5. Compare and contrast the organizations of buying and selling departments of a bond house with which you are familiar. 6. Why are trading departments maintained by many bond houses, and what do they do?

7. What training would you prescribe for a bond salesman, and why?

8. What services does the bond house render investors?

9. What is meant by underwriting a bond issue? Why is underwriting needed in the bond business?

10. Define: Buying syndicate; selling syndicate; joint account; liability participation; allotment; subscription.

II. How are selling syndicates organized and operated?

12. Define "sell-out syndicates." "subscription syndicates," "wholesale syndicates."

13. How do the stock exchanges facilitate distribution of securities?

14. What is the Investment Bankers Association of America? What does it do for bankers? Investors?

15. What are Blue Sky Laws? What are their weaknesses? Suggest remedies for these weaknesses?

XVII

BUILDING AN INVESTMENT ACCOUNT

By ROGER K. BALLARD,

Vice-President, Illinois Merchants Trust Company, Chicago

The doctrine of systematic saving. Rapid accumulation of reinvested interest. Widow's mite, invested at 5% compound interest, 1900 years ago, would equal $563,404,100,000,000,000,000,000,000,000 today. Importance of determining individual investment requirements. Needful and needless marketability in securities. Theory and practice of diversification; according to type of security, geography, maturity, and so forth. Tentative, illustrative figures showing ratios in diversification of individual investment account. Diversification as to yield and tax features illogical. Impossible to form general investment program for all people; each individual has different investment requirements. Analyzing individual investment needs.

THERE is no subject on which the American people are exhorted more continuously and more insistently than on that of saving a portion of their income. Even children are taught to save almost as early as they are forbidden to play with matches. Every one of us can remember the admonitions of a parent or other sage adult to save the occasional penny that found its way into our hands, instead of exchanging it for title to a bag of questionable, although alluring, candy. The joy of living is shadowed for most of us by a sense of guilt because we are not accumulating more money from our income.

The most depressing sophistry of all time is the wise saying that a "Penny Saved Is a Penny Earned," and that other slogan of bright promise, "Take Care of the Pennies and the Dollars Will Take Care of Themselves," runs it a close second. Parents, teachers, economists, newspapers, and savings banks appear to have formed a league with the sole purpose of taking the joy out of spending, and of holding the dread spectre of an impecunious old age before

those who do not practice saving and self-denial. And, of course, they are right in doing so. No one will question that thrift is a virtue in the individual or in the nation, but such is the perversity of human nature that almost every one must be belabored before he will practice it. There may be some exceptions to the general rule that every one should save money, but, if so, they are few. Only the man who is already so rich that money means nothing to him, or who is so old that what he has is certain to last out his days, can afford to neglect the principle of saving. Saving is an unpopular sport; the reward seems too long postponed to compensate for the necessary present denial, but the man who insists on dissipating his entire income should take lessons in economics from the squirrel, who at least has enough common sense to store up provisions for his future comfort.

THE DOCTRINE OF SYSTEMATIC SAVING

We all admit that we should save, yet few of us do, or at least not in proportion to our incomes. Some are genuinely uncertain as to how much we ought to save, and, of course, no universal rule can be established. Each case must be governed by circumstances. A government bureau is responsible for the statement that a thrifty man is one who saves 20 cents out of every dollar, while a "tightwad" is one who saves 60 cents. Then, of course, there is the spendthrift, at one extreme, who saves nothing, and the miser, at the other, who saves everything. Each can decide for himself what classification he prefers, but the point is that every one should adopt some definite program of saving and follow it religiously.

All this is an old story, but there is one more particularly pertinent platitude: "Saving, to be effective, must be systematic." The account in which only desultory haphazard deposits are made "when it is convenient" will fare but poorly. The amount to be saved weekly or monthly must

be decided upon and must be an early charge against income. It must be set aside regularly and religiously. If this is done, amazing results are assured, especially if the savings are wisely invested.

Saving, merely as an abstract principle, is unattractive to the average person. It must be motivated by some definite objective, such as the purchase of a home or of an automobile or to send a son to college or to accumulate a certain sum by a certain age. Savings banks have recognized this psychological fact by the introduction of Christmas Savings Clubs, Vacation Clubs, Buy-a-Home Accounts, and the like, in their efforts to popularize thrift. Given a motive and the prospect of a definite, desired reward, and saving becomes an absorbing game. There are few greater pleasures than watching some long-wished-for end come nearer to attainment. Saving in one form or another is one of the most natural and practical of all human activities, but its effectiveness depends on the ability to systematize it.

Now, as a motive for systematic saving, there is none more worth while nor more enticing than that of accumulating interest-bearing investments. The man who saves for even so commendable an end as the purchase of a home achieves his purpose only by transferring his savings into another form of property which is non-productive, and, of course, the man who withdraws his savings for an automobile has not really been saving at all; he has merely been accumulating for one deferred expenditure. That may be justifiable, yet it is not thrift and it accomplishes no permanent good. The systematic saving of money for investment in sound securities, however, grows miraculously by the thing it feeds on. There is nothing in the world of finance more astounding than the rapidity with which money accumulates at compound interest. Likening that accumulation to a snowball rolling downhill is trite, perhaps, but it is a simile that cannot be improved upon. Both in speed and volume it increases momentarily after once it is given a fair start.

THE RAPID ACCUMULATION OF REINVESTED INTEREST

The following examples of what happens to small amounts when subjected to the magic of this compounding of interest will perhaps prove interesting and sufficiently impressive to carry home the point, even though they are a trifle bizarre.

Had the famous widow's mite (which we shall suppose to have been equivalent to our penny) been invested at 5% semiannual interest when it was contributed some 1900 years ago, instead of being used for current needs of the Temple, it would today have amounted to a sum so large we have no words to express it—a sum tremendously greater than all the money in the world. It would have grown to $563,404,100,000,000,000,000,000,000,000.

Had it been possible to invest $1 at 5% interest, compounded semiannually, on that morning in September of 1066 when William of Normandy landed in England and by defeating the Saxon army at Hastings changed the complexion of Anglo-Saxon history, that dollar would have become $3,485,077,000,000,000,000 by today.

Again, if Columbus had stopped to deposit $1 under a similar interest arrangement on August 3, 1492, instead of occupying himself so completely with the task of discovering America, he would today have had $1,842,679,000.

Or, if some one had put aside $1 at the same rate on the opening day of the Bank of England in 1694, he would now have a tidy credit of $85,702.60.

The first United States bank, chartered by Act of Congress under the plan proposed by Alexander Hamilton, began business in 1791, only 133 years ago. In that relatively short time a dollar deposit unaided, save by 5% interest compounded semiannually, would have multiplied itself by 712. It would have a present value of $712.13.

But the law prohibits this sure-fire method of accumulating all the money on earth for some future Croesus. It was largely to avoid this snowball accumulation of wealth