If you are a successful business man, you may have accumulated a considerable amount of wealth in the past decade. You may also have a growing business surplus that you need to set aside for emergencies. But do you know how to invest your money wisely and make it work for you?

Investing money is not as easy as making money. It requires a different kind of knowledge and experience, which you may not have acquired in your own line of business. It also involves a twofold problem: how to safeguard your private fortune and how to dispose of your business surplus.

In this blog, we will help you solve this problem by explaining the fundamental distinctions between different classes of securities and the principles of scientific investment. We will also discuss the role of convertibility, appreciation, safety, and stability in the investment of money, and how they affect your choice and value of securities.

By the end of this blog, you will have a clear understanding of how to invest money wisely and make the most of your wealth.

The Twofold Problem of Investment

The first part of the problem is how to safeguard your private fortune. This means ensuring that you will receive the principal and interest of your investments on the dates due, and that your investments will not shrink in quoted value. The second part of the problem is how to dispose of your business surplus. This means finding the best way to invest the portion of your surplus that you do not need for your immediate business needs, and that you want to keep in liquid form for future contingencies.

The average business man, however, is not well equipped to solve this problem by himself. He is accustomed to taking reasonable chances and making large returns in his own business, but he does not understand the principles and risks of investing money in other enterprises. He is also likely to pay for qualities that he does not need, or to sacrifice some essential factor of safety for the sake of greater income.

The best way to avoid these mistakes is to consult a banker. A banker is a professional who knows the investment business inside out. He can help you select the securities that suit your real requirements and preferences, and that possess the qualities that you value most. He can also advise you on the distribution of your investments among the various forms and regions, and the timing of your purchases and sales.

Consulting a banker does not mean that you have to blindly follow his recommendations. It means that you can benefit from his expertise and experience, and make informed decisions based on sound principles. This blog is not intended to take the place of consultation with a banker, but to supplement it.

The Fundamental Distinctions between Different Classes of Securities

Before you consult a banker, you should have a basic understanding of the fundamental distinctions between different classes of securities. These distinctions are based on the nature and the rights of the securities, and they have important implications for the investor.

One of the most important distinctions is that between promises to pay and equities. Promises to pay are securities that represent somebody’s obligation to pay a certain sum of money at a future date, such as bonds, mortgages, and loans. Equities are securities that represent a certain share in the assets and profits of a working concern, such as stocks. The difference between these two classes of securities is that promises to pay give you a fixed and legally enforceable claim, while equities give you a variable and contingent interest.

This distinction affects the safety, income, convertibility, appreciation, and stability of the securities. Generally speaking, promises to pay are safer than equities, because they have a prior claim on the assets and earnings of the issuer. They also have a fixed rate of income, which is determined by the interest rate and the face value of the security. However, they have less convertibility, appreciation, and stability than equities, because they are subject to changes in the general level of interest rates and the credit rating of the issuer.

Equities, on the other hand, are riskier than promises to pay, because they have a subordinate claim on the assets and earnings of the issuer. They also have a variable rate of income, which depends on the dividends declared by the issuer. However, they have more convertibility, appreciation, and stability than promises to pay, because they are subject to changes in the supply and demand of the market and the growth potential of the issuer.

Of course, not all promises to pay and equities are alike. There are different grades and types of securities within each class, and some of them may have characteristics of both classes. For example, some bonds may have features that make them more like stocks, such as convertibility, participation, or adjustment. Some stocks may have features that make them more like bonds, such as preference, guarantee, or cumulative. The investor should be aware of these features and their effects on the value and performance of the securities.

Another important distinction is that between distribution of risk and selection of securities in accordance with real requirements. Distribution of risk means diversifying your investments among the various forms and regions of securities, such as railroad bonds, municipals, mortgages, public-utility bonds, etc.

This reduces the chance of losing money due to the failure or decline of any one form or region of securities. Selection of securities in accordance with real requirements means choosing the securities that match your actual needs and preferences, such as safety, income, convertibility, appreciation, and stability. This maximizes the satisfaction and utility of your investments.

These two principles are essential for the scientific investment of money. They help you balance the risk and return of your investments, and optimize the use of your capital. The average investor, however, does not follow these principles with any thoroughness. He may have a vague idea of diversifying his investments, but he may not preserve the proper proportions within each form or region. He may also have a general impression of selecting his investments, but he may not understand the trade-offs involved in emphasizing one quality over another.

The next section will explain the role of convertibility, appreciation, safety, and stability in the investment of money, and how they affect your choice and value of securities.

The Role of Convertibility, Appreciation, Safety, and Stability in the Investment of Money

Convertibility, appreciation, safety, and stability are four of the five qualities that should be considered in the selection of all investments. The fifth quality is rate of income, which is the net return that you realize on the actual amount of money invested. These five qualities are present in different degrees in every investment, and the scientific investor naturally selects those securities that possess in a high degree the qualities that he wishes to place emphasis on. However, he should also realize that a high degree of one quality involves a lower degree of other qualities, and that he should not pay for qualities that he does not need.

Convertibility is the quality that enables you to sell your securities quickly and easily, without losing much of their value. This quality is important for investors who need to have access to their money at short notice, or who want to take advantage of favorable market conditions. Convertibility is especially important for a business surplus, which should be kept in liquid form for future contingencies. However, convertibility comes at a cost, which is usually a lower rate of income. If you do not need to sell your securities frequently, or if you want to make a permanent investment, you should not pay for convertibility, but look for securities that offer a higher income, even if they are less marketable.

Appreciation is the quality that enables your securities to increase in value over time, due to the growth of the issuer or the market. This quality is important for investors who want to increase their wealth and capital, or who want to hedge against inflation.

Appreciation is especially attainable for rich men, who can afford to forego some income for the sake of a strong prospect of growth. However, appreciation comes at a risk, which is usually a lower degree of safety. If you cannot afford to lose your principal, or if you want to preserve your purchasing power, you should not gamble on appreciation, but look for securities that offer a high degree of safety, even if they have less potential for growth.

Safety is the quality that ensures that you will receive the principal and interest of your securities on the dates due, and that your securities will not become worthless or default. This quality is important for investors who want to protect their wealth and income, or who want to avoid financial distress. Safety is especially essential for poor men, who cannot afford to take chances with their money. However, safety comes at a price, which is usually a lower degree of income. If you can afford to take some risk, or if you want to increase your income, you should not pay for safety, but look for securities that offer a higher income, even if they are less secure.

Stability is the quality that ensures that your securities will not fluctuate much in quoted value, due to changes in the general level of interest rates or the credit rating of the issuer. This quality is important for investors who want to maintain the integrity of their principal, or who want to avoid capital losses. Stability is especially desirable for conservative investors, who do not like to see their investments fluctuate. However, stability comes at a sacrifice, which is usually a lower degree of appreciation. If you can tolerate some volatility, or if you want to benefit from capital gains, you should not pay for stability, but look for securities that offer a higher degree of appreciation, even if they are less stable.

Conclusion

In this blog, we have explained the twofold problem of investment, the fundamental distinctions between different classes of securities, and the role of convertibility, appreciation, safety, and stability in the investment of money. We have also discussed the principles of distribution of risk and selection of securities, and the trade-offs involved in emphasizing one quality over another. We hope that this blog has helped you gain a clear understanding of how to invest money wisely and make the most of your wealth.

However, this blog is not a substitute for professional guidance from a banker. A banker can help you select the securities that suit your specific situation and goals, and advise you on the best timing and strategy for your investments. He can also keep you updated on the latest market trends and opportunities, and help you avoid the pitfalls and scams that may lurk in the investment world.

Therefore, we encourage you to consult a banker before you make any investment decisions. He will be your trusted partner and adviser in the investment of money. You can find a reputable and reliable banker in your area by visiting our website or contacting us by phone or email.

We hope you enjoyed this blog and found it useful. If you have any questions or comments, please feel free to leave them below. We would love to hear from you and answer your queries. Thank you for reading and happy investing!