In Jane Austen’s Price and Prejudice, Mr. Darcy attends a dance at Netherfield Park, a country estate leased by his friend. His entrance electrifies the ballroom.
“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.”
In 18th century England, upper-class young women hoped to achieve financial security and social ascendance with marriage to an aristocratic rentier. Mr. Darcy is a cash flow as much as a man.
When we leave paid employment, we’re not too different from the young women who contemplate Mr. Darcy’s cash flow. Our financial future may not depend on marriage to the English gentry, but we need to generate income from our assets to finance life after labor.
The Bank of England has tracked lending rates since 1694. In the late-1700s, when Mr. Darcy and Elizabeth Bennet began their contentious courtship, lending rates hovered between 4% and 5%.
Risky assets such as ownership in trading companies and the manufacturers that launched the industrial revolution might have been expected to generate yields of 7% or 8%. Let’s assume that a portfolio split between lending and ownership would produce an annual yield of 6.5%. To generate cash flow of “ten-thousand a year,” Mr. Darcy would need capital, or savings, of about £154,000.
By the end of 2021, lending rates in the United Kingdom and the United States had tumbled. A 10-year U.S. Treasury note yielded 1.24%. The equivalent U.K. security yielded less than 1%. Expected returns on U.S. and U.K. stocks, the modern-day equivalent of pre-Victorian trading companies and manufacturers, had tumbled to, say, 4% or 5% per year. To generate “ten-thousand a year,” Mr. Darcy would need savings of at least £321,000—more than double what he needed in pre-industrial England.
This chart displays changes in the amount of capital necessary to generate Darcy’s “ten-thousand a year” with a portfolio split between lending (U.S. Treasury yields) and ownership (U.S. stocks) over the past 60 years. I compare this figure with what Darcy needed in the late-18th, early-19th century.
For most of the 2000s, rising stock prices and shrinking bond yields have meant that we needed increasing amounts of capital to generate $10,000 in annual income. In 2021, the figure peaked at $725,000, almost five times what Mr. Darcy needed. Since then, bond yields have risen. On October 13, 2023, the 10-year U.S. Treasury note yielded 4.6%, three times its rate at the end of 2021. Stock prices have drifted lower.
These adjustments have reduced the value of our existing stock and bond holdings. But these declines have a silver lining. Lower prices mean that we can expect higher stock and bond returns in the future. We now need some $350,000 in capital to generate annual income of $10,000. That figure is more than twice what Mr. Darcy needed, but the difference has narrowed.
–A. Clarke