Most investors possess their individual preferences for different classes of securities. Some favour Government Stocks, with the resources of the nation as their protection, and accept this high order of security in compensation for the small return of interest; others prefer mortgages upon real estate, lands and buildings; some, again, incline to commercial and industrial undertakings, or those which are concerned with supplying the material wants of people in the form of articles for conversion into manufactured products, or the resulting products themselves, or the production of articles which the personal requirements of individuals demand.

Proper Distribution Of Investments

This diversity of taste suggests an important practical hint, that, namely, of the distribution of the investments over different classes and kinds of securities. If an investor's savings be confined, exclusively or largely, to one description of investment, or to two or three only, he sustains the risk of depreciation or loss in all his holdings at one and the same time. If, for example, the investor practically restrict himself to British Government Stocks, and a war become imminent, or grave international difficulties occur, the value of those securities immediately falls, partly from apprehension of those events rendering necessary a further creation of Government capital for the provision of the material requirements which will ensue; (the supply of such securities being thus augmented and thus disturbing the equilibrium between the supply and demand which previously existed, the value will descend). Thus, in the case supposed, the whole of the investor's holding will suffer depreciation without any concurrent compensation being afforded by the simultaneous improvement of other stocks in which he should have also invested. And, again, if the investment be exclusively or almost exclusively limited to railway securities, and electric traction, in a form adapted to continuous and heavy carriage, appeared to be practically feasible in consequence of some invention, he would sustain a diminution of value upon his entire possessions, through failing to possess other classes of investment whose coincident rise or stability would help to neutralise or modify the general decline in price. Hence the valid importance of the judicious allotment of risks, particularly in the case of comparatively small investors.

In the contingency just cited in respect of railways a concurrent investment in Electric Companies' Debentures would provide compensation; and, as counteracting the fall of Government Stocks, an investment in sound Industrial Securities, which would benefit by the needful supply of transport and materials, would have proved a protective measure in consequence of their simultaneous advance in value. I mention these instances simply for the purpose of illustrating the principle of the advice.

Investments, accordingly, should be apportioned, and the amount of each, over different kinds of security, and in proportion, as to each amount, to the entire extent of the investor's resources. This does not mean that, taking Railways as an example, the holding should be distributed over the ordinary stock, preference stock, and debenture stock, of a single railway, but that part should be placed in a Railway or Railways, part in Colonial Government Bonds, part in British Municipal Stocks, and so on.

Each investment should be in proportion to the investor's total means.

This rule, as has been announced, involves the corollary that the several sums thus invested in diverse forms of security should bear in each case a suitable and safe proportion to the aggregate of the investor's total means. Thus, if he possessed in all £2000, let him invest, for example, £300 or £400 in Railway debenture or preference or guaranteed stock; the same amount in Corporation Loans of the United Kingdom; a similar sum in Colonial Government Stocks or well-selected Colonial Municipal Bonds; and the same in some other approved security.

If the entire fund of savings be £500, divide it into different investments, of say £200, £200, and £100, and generally, looking to the customary range of accumulated capital, let it be spread, as suggested, into parts of one-fourth, one-fifth, one-sixth and so on. I should, as a specimen, allot £250 to each class of security where the aggregate savings amounted to £1,000. Corresponding rules apply to all investments, whatever be the total funds of the investor, although the amount apportioned to each class of security will be increased beyond the sums I have specified as the aggregate fund enlarges, and the range of selected securities expanded. The trouble is undoubtedly multiplied, but the ultimate protection from loss is worth it all.

Way To Choose Securities

Securities should be so chosen that none is intimately and mainly dependent upon another. I remember a person who advanced money upon mortgage of an Iron-works and also upon an adjoining Coal-mine: the works, it appeared, were the principal customers of the mine, and a serious reduction of the trade of the former, produced by foreign competition, naturally and gravely affected the fortunes of the latter, so that both mortgages became practically worthless.

Enumeration of certain classes of investments.

I now enumerate certain classes of investments with some accompanying notes of advice. It is obvious that an exhaustive list is impracticable, but the hints suggested in connection with those which are specified will sufficiently indicate the manner in which others which are omitted should be regarded.