Putting Your Investment Program Into Action

The above program does not differ materially from those commonly recommended by brokers, analysts, investment counselors, and other authorities; however, it allows for slightly more flexibility than many, and it may be tailored to the individual himself. The fact remains that there is no special formula, but that certain restrictions must be imposed, or else the entire idea of protection via diversification may be completely defeated.

Now consider the order in which the purchases of the above program should be made. For maximum protection it would be wise to accumulate the investments in this manner: place the first amount (say $250 to $500) in those forms having the highest degree of safety, Part I; then the next succeeding amount in Part II; then the next in Part I, etc. At no time should the investor be caught in a situation wherein he has more than the indicated proportion of his funds in Part II; that would entail the possibility of substantial losses upon quick liquidation. Any overbalance should always be weighted in the direction of Part I, merely as the exercise of additional caution.

The objection is often voiced that purchases in small amounts carry substantial commission fees. This is certainly not true of U. S. Savings Bonds, which are bought and redeemed without charge. In the case of common stocks of a total amount of $250, the commission is under 2i/£ per cent of the purchase price; and for higher amounts it decreases slowly. Compare this with the 5 per cent and even 10 per cent on real-estate sales and the higher amounts on various other forms of sale. It is true that the MIP (Monthly Investment Plan, devised by the New York Stock Exchange) does carry higher fees, but for some people a forced-savings method is worth the extra charge.

The statement is often made that the small investor has no business owning common stocks, perhaps because such ownership may represent too large a percentage of his total funds. Provided this danger is avoided, the present writer takes strong issue.

If the small investor will confine himself to the selection of better grade equities, if he safeguards himself by carrying out a well-balanced investment program, if he strenuously avoids all pure speculation, if he adopts an intelligent approach to the whole problem, then he may indeed do very well. Statistics show that, from a study made on two normal trading days in 1954, 42 per cent of the shares bought and sold as "odd lots" (less than the normal 100 per share lot) were made by persons in the $5000 to $10,000 income group, and over 80 per cent of the business was classified as long-term investment.