Page 372 - One Thousand Ways to Make $1000

the stock market, the horse races, and poker long enough, the broker and the
bookmaker and the “kitty” will get it all. You hear of a great many rich
bankers who are satisfied with 6 per cent. But how many times can you
remember hearing of a speculator or a gambler dying wealthy? They make
money, but they usually lose it equally fast. Most of them die in poverty.

According to an analysis made by one of the large insurance companies, the
average earnings on a lifetime investment are less than 4 ½ per cent. This, it
will be noted, is less than the income from a gilt-edge bond. One would
naturally think that during a man’s lifetime he would make a number of
investments which would pay him large returns, in addition to his
investments in bonds and mortgages yielding a conventional return. But on
the contrary, the yield from speculative investments is shown to be less than
their yield from gilt-edged securities over a period of time.

This is not hard to understand. Suppose you do make 10 or 15 per cent on
some “long shot” investment. The next time you are likely to lose everything
you put into the investment, and this loss would more than neutralize your
previous winnings. The worthless stocks which a man usually acquires before
attaining mature judgment, not only represent a loss of principal, but a loss of
four or five times as much again in compound interest.

A Concrete Illustration

To make this last point clear, let us assume that two business men, yourself
and one of your friends, had $1,000 in the bank at the time the
Commonwealth Hotel stock was being sold, and that you were each thirty
years of age at that time.

Your friend, carried away by the promise of handsome dividends, put his
thousand into the stock of the hotel company and lost it. The idea of putting
money into another man’s dream did not appeal to you, so you bought a 6 per
cent bond in a well-seasoned business.

We will suppose further that you had promptly reinvested the interest from
your bond, in other approved 6 per cent securities, as the interest was paid to
you every six months.