What caught my eye this week.
A bookish child – more wannabe poet than would-be Buffett – I first learned that some people could live off their capital from the novels of Austen, the Brontes, and Dickens.
So I was glad to stumble across this piece from April, where the author explores the context of the “£10,000 a year” passive income enjoyed by Jane Austen’s Mr Darcy.
From Pride and Prejudice:
“Mr. Darcy soon drew the attention of the room by his fine, tall person, handsome features, noble mien, and the report which was in general circulation within five minutes after his entrance, of his having ten thousand a year.
The gentlemen pronounced him to be a fine figure of a man, the ladies declared he was much handsomer than Mr. Bingley…”
Even the leanest pursuer of financial freedom wouldn’t consider £10,000 to be a sustainable income these days. I’m not sure it impressed me much as a kid, either, although I’d now respect it as suggesting Darcy boasted a pot of at least £250,000 (presuming he had a flexible withdrawal rate in play).
But 200 years ago, a passive £10,000 a year meant you were fabulously rich.
A previous piece by the same author, Joakim Book, estimated Darcy’s wealth might have a purchasing power of as much as £400m in today’s money!
Consol yourselves
Joakim’s newer article is a wonderfully geeky dive into the history of a particular kind of UK government debt – Consols.
These perpetual bonds were central to the financial planning of well-off families, such as the Bennets in Pride and Prejudice:
Once the Bennet parents pass away, the £5,000 of Consols could be divided equally among her children; Lizzy’s share would be a thousand pounds, which earns her an annual 4% interest return, or £40 (although maybe several year’s earnings for a regular worker, this was a rather small sum for such rich families – in contemplating Lizzy’s sister Lydia’s imprudent marriage, we learn that Mr. Bennet spent almost £100/year on Lydia’s purchases and pocket money alone).
Being liquid financial assets, dividing up the Consols among children was very easy, and their steady income stream ensured that they would have at least some income.
Bar Napoleonic conquest, the interest payment on the Consols would reliably show up year after year.
It was ever nice to be rich, eh?
Still, a 100% allocation to bonds? You won’t find that in any model passive portfolios today…
p.s. Thanks to The Details Man and The Accumulator for covering me for the past two weeks. Even if it was at the cost of their discovering how many hours Weekend Reading takes to compile and edit, and vowing never to do it again!
From Monevator
Summer time, and the living is easy. Slash lazy. Thank goodness we can order…
…from the archive-ator: Buffett’s folly: The dark side of compound interest – Monevator
News
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1
Sajid Javid: five priorities for the incoming UK chancellor [Search result] – FT
Home sales fell to a six-year low in June – ThisIsMoney
They became millionaires and retired at 31. They think you can, too – The Guardian
Fees will keep falling, spurring further industry consolidation… – Institutional Investor
…so one UK group says regulators should save small fund shops – Institutional Investor
Monzo warns young users over social media scams – ThisIsMoney
High-earning YouTube influencers need help to manage their millions – LA Times
The weird world of inverted yield curves – Coppola Comment
Products and services
Disruptive ETFs face their own disruption [from direct investing ESG solutions] – Yahoo
Ratesetter will pay you £100 [and me a cash bonus] if you invest £1,000 for a year – Ratesetter
Why Neil Woodford’s troubled funds may never recover – ThisIsMoney
A deep dive into biotech investment trusts – IT Investor
Got a £3m house budget? This Grand Design has had £1m lopped off its asking price – ThisIsMoney
Comment and opinion
Simon Lambert: What might Boris Johnson PM mean for your finances? – ThisIsMoney
The over-re-balancing act – Humble Dollar
How to handle the Diderot effect – The Simple Dollar
Money does not deserve the bad rap it’s getting – Bloomberg
Investment risk is a behavioural phenomenon not just a number – Behavioural Investment
You may have longer than you think to invest for retirement – A Wealth of Common Sense
Brussels sprouts, or the difficulties of selling useful financial advice – Epsilon Theory
Beyond Meat looks like a classic bubble stock – Ramp Capital blog
FIRE is for the few, not the many – Simple Living in Somerset
The definitive list of the best investing movies – RCM Alternatives
Why boring stocks are beautiful (but might be risky today) – Ensemble Investing
A private investor rejigs her asset allocation to dial down risk – Quietly Saving
Entrepreneurship comes with a cost – Abnormal Returns
Brexit
Boris Johnson’s Hen Do strategy for Brexit – Joanna Hardy via Twitter
How the Brexit debate was flushed down the drain – Tim Harford
Kindle book bargains
The Art of Asking: How I learned to stop worrying and let people help by Amanda Palmer – £0.99 on Kindle
#StandOutOnline: How to Build a Profitable and Influential Personal Brand by Natasha Courtenay-Smith – £0.99 on Kindle
Talking to My Daughter: A Brief History of Capitalism by Yanis Varoufakis – £1.99 on Kindle
More Time to Think: The power of independent thinking by Nancy Kline – £0.99 on Kindle
Off our beat
Digital dating is now by far the most common way to meet your partner – Guardian
As people celebrate migrant children dying in custody, has the internet made evil our new normal? – New Statesman
‘My oestrogen levels were all over the place’: when men have ‘sympathy pregnancies’ – Guardian
And finally…
“In reading The History of Nations, we find that, like individuals, they have their whims and their peculiarities, their seasons of excitement and recklessness, when they care not what they do. We find that whole communities suddenly fix their minds upon one object and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first.”
– Charles MacKay, Extraordinary Popular Delusions and The Madness of Crowds
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Oh come on. Only two Brexit links on a week like this one??
I can only assume that it’s all become just too awful to contemplate….
@Vanguardfan — I didn’t know where to start. :-/ That said I’ll add my crush Marina Hyde if she publishes today.
Ah but inflation was nearly non existent back then, so to get the equivalent today you’d need inflation linked Gilts. And if you’re earning £10k pa from inflation linked Gilts, you really must be fabulously wealthy.
> Lizzy’s share would be a thousand pounds, which earns her an annual 4% interest return
Interesting that the SWR was 4% back in the day ~ 1800, just like now. So much for all the rah rah human ingenuity and technical progress, you’d think the return on capital ought to be better now…
My wife owned consols back in the 80s through a broken trust. Undated stuff and miles below par. She sold them and just after they went on a bit of a bull run. A legacy of a previous generations mind set. Jane Austen’s values: he has £2000 a year…..
It’s great to have you and your interesting links back.
Sadly, Marina Hyde (also my crush) seems to be on holiday.
I loved the links on Darcy’s wealth. I have long thought my interest in a life of leisure supported by passive income originated in all the 18th century novels I read in my formative teenage years.
4% is great but what happens over time if inflation rears its ugly head, or your servants demand a pay rise?
This idea has lead me to reconsider investing for income as heavy dividend payers use their free cashflow to pay your income today and sacrificing growth tomorrow.
Who knows what’s best to do ? Bond yields are just terrible, tech stocks are bubbly and global growth wobbly.
I will stick with a global etf way forward as my main investments – maybe the least wrong choice.
https://www.epsilontheory.com/the-problem-with-brussels-sprouts/
Who the hell cooks brussels that way – I mean seriously
The Coppola comment “The weird world of inverted yield curves” seems confused. Inverted yield curves are perfectly normal. The problem comes from looking at the curve is spot space (i.e. say looking at spread between the 2y rate starting today vs. the 10y rate starting today). What you should always be looking at is the spread between rates in forward space (i.e. say the spread between the 3m rate in 3m time vs. the 3m rate in 5y time). Once you look at the yield curve in forward space, you see that in most cases the inversion is focussed in the next year or two at most (say between the 3m rate now and the 3m rate in say 18m time); the curve is positive thereafter. This simply represents expectations of rate cuts over the next year or two. It’s perfectly understandable.
She’s also seems to imply having a negative yield implies negative carry (or income). The German 10-year government, the Bund, may yield -0.4% but I can repo Bunds (i.e. borrow the money to buy those Bunds) at more like -0.8%. So I actually earn positive carry from owning them. Moreover, the 5-year German government bond, the Obl, yields -0.7%, so I also earn positive ‘rolldown’ on the curve between the Bund and Obl.
Where she is completely correct is that central banks are basically out of ammo or close to out of ammo. Fiscal expansion is only the way forward but governments seem completely stuck in the mindset that issuing government debt is wrong despite being able to issue at negative real rates or even negative nominal rates.
So Miss Bennet, remind me, what initially attracted you to the multi millionaire Mr Darcy
@ZXspectrum
“governments seem completely stuck in the mindset that issuing government debt is wrong despite being able to issue at negative real rates or even negative nominal rates”
Really? The US government debt is issuing more than $1tr a year (e.g. https://www.thebalance.com/national-debt-by-year-compared-to-gdp-and-major-events-3306287) and a Democrat in the White House would only redirect the proceeds rather than stop the huge sucking sound of capital funnelled into US treasuries
More locally Javid seems awfully keen to open the spigots too since he is an ex-Deutsche Bank financier of the ilk that drove the bank into the rocks and tiptoed away beforehand with big bonuses
Confidence is a fragile thing, ask a Turk
Wb TI.
Is it just me, or does anyone else love it when 48k talks dirty on Fixed Income? 😉
So the German government should be borrowing in Deutsch … oops, sorry, Euros, and buying US Treasuries. It’s win win.
Can anyone else remember the Harold Wilson years when anyone sensible kept some illicit Deutschmarks tucked away under the proverbial mattress? What should one use now? Swiss Francs, Singapore dollars, …? Just as anti-Corbyn insurance, you understand. Gold sovs too?
@ZX. Out of no doubt misplaced curiosity, how do you figure out for example the 3m rate in 3m time ? Is this calculated by subtraction and inference? Can you plot the implied 2yr rate for, say, the next two years and, further, how this fwd rate has changed over time?
‘My oestrogen levels were all over the place’
I once saw ‘chicken in an oestrogen sauce’ on the English menu in a restaurant in Prague. I assumed it was the best mistranslation ever, but maybe not…
@LukeM, Czechs must have a flair for this. Also seen on menu in Prague: “Food must be consummated on the premises.”
@MrOptimistic. Take a simple example. A 1-year bond, priced at par, yielding 5% and a 2-year bond, priced at par, yielding 6%. The returns on the 1-year bond is 5% over year 1 and the 2-year bond over two years is (1.06%)^2=12.36%. So the implied return between year 1 and year 2 is (1+12.36%)/(1+5.00%)=1.07%. So the 1-year yield, 1 year forward is 7%. This can be transacted by doing a cash for cash switch; selling the 1-year and buying the 2-year bond. The issue with looking at these forward rates historically is that the curve is not homogeneous. Every bond has a different issue size, supply-demand balance etc. So if you looked at a ten year history of the 1-year yield in 1 years time you wouldn’t be exactly comparing like with like.
A much cleaner way to look at forward rates is to use overnight indexed swaps (an unsecured 1-day lending rate) or something LIBOR based such as interest rate futures (Eurodollars, Short Sterling), forward rate agreements (FRAs) and interest rate swaps (IRS). As derivatives, these can de diced and sliced anyway you like. You can analyse histories of these forward rates and transact them in that format. So on Friday, I lent for 1-year starting in 2 years time (2y-1y) and, simultaneously, borrowed for 5 years, starting in 5 years time (5y-5y) in South African Rand using the IRS market.
@ZX. Very informative, thank you for taking the time and trouble to explain.
Mr Darcy probably invested in films (bodice rippers?) on the advice of his dodgy accountant….however tax rates were substantially lower back then.
“‘chicken in an oestrogen sauce'”
‘Cream of foul soup’ does it for me.
Don’t belittle a £10,000 pa income, those seeking a “risk free” (ha!) income will need nearly £1.6 million in 10 year gilts at current yields to produce the same.
Anyway, it is a stepping stone along the way. Sometimes the enormity of the task facing people seeking FIRE is daunting. A mountain to climb, it needs breaking into micro-goals along the way.
£10,000 in income (I’m thinking in portfolio natural yield terms here) maybe peanuts but it is a significant milestone as it was my first proper job salary, has 5 figures and also comfortably tops the new state pension. Lets just forget what the pounds are actually worth for now…will we break down through 1.22 tomorrow?
@The Accumulator – thanks for the answer on SLIS
@ZX/FvL
I’ve been thinking about leverage (IO mortgage, Margin loans etc). Being semi-retired it is a pain for moving house and FvL’s margin loan article was of great interest. Although retail (non sophisticated customers) seem to get less favourable terms.
10year gilts seem to have GRY of .6%, 15 year around 1% and as ZX mentioned some are even negative – is there an easy way to short these as it seems good value.
Happy to be told it’s stupid/ nonsense but I’d rather be selling than buying gilts on current terms.
Thanks
B
Ps IO offset mortgage is currently base rate + .75% for term, with 17 years remaining (they generously extended the term when I moved house 5 years ago.
@SemiPassive — Definitely wouldn’t knock £10,000 a year in passive income! Gets you halfway to a lean-ish financial independence in the UK I’d say, and really needs at least £250,000 in capital behind it.
However it would be universally acknowledged that possessing £1oK a year as a single man *today* is NOT enough to have women pursuing marriage across several hundred pages. 😉 At least not outside of an Irvine Welsh novel.
That’s inflation for you! 🙂