Marketable Securities — Are They The Right Investment for You?

by David Jenyns on September 24, 2007

When one has invested money in the market, it is imperative to consider the particular marketable securities to buy. Which marketable securities are chosen is dependent upon one’s own temperament and financial objectives.

Consider one’s temperament first. A nervous, worrying type who broods over a day’s stock-point loss is a conservative investor. Speculation may not be the appropriate security for the conservative investor. Instead, the fixed income or steady dividend-paying stocks may be appropriate for a conservative investor.

The fixed income varieties first are bonds and preferred stocks. These are usually most attractive for purchase when the stock market is very high: when buyers will purchase stocks at yields of 3% or less.

Making a selection of bonds is not difficult with the plethora of guidance available. The safest bonds are U. S. Government issues. Usually ranked next on a quality basis are prime municipals obligations of states and cities. Municipals are prized not only for their safety of principal and certainty of income but because the interest they pay is exempt from federal taxation and from income taxes in the state of issuance. This provision can be of great value to wealthy individuals in the higher tax brackets. In general, bonds of the highest quality have the lowest yield.

Bonds are a fine investment, wonderfully marketable, fine collateral, safe and steady income producers, but bonds are static investments. They offer no element of growth either in interest income or in principal value. The right bonds bought at the right time may deliver fine yields, and it is to bonds that shrewd investors turn for protection of their capital and salting away profits when stocks start to decline after a long rise.

The second fixed income type security for conservative investors is the preferred stock. While bond interest must be paid, preferred dividend payments depend on earning power. In general, if a company earns bond interest three times over in a given year, the interest coverage is considered quite safe. Preferred stock should also be cumulative so that if it should pass its dividends in a year of poor earnings it may make up the payment to the buyer later on.

For those less daring by nature and motivated more by a desire to conserve than to expand capital, the fixed income marketable security bonds and preferreds may prove useful. Both securities are valued primarily for safety and stability.
Bonds and preferred stocks are essentially defensive investments. They aim to protect the invested funds, but they are not designed to advance or to expand in value. So be sure to take this into consideration when planning your investments.

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