Children: $60 Weekly_

Shelter 20% or $12.00 Food 30% or 18.00 Clothing 18% or 10.80 Operating 15% or 9.00 Savings 9% or 5.40 Advancement 7% or 4.80

_3 Adults, 2 Children: $70 Weekly_

Shelter 25% or $17.00 Food 34% or 23.80 Clothing 18% or 12.60 Savings 13% or 9.10 Advancement 5% or 3.50 Operating 5% or 3.50

_2 Adults: $75 Weekly_

Food 18% or $13.50 Clothing 25% or 18.75 Operating 16% or 12.00 Savings 15% or 11.25 Shelter 12% or 9.00 Advancement 14% or 10.50

_2 Adults, 3 Children: $85 Weekly_

Shelter 20% or $17.00 Food 25% or 21.25 Clothing 18% or 15.30 Operating 17% or 14.45 Savings 10% or 8.50 Advancement 10% or 8.50

_3 Adults, 2 Children: $100 Weekly_

Shelter 19% or $19.00 Food 25% or 25.00 Clothing 20% or 20.00 Operating 18% or 18.00 Savings 12% or 12.00 Advancement 6% or 6.00

_Business Women: $25 Weekly_

Shelter 25% or $6.25 Food 40% or 10.00 Clothing 18% or 4.50 Operating 6% or 1.50 Savings 6% or 1.50 Advancement 5% or 1.25

_Business Women: $40 Weekly_

Shelter 23% or $9.20 Food 30% or 12.00 Clothing 25% or 10.00 Operating 7% or 2.80 Savings 10% or 4.00 Advancement 5% or 2.00

_2 Adults, 2 Children: $30 Weekly_

Shelter 22% or $6.60 Food 45% or 13.50 Clothing 20% or 6.00 Operating 10% or 3.00 Savings 2% or .60 Advancement 1% or .30

_2 Adults: $35 Weekly_

Shelter 20% or $7.00 Food 35% or 12.25 Clothing 20% or 7.00 Operating 10% or 3.50 Savings 10% or 3.50 Advancement 5% or 1.75

Definitions of the standard budget divisions will help to clear up some questions:

Shelter covers the rent of your house or room. If the house is owned, then the total yearly expenses of taxes, insurance, repairs and general upkeep should be divided by twelve, and this estimate set down for each month. If farm or parsonage is free, nevertheless such value should be estimated and included. Shelter also covers carfare or transportation to both work and school. In the case of some rented apartments and houses it also covers coal or heat, in which case this amount is deducted from the division entitled Operating.

Food covers the cost of food materials and products used in the preparation of meals, also board and meals eaten away from home.

Clothing covers the cost of ready-to-wear garments of every type. It covers the cost of materials and supplies for making clothing at home, the expense of a dressmaker or tailor, cleaning, repair and pressing.

Operating covers the cost of fuel, light, telephone and ice. It also covers the expense of a maid, laundress, or laundry and its supplies. It includes any service paid for by the hour, day or month; the cost of furnishings, and labor-saving or other household appliances, their repair or replacement.

Savings covers all payments on property; on all kinds of life and beneficiary insurance; on bank savings deposits, stocks, bonds and other legitimate investments.

Advancement covers sanitation, health and toilet articles, doctor and dentist expense. It also covers educational expense, and items of amusement and recreation, such as books, periodicals, music, the theater, vacation and travel. This division covers also such miscellaneous items as clubs, charity, organization dues and the like.

HOW SHALL SAVINGS BE INVESTED?

_The greatest mistake of the American saver is to invest unwisely._ It is estimated that over three billion dollars have been unwisely invested in fake or questionable oil stocks alone in recent years. Despite precautions, a billion dollars a year is at present dissipated in “cat and dog,” or worthless, stocks.

The reason is that the American _is an inveterate chance-taker_. He carries this principle with him in handling his investments, and does not realize that it has little place there. Investment for the ordinary man should be Grade A and Grade B and C risks exclusively; never grades D, E, F or greater risks. A Grade C investment is quite “chancy” enough; a Grade B is more reasonable. Grade A is safe. Naturally the yield is lower on Grade A investments, but sometimes there is no yield at all on lower grades!

Contrary to general belief it is not necessary to put off the pleasure of being an investor indefinitely for lack of a large surplus.

The greatest fortunes have been founded on a steady and consistent accumulation of capital, starting with extremely small sums. Much larger sums than it took to start these large fortunes have been lost by individuals endeavoring to get rich too quickly.

Any sum is a start--even a dollar. There are now many banks which will gladly open a savings account with one dollar. _It is not the amount but the systematic method that counts._ The savings bank is the natural first field of action for savings--especially on a regular deposit plan. It is only when the sum gets to $500 or $1000 that “investment” of a different kind should be considered--and then it should be _government bonds_. The saver should write a letter to his banker or broker, and enclose an order to buy “at the market” government bonds (any issue) for the sum he has ready to invest. The saver cannot go wrong if he does this.

The following might be regarded as a general schedule of instructions for savings investment, based on the amount of total available savings:

If you have from $1 to $100, _put it in the savings bank at 3% or 4% interest_.

If there is no savings bank available, use the Government (Postal) Savings Stamps. Inquire at your post office.

If you have from $100 to $1,000, buy Government bonds, Treasury Certificates, Liberty and Victory issues, etc.

If you have $1,000 to $5,000, consult your bank and buy high-grade bonds of various kinds.

If you have $5,000 to $10,000, consult a conservative investment banker, and buy a _diversified_ line of securities; bonds, higher grade preferred stocks and some high-grade, dividend-paying common stocks, if general business conditions are not at a high peak or inflated.

If you have more than $10,000, select most carefully a very capable banking house which will not endeavor to sell you many of its own special issues, but will properly diversify, on a still wider scale, your stocks and bonds; selecting a still wider range of industries, and purchasing more preferred and common stocks of well known, stable successful industrial, railway and public utility companies. Have them pay particular attention to common stocks of such companies, for about 20% or 25% of your total investment.

Liberty Bonds and Victory Notes have the highest investment rating in the world of finance; they are more gilt-edged than any other bonds ever issued by nations or corporations; they even come ahead of British Consuls and French Rentees, which, prior to the World War, ranked foremost among investments. The owner can always borrow on U. S. Government Bonds, if borrowing becomes necessary.

Among all the securities one could buy none rank so high nor are so convenient from the point of view of marketability, ease of liquidating, and collateral value as good bonds. One need seldom take a loss in good bonds through forced selling. There is little fluctuation.

It is better to hold gilt-edged bonds, the kind banks lend money on. These usually consist of U. S. Government bonds or a certain class of high-grade corporation and railroad issues that have been passed on by the savings banks. Others are so highly rated as to be eligible for trust funds, and a medium for the conversion of inheritance funds, insurance funds and the like. You can buy short-term issues if the money may be needed in a few months or a year or two; otherwise select long-term bonds. Then hold them and continue to do so. When you need money borrow on them, even to buy other sound securities like gilt-edged preferred stocks and the best-rated common stocks. You need never part with your original investment in bonds if you follow this suggestion.

Securities in general may be rated in their order of investment merit as follows:

_Bonds_ A. “Gilt-Edge” bonds B. High-grade bonds C. Medium-grade bonds

_Stocks_ A. High-Grade preferred stocks B. Medium-grade preferred stocks C. Speculative preferred stocks B. High-grade common stocks C. Medium-grade common stocks D to Z Speculations

The shrewd buyer will always discover some bargains if he will do his shopping on the common-sense principle that it does not pay to wait until everybody wants the same goods at the same time. The saver will do well to sharpen his own knowledge of investments.

He should pick up his bargains in the off-season, place them in “cold-storage” and only lighten his load when everybody wants them at once, at any price, and for immediate delivery. There is no better way of determining when the bargain season is on than by watching the daily newspapers. Never buy preferred or common stocks when business is in a period of inflation or at a peak of prosperity. The time to buy is when conditions are at a lower ebb, when the stocks of absolutely sound companies are selling cheaply. It is good advice to buy only stocks listed on the New York Stock Exchange--the list of which is printed and quoted every day in leading newspapers.

Bonds often go up when stocks go down. As a general proposition any bond which is a direct mortgage, on property valued largely in excess of the bond issue--where the issuing corporation has shown its ability to meet interest charges, year in and year out, by a large and ample margin--is a good bond.

It is difficult, however, for the average business man to investigate the value of the underlying securities, to judge them even after lengthy study, or to decide whether a particular mortgage is “clear-cut,” without reference to mortgages preceding or following it.

Also, no ordinary man is competent to pass upon the legality of an issue or the titles back of a mortgage. This requires a complete battery of specialized talent, especially in the case of corporation and railroad bonds. Such information is always on hand with your banker or broker, and if you ask his advice he will always be glad to assist you.

It is well to rely upon the banker who makes a business of investments--but he should be a conservative banker of good repute. Always, without fail, investigate your banker. Be suspicious of lurid advertising and follow-up. As a general rule the higher the interest yield the more risk the investor takes. Don’t be greedy; be content with moderate return _and safety_.

INVESTING IN MORTGAGE BONDS

There are now a number of companies formed to purchase first mortgages on new buildings, apartments, etc., and resell them to the small investor for a series of payments. They specialize on first mortgage bonds. _It is a good method, but be sure of your company._ In order to define a first mortgage bond it is necessary first to explain what a first mortgage is.

A mortgage is a legal paper covering a pledge of real-estate holdings given by a borrower of money to a lender. The mortgage is held either by the lender of the money or by a third party, known as the trustee. Any mortgage represents the promise to pay a stated amount at a specified time, at a legal rate of interest, and it transfers title to the mortgaged property only in case the money for which the security is given is not repaid. A first mortgage, therefore, is any mortgage filed of record which precedes all other claims in the event the property has to be sold to pay the holders of the mortgage or other creditors.

As has been stated above, every first mortgage bond is a direct first lien on the property securing the issue. The importance of this fundamental factor in investment safety would seem to be self-evident, but it is a fact that the investment market is flooded today with a vast number of securities, many of them regarded as conservative, which do not even represent a legal obligation to pay, and which are entirely dependent upon the prosperity of the issuing corporation for their payment. The term “bond” is often a misnomer, the so-called bond being merely a chance to share in profits, _if there are any_. It is no different from a stock; they are debenture bonds, not secured bonds. They should be very carefully scrutinized.

“BABY” BONDS

Although bonds are usually issued in one thousand dollar blocks, of late years many corporations have split their bonds up into “baby bonds,” or bonds of one hundred dollar value, in order to gain the participation of the small investor and saver.

For example, among the high-grade (A) “baby bonds” for income only, the author would recommend to the prospective investor such issues as the following: Atlantic & Danville, 1st 4s, 1948; Bush Terminal Buildings, 5s, 1960; Western Union Telegraph Co., 6½s, 1936, and Armour and Co. of Del., 1st 5½s, 1943.

In the middle-grade (B) list for income and profit there are Cuba RR, 1st 5s, 1952; Western Pacific, 1st 5s, 1946; New York, Ontario and Western, 1st 4s, 1992, and Kansas City Southern Refunding and Improvement, 5s, 1950.

Among the more speculative (C) bonds for income and profit, also in the “baby bond” class, come the Erie General Lien, 4s, 1996; Chicago Great Western, 1st 4s, 1959, and Chicago, Milwaukee and St. Paul Convertible, 5s, 2014.

The writer urges that thought be given to this and similar bond lists so that the student investor may become familiar with the yield he can expect from most types. A study of the figures at which these bonds are selling, together with the figures of their yield, etc., will indicate what is meant by a “high-grade” bond and a “medium-grade” bond.

ACID TEST FOR BONDS

What might be called an acid test of the reliability of a bond is a satisfactory answer to the following questions:

(1) How many times on the average have interest charges been earned annually in the last five years?

(2) For how many years has the corporation paid full interest on its funded debt without default?

(3) Is the bond I intend buying followed by other strong bonds for preferred and common stocks?

(4) What is the record of dividends paid on its preferred and common stocks during the past seven years?

BUYING HIGH GRADE COMMON AND PREFERRED STOCKS ON INSTALLMENT

Here is an unusually good saving plan--a form of investment that has the triple advantage of furnishing (1) good dividend-earning security, (2) possibility of material increase, and (3) fixed obligation to pay on certain due dates, which acts as a disciplinary saving system.

The difference between a preferred and a common stock is that the interest charges on the former, while not guaranteed, will be paid at the named rate before the common issue can secure any part of the profits. The only disadvantage is that a dividend on a preferred stock is limited to a stated amount, while over a period of years the common stockholders of a sound company may expect not only to get a rise in dividends rate, but possibly also stock dividends or “split-ups,” and also a general increase in quoted value. There are economists today who contend that the soundest, surest way to let your money’s value grow with the country is to invest in the common stocks of very sound concerns, the leaders in their field.

It is true there is always an element of speculation in buying common or preferred stocks, and a good deal of shrewd discrimination is desirable in purchasing either preferred or common stocks. It is best to deal only in stocks listed on the New York Stock Exchange, or the soundest local stocks.

As in good bonds, present earnings or recent happenings may often be ignored for the general purpose of making investment in a good preferred or common stock. Seasoned reliability over a period of time, over lean and fat periods of business, the ability of a corporation to earn and pay its preferred dividend, should be the only consideration influencing a purchase.

If, in addition, the corporation has only a moderate funded debt and the preferred issue is followed by a substantial common stock issue upon which dividends have been paid or are in prospect, the preferred issue is entitled to the rating “high grade,” and the investor should buy it, if the yield is six per cent or over.

A very high or extraordinary yield on a preferred stock means either (a) that it has escaped the notice of the rank and file, such cases being rare but not impossible; or (b) its industry is speculative, as, for example, mining or oil.

The case of common stocks is more risky, and these should be bought on installments only if they represent a 20% portion of a diversified list which includes bonds or good preferred stocks. The common stock of some of our greatest corporations has been available to wise purchasers and saving investors at ridiculously low prices. Frank Munsey is reputed to have purchased U. S. Steel Common at about 33. Today it has advanced 100 points beyond that. In fact there was a period when it was considered worth little; it was contemptuously regarded as “water.” The same is true of Woolworth Five and Ten Cent Store common stock--and many others. Even a common stock which has heavy tangible assets behind it, like U. S. Rubber, has been as low as 28 within a year of the time that it reached 97. Common stocks of sound, well managed companies, especially those whose trade-marks are familiar “household words,” well advertised, are a very good purchase for the saving man. This is being more and more appreciated, for stocks of famous companies are now owned by hundreds of thousands of ordinary investors and savers where once they were owned only by a few hundred people. _The ordinary man today, the man with only $500 or less, can share in the success and profits of prominent business institutions, at precisely the same ratio as the large owners and wealthy men._ There are 14,500,000 stockholders in corporations today; and dividend and interest disbursements in January, 1926, amounted to the huge total of 5½ billion dollars.

Good bankers and banks will gladly arrange for the purchase of listed high grade preferred and common stocks on time payments; and the regular arrival of payment dates will be an excellent prod to saving, just as insurance is such a popular prod already. Installment purchase of merchandise is on a very large scale today (about 10 billion dollars in 1925), and the time payments for perishable goods could far more wisely be used to buy investments, which do not depreciate, but actually yield interest, and if carefully picked grow in quoted price.

SAVINGS AND INTEREST RATES

Two classes of savers make mistakes: (1) the saver who hoards his savings in hiding places and gets no interest, or who does not get savings bank interest on bank deposits; and (2) the savings bank saver with $1,000 or more who does not invest his funds in bonds or high class securities and thus secure 4½, 5, 5½, 6 or even 7% interest.

Interest rates are like wages; your money should earn the best wage for you that is possible; but, unlike wages, there is a limit to what you should expect to earn safely. Savings banks pay from 3 to 4½% interest--4½% saving bank interest is not universally available with safety, but is today by no means uncommon. Any savings bank operating under a state charter is safe. Beware of “private” banks; many of them are not sound.

Government bonds are better than savings bonds--they will yield from 4 to 5½%.

At 6% the high class mortgage bonds and preferred stocks come into view, and are as a rule entirely safe. You should have no reason to regret trying to get 6% for your money, if you are intelligent in your choice.

Above 6% there are more chances. There are entirely sound purchases of high class preferred stocks to be made that will yield as much as 8%; but the ordinary saver should not trust himself to pick them. They require special knowledge and analysis, to avoid making serious errors. At certain depression periods sound preferred stocks that are quite remarkable bargains may be found, under competent guidance; listed stocks of successful companies whose earning record is good and whose yield at depression prices may be as high as 10% in rarer instances. Such stocks are the only true financial “bonanzas,” and may be shared by the medium sized investor and saver as well as the wealthy man.

Some of the foreign securities now offered are quite safe at 8 and even 8½% yield; and others absolutely safe at 7½%. Interest yields have had to rise in recent years; and particularly for foreign loans.

The investor and saver with less than $5,000 capital should entirely content himself with 4½ to 6%; the man with $10,000 with 6 to 7%, and the man with $20,000 or more may hope to have one-fifth of his savings earn 8% with safety. All this is based however on conservative, skilled counsel, which a good banker or investment house will gladly provide at no charge other than the usual moderate commission on sales.

Greed for high interest rates has lost more money to savers than has ever been made by taking the risks involved.

The subject of how your savings will increase if you let them accumulate at interest is particularly interesting. There are many cases on record of people who have dropped out of sight, leaving a few hundred dollars on deposit in a savings account, and who found on their reappearance years later that the modest account, through the compounding of its interest, has grown to one of substantial proportions. The interest continued to be credited quarterly or semi-annually, and as it was added it also drew interest. In other words the interest was compounded at regular intervals. Money invested at 6%, and the interest allowed to stand, will double in about 12 years.

The tables on the next two pages are printed to show how money accumulates merely by being left at interest.

$100