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austinhippie (83.04)

19th century literature and the difference between the ability to retire and to philanthropize

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November 30, 2008 – Comments (7) | RELATED TICKERS: PFE , JNJ , KRFT

As I consider what to invest in tomorrow when the market opens, I look at my portfolio and consider its allocation.  And I realize that although there are couple of small growth companies that I really want to add to my portfolio, I currently have a greater ownership of those kinds of companies in my portfolio and a lower portion of dividend paying companies like Pfizer (PFE), Johnson and Johnson (JNJ) and Kraft (KFT) than I would like to have in order to consider my portfolio well balanced.  So I will sift through various TMF newsletter recommendations and pick a few good dividend payers from the Best Buys Now lists.   I have dividends on my mind as a long term strategy for wealth creation and maintenance because I have recently seen on television and read in my books some 19th century references to financial success.

This year I have enjoyed the Jane Austen and Elizabeth Gaskell series presented by Masterpiece Theater on PBS. And last year it was more Bronte and Dickens.  It occurs to me that we are living in times that would have spurred great literary works from these authors and I am glad to see them on PBS.  In watching these and reading them, thoughts of how people make it through financially trying times turn over in my head.  What exactly is the contemporary equivalent of a "gentleman"? Is it the ability to retire? Is it the ability to act as a philanthropist?  What is the division between just being able to retire and being able to philanthropize?

A section in Gaskell's Cranford comments about "living off the four percents".  I draw from this that the gentlemen back in that day were aware of something we learn easily from reading on TMF or on MorningStar today, that to determine how much you will need for retirement, you should multiply your annualized monthly expenses by 25, and then never use more than 4% of your total per year.  Also I gather that in the 19th century, 4% was a rather common dividend rate paid out by banks and corporations.  And that if a gentleman wished to have his fortune outlive him, he must never tap in to the principle, but just use the dividends.  Also, to ensure a 19th century equivalent of a dowry for any daughters or to ensure an independent fortune for a son, a gentleman needed to not only use less than the 4%, but to save and invest from those funds in resources for his children and any surviving spouse.

The contemporary equivalent of a 19th century "gentleman" I must conclude, is someone who is able to retire.  In these days of relaxation at the holiday season I remember that it is not necessarily the most fun for me to not feel useful - idleness does not suit my temperment.  Therefore I set a goal that my second calling in retirement will be to actively philanthropize - to seek out those doing good work that makes me feel good and to help them attain the resources necessary to pursue that work.  But what is the financial difference between being able to retire and being able to philanthropize?  What was the difference in gentlemanly status between Mr. Bennet and Mr. Darcy in Austen's Pride and Predjudice?  The difference is in the amount less than four percent that each man needed to use per year.

Any amount below the annual four percent amount that is not used to pay expenses can be used to fund philanthropic goals.  For some people who have ammassed large fortunes (i.e. Mr. Darcy), the amount needed to support themselves may even be less than one percent of their total and threrefore, they would have a great amount more to give to their family members and to their philanthropic interests.  To my sensibility, it would be great to help meaningful non-profit organizations to create more sustainable futures for themselves by helping create and provide for their endowments.  But my goals are my own and others will have their own goals perhaps acheived through planned giving or other means.

What would Dickens write if he were alive today to see this mess we have gotten into, not just here, but world wide?  I can hear the severity of his condemnation echoing back through his works as I read them again today. So I take special heart in his Tiny Tim of A Christmas Carol, blessing us everyone.  Therefore as I contemplate which companies to buy tomorrow, I will consider carefully their Stewardship Grades in addition to their long term sustainable yeilds.

7 Comments – Post Your Own

#1) On November 30, 2008 at 1:57 PM, TMFSpiffyPop (99.24) wrote:

What a really very thoughtful, well-written, and timely reflection. I had missed "Cranford" on PBS, as well -- so extra bonus thanks as I add it to my Netflix queue.

Fool on!

--David 

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#2) On November 30, 2008 at 2:36 PM, johnw106 (61.79) wrote:

Thank you for reminding people that there is more to life than geting rich with money. A life that is rich with giving and caring makes one wealthy indeed.

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#3) On November 30, 2008 at 2:55 PM, Turtleread (65.21) wrote:

One of the most well-written and timely essays I have seen on this web site.  Kudos to you!

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#4) On November 30, 2008 at 3:12 PM, lollard (99.72) wrote:

This isn't my field, but as I understand it, "four per cents" referred NOT to what one could reasonably withdraw from principal, nor to common stocks, which were understood--especially after the collapse of the South Sea bubble--to be fairly risky investments, but to a specific category of government debt, the financial instrument in which most people of independent means usually had most of their capital.

Other forms of government debt included, for example, the Navy Fives, paying, naturally, 5%--though in 1822, the Minister of the Exchequer introduced a bill whereby some Navy Fives were converted to a four per cent stock and the holders were given additional principal.

Most people of a certain class would also own some property and land, from which they might derive varying amounts of income in the form of rents, though such property tended to concentrate in the hands of eldest children.

It's interesting to note that the most lucrative professions, such as money management ("City men") and import-export business, counted as "trade" and therefore virtually disqualified their practitioners from being gentlemen. The characters of merchants who grow wealthy enough to purchase titles but retain their underbred manners are stock figures in Victorian novels. In fact, the conventional attitude for much of the 19th century seems to have been one of well-bred disinterest in the specifics of financial dealings; real gentle people would have a "man of business" to manage their money matters, the ancestor of the modern financial advisor.

Professions such as the law (including Equity, in its legal sense) and medicine, were clearly more socially acceptable than "trade," and those educated clergymen of the Anglican church who possessed adequate livings in tithes and glebes were allowed to hobnob with gentry. Presumably these people, knowing their incomes would one day cease, faced the problem of saving for "retirement."

For a "real" gentleman, one without remunerative employment, the biggest concern was potentially capital-depleting expenses like unmarried daughters and wastrel sons. While inflationary pressures existed, these depended more on the scarcity and availability of goods than on addition to the money supply, which was tied to specie. In this context, 4% isn't such a bad return, but it's still easy to see why wealth among idle families accumulated on a multi-generational basis, and why marrying "well" was so important.

18th and 19th century English literature seems to have a horrid fascination with debt, often incurred by profligate sons at the gaming table and financed by borrowing against their "expectations" of inheriting, at fairly usorious rates of interest, thus "encumbering" estates even before they came into possession of them. Presumably the high interest rates here, as compared with the lower return of government debt, reflect the risk assumed by the lender!

a couple links that might be of interest:

 http://www.economist.com/finance/displaystory.cfm?story_id=5323633

http://www.jasna.org/persuasions/printed/number12/heldman.htm

 

 

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#5) On November 30, 2008 at 9:55 PM, johnw106 (61.79) wrote:

I remember reading some interesting books over the years that had "landed gentry" as the center characters. Some were fiction. Others were biographys. As the world industrialized and the peasants fled poverty to move to the city to work in factories it had a devestating effect on the large country estates. They simply had no labor to depend on and no taxes could be collected from the small hovels and lands that were usaly rented to the feild labor. This led to the following conditions.

The landed gentry wound up with lands and large estates but very little money. Often it was a struggle to pay the taxes , and often potential heirs would be left  holding nothing after the estate was sold off after the death of the parents. The fact was often hidden from children, as true gentlemen and ladies did not discuss financial conditions with other family members. Money was considered dirty and only the vulgar and unwashed heathens concerned them selves such trivial matters. The large estates were broken into parcels and sold off.

In the United States a similar occurence was further enhanced by the Civil War that preceded the industrial revolution. As the landed gentry lost their plantations and moved north to establish small businesses to take advantage of the cheap labor, carpet baggers moved in and bought the large estates. They then split these estates into parcels and sold them off to white trash. It would be many years before the south could reclaim some of its lost prestige and rebuild its wealth.

In todays world there are no true landed gentry anymore. The old money welath is encsonced in small enclaves hidden from the public. The new money wealthy tend to like large citys and penthouses. And the family farms that once covered thousands of acres now belong to conglomerates.

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#6) On December 01, 2008 at 2:56 AM, BigFatBEAR (30.06) wrote:

Austinhippie,

I really enjoyed the tie-in with 19th century literature and today's financial meltdown. Although I don't know much about the authors you discussed (or what PBS showed about them), I always enjoy it when the CAPS community ties investing into the broader world around us by making linkages others wouldn't have thought about.

I'm a young man who is also fairly enamored with thoughts of philanthropy, retirement, and dividend growth. In this downturn, I've been keeping my costs really low, and working 2 jobs so I can meet my financial goals. I hope to eventually do work with www.mercycorps.org, which I strongly feel is my calling in life.

I don't know a ton about the drug industry, but I have been considering JNJ as a long-term holding for my IRA. PFE has a higher yield and lower P/E, but doesn't seem as diversified, and also has been declining long-tem, while JNJ's price has steadily appreciated over the years. These technical concerns make JNJ a more attractive buy, to me at least. Both companies seem to be increasing dividends regularly.

What are these Stewardship Grades that you mention??

Good post - look forward to reading more from you.

-BFB

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#7) On December 02, 2008 at 10:56 AM, austinhippie (83.04) wrote:

I thank you all for your comments and feedback.  In response to BigFatBEAR: I also subscribe to MorningStar which offers stewardship grades on the companies they rate.  They are only a reliable resource for the larger companies though.  They hardly cover small caps, which are my primary investing interest.  But when I am looking for that kind of balance in my Portfolio, I first consult Income Investor and my other Fool services for their favorites and then I consult MorningStar.  For the small caps I know I have more leg work to do to get to the conclusion of my own due dilligence.  The Boards at the Fool are also a tremendous resource for getting a sense of the stewardship orientation of a company.  This year I have also shyed away less from calling a company, as is recommended in most of the writings of Peter Lynch.  In calling a company, you can ask about their investments in their community and about their environmental and social responsibility policies.

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