The smaller investor or possessor of a savings account has really very few alternative high yield investments for his fund of savings. He can either put it into the stock market, including the mutual funds, or he can put it into the sav­ings bank. In the stock market he has the hope of a big gain. But in all probability his fund of savings was not easily acquired, and the effect on him is devastating when the stock market or the particular stock he owns goes into a decline.

On the other hand savings accounts yield him very little as far as high yield investments are concerned. A savings account of $10,000 at 3% yields him exactly $300 a year, and this does not seem to him to be a very significant return when he considers how hard it was for him to accumulate the $10,000, particularly since he had to pay taxes on his income before he could save the $10,000. Even a fund of $100,000 yields him only $3,000 per year, or $250 per month, and this return is probably not very significant in relation to the income of a man who has been able to accumulate a savings or investment account of $100,000.

In the postwar period one type of financial organization was greatly expanded —the building and loan association. This institution offered a partial answer to the savings account holder's dilemma of risk in the stock market or safety at low yield. It offered him one per cent more per year. On his $10,000 investment he could now realize $400 per year instead of $300, and on $100,000 his return would be $4,000 instead of $3,000-a net gain of $83.33 per month—and his re­turn was compounded every three months instead of every six months as in the savings bank.

The response to this one per cent more per year plan was overwhelming. In many cities the building and loan associations mushroomed. They built palatial structures that often far overshadowed the banks. On the quarterly interest day the lines at the tellers' windows often resemble the first night lines at leading New York shows. Deposits in building and loan associations grew from 14 billion dollars in 1950 to 54 billion in 1959. And all this for one per cent more per year.

The still-not-satisfied investor looks at the classified section of his newspaper and there he sees what he is really looking for—"7% return," "10% return," "12% yield," and "16% anticipated." But the investor has in many cases accumulated his investment fund the hard way—through periodic savings—and these advertisements too often have the flavor of confidence games. Usually he does not even go to the trouble to write for the "free information" because of a foreboding that this may be the beginning of the road to the complete disappearance of his savings, not high yield investments; and in many cases he is right. The advertisements do not much enlighten the non-professional investor since they often use specialized terms such as "cash throw off," "real estate syndications," "substantial discount," etc.

Yet the investor knows, if he has ever taken the trouble to investigate his own finances, that he may well be paying 12% per annum to finance his refrigerator or 16% to finance his automobile, particularly if he has bought a used one. At the same time he has often been made aware of the enormous profits made in real estate transactions, and he wonders vaguely why he can't get in on some of these profits without the attendant risks and time-consuming activities connected with buying and selling property.

It is the purpose of this book to explore the high yield investments in the area between the bank account at 3% and the stock market with its attendant risks. It is primarily concerned with the investment of sums of money which will give high fixed yields but which will be safeguarded and eventually returned. It will explore most of the kinds of offerings contained in the newspapers, in­dicating their strengths, weaknesses and pitfalls to avoid, so that the potential investor will at least know what type of investment is being offered, what yield in per cent he can reasonably expect, how he should go about judging the sound­ness of the investment, and what precautions he should take to see that his funds remain safe and intact.

The book is written primarily for the smaller investor who needs high yield, the man who has between, let us say, $5,000 and $100,000. If the $5,000 investor secures a return on his money not of 3%, or $150 per year, but 12%—$600 per year —his benefit will be material, not nominal. If the $100,000 investor receives not $3,000 but $12,000 the difference is great enough to mean complete financial independence.

While theoretically the large investor, the one with $1,000,000 and up, does not need to consider such investments, because his $1,000,000 in the savings bank yields him $30,000 a year, or his investment in tax free bonds at 4% yields him $40,000 a year not subject to income tax, strangely enough this is the type of investor who invests the most heavily in the types of opportunities examined in this book. Some of the very largest aggregations of capital in the world do little other than invest in mortgages at discounts, foreign loans, real estate syn­dications and investment partnerships. Strange as it may seem, the person least satisfied with a low yield is often the very wealthy person. If such people invest in the opportunities examined in this book, these opportunities deserve at least a quick survey by the smaller investor.

In a stable economy we might consider high yield investments as desirable but not necessary. But we are not in a stable economy. We are in an economy in which every year our fund of savings is worth less. Dollars in themselves mean little. They have meaning only insofar as they can purchase goods and services. Let us see how this purchasing power of the dollar fared since the end of the war.

With 1947-1949 equal to 100%, consumer prices rose to 102.8% in 1950. If we consider that at this point in history—1950—we have $102 in the savings bank at 3% interest we can get a strikingly clear idea of savings in a period of inflation.

By 1960—in 10 years—consumer prices had risen to 126.5%. Now if the $102 in the bank in 1950 drew 3% interest, after a hypothetical tax of 33%, the owner of the $102 savings account would find by 1960 his account had grown to $122. His interest didn't even enable him to keep up with inflation. He was actually poorer in 1960 than he was in 1950.

If a person were in the 50% tax bracket 4%compounded annually would amount to the same thing. He would have $122 in 1960, the same amount that the person in the 33% bracket would have with his return of 3%.

There is only one answer to the problem of merely preserving what savings you have—invest at a higher rate of return.

Consumer Prices, 1947-60
(Monthly data)