A GOOD deal has been written recently about the difficulties
in the path of the small investor. There is, first of all, the vexed question of the choice of security, which is accentuated by the difficulty of getting into touch with an agent who will not only be prepared to carry through small transactions, but is able and willing to give reliable and impartial advice. Even when these problems have been satisfactorily solved there remains the fact that, owing to the minimum scale of commission—which presses unduly on small transactions—and high stamp duties, the cost of making many small investments eats up any possible profit. Thus even the man who saves 2200 to 2300 a year is unable to spread his investments so as to reduce the risk of loss, and has neither the knowledge nor the means that would enable him to change them as circumstances might require. A fairly general recognition of these difficulties has resulted in the formation of the various Trust Companies. The older Trust Companies have been on the whole remarkably successful, and their success and the fact that their stocks are now so tightly held that they are scarcely ever obtainable have led• to the formation of other Trust Companies whose appeals for capital during the last few months have met- with a ready response. An investor in a well managed Trust Company knows that his money will be carefully invested, that his risks will be well spread, and that, owing to the expert advice obtainable by the managers of the Trust, any necessary changes will be made promptly and full advantage taken of fluctuations in the stock markets.
Investment through the purchase of the capital of Trust Companies thus undoubtedly obviates some of the difficulties of the small investor' but he still has to find an agent to buy the stock for him, he still has to pay commission and stamp duties, he cannot be certain that the stock will always be available, and still less can he be certain that he will live long enough to enable him to save sufficient to provide an income for his wife and family.
On the other hand, investment through the medium of life assurance solves, once and for all, all these diffi- culties.
Whereas the Stock Exchange observes an attitude of dignified indifference and does nothing to bring the public into touch with its members, the Assurance Companies pursue an entirely different policy and spare no efforts to secure new policyholders. Moreover, the standard of Life Assurance Companies in this country is now so high that, in spite of fairly wide divergencies in the terms obtainable, it may safely be said that a policy effected with any one of them will prove to be a satisfactory investment. It is not perhaps generally realized that Life Assurance Companies are the biggest and shrewdest investors in the country, their funds are immensely larger than the funds of the Trust Com- panies, and they thus have even greater facilities for investing on favourable terms and are better able to obtain, and act on, the best possible advice.
Other advantages are that the investment is made without any trouble or expense ; there are no commissions to pay and no stamp duties ; the same terms are given to the man who invests /5 per annum as to the man who invests 2500 per annum ; when once the initial invest- ment has been made—i.e., the first premium paid—. further annual investments follow as a matter of course ; the Assurance Company will never refuse to receive them nor make any alteration in the rate charged. But while a life assurance policy thus brings within the reach of the small investor all the advantages enjoyed by the big capitalists, it has advantages that do not attach to any other form of investment. Of these the most important is the valuable protection secured for the policyholder's dependents. This consideration should of itself suffice to compel every married man to include. a fairly substantial assurance policy amongst his invest- ments. There is nothing more striking than the appa- rently callous indifference with which many married men are content to think of, or rather to refrain from thinking of, the position of their wives and families in the event of their death. A man who will strain every nerve to support his wife during his life often appears to think that his obligation ends there, and does not realize that it is his duty to support his wife as long as she lives—which may be a very different matter. This can in most cases be done only by means of life assurance, for it is the only scheme of investment which will not collapse at the death of the investor.
A man aged thirty-five who can set aside £100 a year can secure a whole life with-profit policy for 23,485, or a whole life without-profit policy for 24,480. These sums would be paid in full should he die after the payment of even one premium, whereas, even if we assume that he is able to invest his money _regularly to yield him a net return of 4 per cent. compound interest, more than twenty-two years would elapse before his accumulations equalled the bare sum assured under the with-profit policy and more than twenty-five years before they equalled the sum assured under the without-profit policy.
Figures recently published by the Board of Trade, • however, emphasize the fact—well known to the assur- ance world—that whole life policies, such as we have dealt with above, are far less popular now than they used to be, and show that their place has been taken by endowment assurances. These figures showed that whereas the total of whole life policies in force, as given in valuation returns presented during 1919-1928, was £15,006,000 less than was Shown by a similar summary prepared ten years previously, there had been an increase of no less than £219,387,000 in the total of endowment assurances in force.
The reason for this is not really far to seek. In pre- War days, when taxation was lighter and the cost of living less, the balance of income sufficed to provide the premium for a whole life policy and yet to leave a reasonable sum for other investments, so that provision for old age and for dependents could be treated as two separate questions. Nowadays, with a 4s. 6d. income tax, and super-tax on the top of that, even the man who earns a large income would, if whole life policies were the only ones available, have to choose between providing for his dependents and providing for his own old age. An endowment assurance policy, however, enables both objectives to be attained at the minimum of cost. An endowment assurance policy, indeed, provides the best way of investing sums which, though small in themselves, will, with the passage of time and the accumulating effect of compound interest, provide a substantial amount at the end of the period chosen. Moreover, owing to the special income tax rebate allowed by the State in respect of amounts paid in life assurance premiums, the valuable assurance protection provided by this form of investment (and by no other) is obtained practically without cost to the policyholder. - A simple example will make this clear. If we take— as we did for the whole life premiums quoted above— the average premium of five first-class offices, we find that the annual premium for a 25-year-with-profit endowment assurance policy for 11,000,- effected -at age thirty, would be 140 4s. 2d. In respect of this premium income tax rebate at 2s. 3d. in the 1, or 24 10s. 5d. in all, could be claimed, reducing the net annual cost to 135 13s. 9d. The average bonuses declared by the offices whose rates form the basis from which our premium was derived were in excess of 85s. per cent, per annum compound, but we will assume that this is the rate that will be paid throughout the currency of the policy. On this assumption the sum that will be paid at the maturity of the policy will be £1,521, and this represents a return of all net premiums paid, together with compound interest throughout the whole period, at the rate of 18 18s. per cent. per annum.
A rate of £8 18s. per cent. may not appear very high in comparison with the yield of nearly 5 per cent. obtain- able on War Loan and of over 4i.per cent. on Conversion, but it must be borne in mind that this is a net yield and is not subject to income tax. With income tax at 4s. 6d. in the E, money would have to be invested at 15 Os. 8d. per cent. to yield E3 18s. per cent. net while anyone paying super-tax at, say, 3s. 64. in the E, would have to obtain a gross yield of- £6 10s. per cent. to get £3 18s. per cent. net. It is doubtless true that a fortunate investor will, on certain selected investments, obtain a higher yield than 5 per cent., or even than 6i- per cent., but there are very few investors who can hope to invest the whole of their savings over a long period of years to give them a higher return than 5 per cent. gross compound. This fact is not perhaps as generally realized as it should be, simply because people have a way of talking about their satishistory investments and of the profits made by successful speculations, while saying nothing about their accumulations of worthless certificates, or of their losses on unsuccessful speculations. Every solicitor or stockbroker, however, who has had many deceased estates through his hands, will bear witness to the frequent inclusion, even in the estates of apparently shrewd business men, of a more or less substantial proportion of bad investments, the losses on which make a very large hole in any profits that may have accrued.
We have emphasized this point because we have so frequently heard the objection raised to any suggestion of insurance : "Oh, I can invest the money to better advantage myself." Very often it is, alas ! only after some years and fairly heavy losses that the average young man finds that he is not the heaven-inspired financier he deemed himself to be, and then he is only too apt to avoid again the question of insurance on the ground that he is now too old and can no longer afford to pay the premium on any policy worth having. Ile fails to appreciate that a good policy is well worth some sacrifice—no one has ever heard a widow complain that her husband spent too much on life assurance !
The habit of investing in assurance should be acquired as early as possible, and for this reason one of the best presents that any father can give to his child is one of the deferred assurance policies which of recent years • have become so increasingly popular. Under this table a with-profits endowment assurance for 11,000, giving genuine assurance from age twenty-one and maturing at age fifty or sixty, can be obtained for a child aged one next birthday at an annual premium of about £12- 10s. or £10. The policy remains under the complete control of the father until the child attains age twenty-one, when it enters into possession. At that age he will realize the magnitude of the benefit as compared with the smallness of the cost, and will the more readily pay the small annual sum required. Thus the foundations of a thrifty nature will be soundly, if almost imperceptibly laid, and further assurances will be readily effected as circumstances improve.
And here something may be said on the need for - progressive increases in the amount of assurance carried to keep pace with the increasing income a man earns and his corresponding increasing value to. his family.
One often comes across people who, having effected a small policy in early life, or at the time of their marriage, think that they have done all that can be expected of them, and who, as their income increases, are inclined to consider insurance as less necessary when it is really more imperative than ever. To take an example : if a young married man, earning, say, MO a year dies, and leaves his wife the 'proceedsof a policy for /1,000, she, being still young and accustomed to rigid economy, will find the amount of great assistance in enabling her to maintain approximately the same standard of comfort she ' enjoyed when her husband was alive. If the husband does not die early, however, and his salary rises to -1500,1700 or £1,000 a year, the standard of living rises, the wife comes to rely more on servants and on her little comforts. Then the husband dies. The widow can no longer supple- ment her income by earnings ; there has been no time to accumulate any substantial savings, and the original assurance for E1,006; which has never been increased, now proves pitifully inadequate to the widow's needs. If only further insurances had been effected with each increase of income, how different the position would have been.
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