Beating inflation versus hedging against inflation

Signs of higher inflation abound. Beating inflation to preserve spending power is therefore high in many investors’ minds.

Bank of England chief economist Andy Haldane chimed in just this week, reports Reuters:

“If wages and prices begin a game of leapfrog, we will get the sort of wage-price spiral familiar from the 1970s and 1980s,” Haldane said, adding that inflation would not be on the same scale as in those decades.

In an interview with LBC radio earlier on Wednesday, Haldane said inflation pressure in Britain was looking “pretty punchy”.

9 June 2021, Reuters

Of course, predictions of higher inflation rival England’s football team for hype versus reality.

Surging inflation and English football glory have both been notably absent for many decades.

Inflation’s coming home

Indeed, one way to preserve the real value of your pound would have been to bet against England at every major tournament in my lifetime.

You’d probably have multiplied your initial stake nicely by betting that way – and reinvesting the proceeds each time.1

Betting against England might be a way of beating inflation.

However nobody sensible would say betting for or against England was a way of hedging against inflation.

While I haven’t earned a PhD crunching the numbers, England’s footballing performance surely has no correlation with inflation.

A sports team – and hence your bet – will win or lose irrespective of the inflation rate, in other words.

Whereas a hedge against inflation would be expected to protect against a decline in the spending power of your money due to rising prices.

Multiplying money via a wager – and so getting more spending power, beating inflation – doesn’t mean you actually hedged against inflation.

Beating inflation with a Banksy

So far so obvious – albeit dispiriting for England fans.

Yet the same confusion between beating inflation and hedging against inflation appears often in the investment world.

Right now asset managers are marketing their products as inflation hedges.

Here’s an advert I saw on Facebook under the banner: “Want a hedge against inflation? Invest in art today.”

Inflated expectations

Who wouldn’t want a 16,347% return over 13 years? Sign me up!

Actually, not so fast.

On these numbers, this (unnamed) piece of art would have been a fabulous investment.

But the advert tells us nothing about whether art is good for hedging against inflation, as opposed to beating inflation.

True, the 16,347% return equates to almost 50% a year on a simple annualized basis. Unless you’re getting clobbered hyperinflation, a 50% return a year will surely do a good job of beating inflation.

It would also turn anyone with a few paintings in their attic into multi-millionaires.

But I’m highly skeptical that anyone should expect a typical piece of art to go up in value near-50% a year over the next 13 years.

Annual returns around the 7-8% range from art are more typical what I’ve seen touted.

Yet even if your art choice did so well, I’d congratulate you on your luck or a great eye – but not necessarily on your choice of an inflation hedge.

At least not just because its price went up a lot.

To view art as an inflation hedge, we’d need a thesis as to why art should hedge against inflation (easy – real assets tend to go up over time, with inflation) and data showing correlation (I’ve never seen that for art).

Equities have a record of beating inflation

What about shares? Many people – me included – tend to think of equities as protecting against inflation.

We have our reasons. Companies can lift prices in response to inflationary pressure. They often own real assets such as land and property. Over time profits and dividends can rise – in contrast to bonds with fixed coupons. All of this means share prices can rise in the face of higher inflation.

However the authors of the Credit Suisse Equity Yearbook refute this notion.

The renowned academics divided equity and bond returns into buckets representing different inflationary regimes – from marked deflation through stable prices to very high inflation – as follows:

Source: Elroy Dimson, Paul Marsh, and Mike Staunton, Credit Suisse EY 2021

Their work shows the return from bonds varies inversely with inflation. At times of deflation (left-hand side) bonds do very well. They get smashed by high inflation (right-hand side).

Equities do much better than bonds most of the time – the exception being times of extreme deflation.

But real returns from equities are negative with very high inflation, although they still beat bonds.

We can’t really call equities an inflation hedge then. Not when their real return falls with high inflation!

The professors note:

These results suggest that the correlation between real equity returns and inflation is negative.

i.e. equities have been a poor hedge against inflation.

There is extensive literature which backs this up. Fama and Schwert (1977), Fama (1981), and Boudoukh and Richardson (1993) are the three classic papers.

Credit Suisse Equity Yearbook, 2021

If this fact is so accepted in academic circles, why do we think of owning equities in the face of rising inflation?

It’s because the returns from equities have a strong record of beating inflation over the long-term.

Shares do not hedge against inflation. But the magnitude of their out-performance versus other assets means over many decades and cycles they’ve typically delivered the best returns, easily beating inflation.

What assets really hedge against inflation?

Generally you want to own real assets – ‘stuff’ – when inflation takes off, if you want to hedge against inflation.

After all, inflation in part expresses how the price of stuff is changing.2

The following from Bank of America (via Trustnet) shows such correlations:

Source: Bank of America

Most things are positively correlated to inflation over the long-term.

Even cash! (That’s because interest rates tend to rise as inflation rises.)

The big exception is long-term government bonds. These are negatively correlated.

If inflation heads a lot higher then you’d look at returns from long-term bonds through your fingers. From behind the sofa.

Note the image shows correlations, not past or future returns.

The price of platinum is strongly positively correlated to inflation. That doesn’t mean platinum will necessarily be a brilliant investment.

Picking your poison in 2021

The best hedge against inflation are products designed for that purpose.

Index-linked government bonds, perhaps a basket of inflation-linked corporate bonds, or NS&I index-linked certificates.

However index-linked bonds are very expensive today. They are vulnerable to interest rate rises.

Corporate bonds introduce credit risk.

As for NS&I certificates, they aren’t even available to new investors. They also pay a pathetically low real return to those who already own them.

You’ll be hedged against inflation with NS&I index-linked certificates for sure. But you’re guaranteed to only just beat it…

Beyond that – and set against everything I’ve written above – I believe most of us should concentrate more on beating inflation than hedging against it. For a private investor with real world spending concerns, the long-term outcome is more important than the short-term correlations.

For most of us that means a healthy allocation to assets like equities and property – and crossing our fingers that we don’t face 20 years of stagflation. (You might want to own some gold in case of that).

Given how strongly correlated bonds are to inflation – they will surely do badly when inflation is running hot – you could argue holding fewer in a portfolio is also an effective way to dial down inflation risk.

However the more you reduce your government bonds, the more exposed you are to stock market falls – and also to deflation.

Beating inflation over the long-term

Finally, what do you know about inflation that the market doesn’t? It’s been constant media chatter for months now.

Someone somewhere is always warning of higher inflation.

I first saw that Bank of America forecasting imminent inflation – complete with an earlier version of its correlation image I included above – in the Financial Times in 2016.

And before that, at the start of QE I worried – like most people who didn’t work at the US Federal Reserve – about the inflationary consequences of monetary expansion.

Well it’s been 12 years and we’re still waiting!

Remember, if you’re working your income is likely to rise with inflation. Also if you own a house with a mortgage, over the medium-term inflation will probably push up prices while whittling down the real value of your debt.

Passive investors are probably best mostly sticking to a diversified portfolio, with a mix of assets aimed at beating inflation over the long-term, while also guarding against other scenarios.

If you want to gamble, punt on your national football team!

I’m assuming you’d earn a return on your stake between tournaments. And I haven’t done the maths! But given England hasn’t won anything since the 1960s I’m confident.
The other part is changes in the price of services.

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How to manage multiple portfolios

Many in the Monevator community ask about how to manage multiple portfolios, especially as part of a single family household.

Reader Sunil sums up the dilemma:

I understand the importance of diversification, but what about across multiple portfolios?

I have a SIPP and ISA, and run a SIPP and ISA for my wife. That’s four portfolios.

I’m not sure it’s prudent to pick the same set of funds for each, or even the same kind of asset split across all four.

I find it incredibly difficult to decide across four portfolios. Add to that, both my kids now have ISAs – I might end up running six portfolios!

Any thoughts?

The standard advice is that different investment objectives are best handled by separate portfolios, each with their own asset allocation.

For instance it’s very likely that the goals for kids’ ISAs are quite different to that of the adults in a household.

The latter tend to be into boring stuff like retirement. Children less so!

One thing to rule all your multiple portfolios

When family members share an objective, the standard advice is to treat your various accounts as a single portfolio.

That keeps things simple – assuming you have joint finances.

With the single portfolio mindset, there’s no need to replicate your 5% gold allocation, say, across four different accounts. You can keep your gold fund in one place and so avoid multiplying your dealing fees per account.

This ‘notionally single portfolio’ approach helps with tax-planning, too.

For example, you could tilt towards equities in your ISAs, and bonds in your SIPPs, to avoid breaching the Lifetime Allowance on your pension.

To recap, the basic advice is:

One family portfolio per shared investment objective
Spread across multiple accounts as needs be
Using a single asset allocation

I recommend keeping track of this gestalt portfolio with a tool like Morningstar’s Portfolio Manager.

The tax problem with multiple portfolios

That’s the standard advice, and it’s perfectly sound.

I came to regret it, however.

I ran the family Accumulator’s accounts as a single portfolio. We held different equity sub-asset classes in our SIPPs and all seemed well.

But one sub-portfolio did much better than the other. And so one now looks like the pumped-up arm of an Olympic javelin thrower. The other like a T-Rex’s puny forelimb.

Okay, the difference isn’t that extreme but one portfolio has certainly been much luckier than the other.

That’s because it holds the lion’s share of our US equities. And they’ve beaten the bejesus out of everything else.

As a consequence, we’ll have to drawdown harder on this over-performing portfolio.

A more even split of our bills would be more tax-efficient. Now we’ll pay more income tax as one SIPP portfolio tunnels more deeply than anticipated into a pricy tax bracket.

A richer family than ours could also trigger Lifetime Allowance events if one of their SIPPs was particularly over-stimulated.

If your SIPPs won’t dance on the borders of the tax bands then it won’t matter. But for anyone young-ish or rich-ish, that’s hard to predict.

It’s not just SIPPs

You could also face the same predicament if one family member’s General Investment Accounts bursts its tax-free banks excessively.

Theoretically this shouldn’t matter for stocks and shares ISAs because they’re tax-free.

Except they’re not quite… Because if you die (god forbid) then ISAs lose their tax shield – in the event that you pass them on to anyone except your spouse or civil partner.

That would include your unmarried partner, kids, or favourite pet gerbil.

In these cases your ISAs also fall into the Sarlaac Pit of inheritance tax. And hence they are no longer really tax-free.

ISA assets affect your eligibility for many mean-tested benefits, too, whereas pre-retirement assets sitting in a pension scheme do not.

Being caught out by any of these scenarios might leave you worse off as a family unit than if you’d just set up two mirror portfolios.

In retrospect, I wish I’d mirrored our respective holdings so we could spread the tax burden more evenly across our tax allowances.

Of course, mirror portfolios do double your dealing fees.

But you can dodge that hit by using multi-asset funds like Vanguard LifeStrategy, or at least minimise the impact by choosing simple two or three fund portfolios.

Platform collapse

Lopsided portfolios could also hurt if your investment platform / broker goes bust. Your assets are likely to be frozen while the administrator cleans up the mess.

What’s that? You had the foresight to open your partner’s accounts at a completely different platform that’s unaffected by the upheaval?

Okay, but sadly your broker was swept away in an economic tsunami that’s also wiped double-digits off your partner’s portfolio because the low-risk bonds were in your accounts.

And let’s say in this (hypothetical, somewhat extreme) example that it takes more than a year to unfreeze your assets.

Meanwhile, household bills surround you like kung-fu baddies. The only way to fend them off is by selling your partner’s equities when they’re down. Which is something that ideally you’d never want to do.

Granted, this is a low-probability scenario. But it’s one you can strike off your worry-list by maintaining a strong slug of low-risk assets in both partners’ portfolios.

Ask the Monevator massive

These may be edge cases but the standard advice doesn’t always apply when it collides with the quirks of the UK tax system. I had no idea The Accumulator family would be an edge case when we started out.

I’m interested to hear how the Monevator community manages multiple portfolios. Please let us know how your household handles this problem in the comments below.

Take it steady,

The Accumulator

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Can dogs and financial independence go together?

This article exploring dogs and financial independence is by The Mr & Mrs from Team Monevator. Check back every Monday for more fresh perspectives on personal finance and investing from the Team.

When The Mr & Mrs moved out of London, top of my – The Mrs – agenda was getting a dog. My husband and the youngest child were less keen.

My childhood memories centred on rural adventures accompanied by various dogs – all long gone now to the Great Kennel in the Sky.

The Mr grew up in a pet-free house on a busy city road.

The Mr: Actually we had cats for a time, but I don’t talk about them. They weren’t as much part of our childhood. Cats aren’t part of the family like dogs. And we got fed up with them being injured or worse on the road.

“Dogs are like toddlers,” I tell The Mr, setting back Project Dog by 18 months. (Both of us had endured our kids’ pre-school years in a blur of exhaustion.)

Dogs are also more expensive than back when I paid £35 for my first dog, aided and abetted by my mother.

I’d washed cars, weeded gardens, and sold homemade biscuits. I’d diligently coloured in each pound I earned on a ‘sweat’ chart. And, for every £5 I raised, my parents pledged to buy a piece of essential kit starting with the feeding bowl and culminating in a dog bed.

Enter Show Dog

My first dog – hereafter called ‘Show Dog’ – set a high standard. I chose her from a squealing litter of pups and, unwittingly, picked a champion.

This is roughly akin to a rookie investor picking Tesla shares in mid-2019 on the basis that they liked the company name.

It didn’t take long for my mother to realise my pedigree pooch was a perfect specimen of her breed – or that serious money could be won at dog shows.

Our weekend routine changed as I learned some simple cost-benefit analysis featuring:

The type of show, number of classes for which Show Dog was eligible, and total entry fees payable.
The unit price of petrol, a guesstimate of mileage and travelling time, and the allocations of prize money.
The random element – the judge. Show Dog was the blackest black and was unlikely to be highly-placed by a judge known to prefer blondes…

There were highs – seven rosettes in one show!

And there were lows, such as the time Show Dog refused all instruction at a Very Important Event, careered around the ring, and leapt up to kiss the judge’s nose.

We drove home in silence, brooding on the financial hit.

Positive financial returns

Training, showing, and breeding dogs was not my family’s livelihood.

(If you are interested in showing your dog or other competitive activities like agility or flyball, then Crufts’ resources are a good place to start.)

No, Show Dog’s success was unusual; she was a child’s pet. Show Dog was fuss-free (no clipping required) and barely saw the vet.

Her winnings paid for her keep. Her two litters of pups covered their costs with extra to spare. One puppy even had a lucrative turn as a ‘moveable prop’ in a big-budget Hollywood film.

Overall verdict: Over her lifetime, Show Dog made a small net financial contribution of approximately £200 to the family income.

Beware of the Diva Dog

Not every dog is as cost-effective as Show Dog turned out to be. In contrast, the dog I chose as The Mr and Mrs’ first family pet – Diva Dog – has been a constant drain on the family coffers.

Diva Dog confirmed all The Mr’s misgivings about mixing dogs and financial independence.

From her puppyhood, Diva Dog was charged with three strategic objectives:

Train the whole family in handling dogs. Specifically, cure the youngest child of a crippling fear of dogs. (A drastic solution, I know. There’s good advice at Dogs Trust.)
Create positive family memories and act as a canine counsellor for the children at stressful points in their lives, like exams or friendship fall-outs.
Assist in the family’s fitness regime. Model good health, and rarely trouble the vet.

In fairness, Diva Dog excelled in the first two tasks.

However, my Midas touch deserted me when choosing Diva Dog from her siblings. Instead of spotting championship potential, this time I paid £850 for what was probably the runt of the litter (and during lockdown prices have risen substantially since then, too).  

The Mr: We paid how much?!

Diva Dog is much smaller than her breed standard. She has long fur and panics at any loud noise, despite coming from working gundog stock (though she does love a karaoke party).

Diva Dog is an expert counter-surfer and pavement-snacker. No food is safe from her snout.

And here’s the rub: Diva Dog is hyper-allergic to almost everything, especially commercial dog foods. So Diva Dog’s endless scavenging means she is on first name terms with all the vets and nurses at our local practice.

Start-up costs: purchase, vaccines, essential dog kit, micro-chipping and basic obedience classes – around £1,400 (in 2013 money)

Ongoing costs: specialist food, standard (wormers, flea and tick) and prescribed medicines for ear/skin flare ups; kennels or holiday pet insurance; general pet insurance, replacement toys, and so on. In 2020, Diva Dog cost almost £1,700.

Overall verdict: Diva Dog is a financial liability!

Owning a dog is a lottery

Show Dog and Diva Dog are financial outliers. Most pet dogs will fall somewhere in the middle. Lifetime costs can vary wildly, even between dogs of a similar age, size, and breed.

You might re-home a rescue puppy that needs behavioural help. You might choose a retired working dog that arrives fully trained but gets increasingly expensive to insure. Or you might experience a change in your circumstances and need to pay for daily dog walking for your pet.

But the real cost of dog ownership lies not in money. It’s measured in time.

The time factor

When people say they’d love a dog but can’t afford one, what they usually mean is they don’t have the time.

And, if you lack time, then owning a dog – with or without a quest for financial independence – is not for you.

Dogs are social creatures. While some dogs may be shy introverts, most want to be with you, at the centre of things. No dog wants to be left in solitary confinement all day, every day. The general consensus is that four hours during the daytime is the maximum length of time to leave a dog on its own.

The Mr: For me, the key is that they are part of the family. Consider your dogs in all decisions, just like you would any other family member.

For most people on the path to FI, it’s less a question of having enough money for a dog, and more about existing and future time commitments.  

Perhaps you work from home and choose to slow down? You sacrifice a year or two to reaching your FI number in exchange for canine companionship on the path to financial freedom.

Or maybe your FI strategy is to work long hours, create a dog-budgeted savings goal, and then to look forward to early retirement.

Either way, know there are ways to get a dog-fix without the need for potentially expensive ownership. For ideas, take a look at Walk My Dog, Cinnamon Trust, or guide dog fostering.

In praise of dogs

If dogs are expensive and eat into all your available time, then why own one?

It’s certainly a mystery to friends who are happily dog-free.

As I type this blog, Diva Dog is snortling in her basket – a reassuring sound – and The Young ‘Un is keeping my feet warm.

My dogs will get restless if I sit still for too long so I have no need of a Fitbit, Apple Watch, or timer.

There’s less need to pay for exercise classes. Every day in all weathers I’m out with the dogs. And dog walkers are a sociable crowd, even at 6am.

Whenever somebody or something is outside of our house I have an early warning system.

I am no longer susceptible to fast fashion. There’s no point wasting money on strappy shoes or silk dresses when I’m mostly wading through puddles.

Finally, I have canine companions who are quick to tune into emotional moods. They snuggle up when they sense you are sad and become playful when they can tell you are happy.

The Mr: This last one is literally priceless!

Dogs and financial independence

Here are a few top tips if you’re still interested in owning a dog.

Research, research, research

Assess your lifestyle honestly and choose a dog breed that’s a good fit. Even if you want a rescue dog of uncertain parentage, different breeds have different behavioural traits. Check out the Kennel Club’s databases. Also try Crufts Meet the Breed, once this sort of thing restarts.

Shun the puppy farm

Always get your dog from a reputable source, whether it’s a friend whose dog has puppies, a rescue centre, or a Kennel Club Assured Breeder. This will also minimise your risk of buying a stolen dog. Ideally you will see the mother, if buying a pup. Expect the breeder or rescue centre to ask you searching questions about your ability to keep a dog!

Dogs are valuable

Make sure your garden boundaries are escape-proof. Periodically recheck them. Crawl around your rooms to discover what a dog – especially a teething puppy – might find interesting. Microchip your dog, and attach a collar tag with just your mobile or landline details. Don’t skimp on vaccinations.

Invest in training

Basic training at village halls can be crowded, noisy, and confusing for you and your dog. It can pay dividends to have a trainer come to your home, especially if you have never owned a dog before or several family members are giving the dog different commands. Classes can bore clever dogs. Taking them to flyball, agility, or similar sessions will be fun, while sneakily improving overall obedience.

Don’t shop around on insurance

If you have pet insurance and have made any claims, resist the temptation to shop around for a cheaper renewal. Insurers will not cover preexisting conditions, so you may end up paying for any ongoing ones on top of your insurance. It’s galling to see the premiums mount up each year, but there it is. And of course as your dog gets older they will be more expensive to cover. You can self-insure if you are very disciplined. Set aside what you would have paid on insurance each month and use that to cover vet bills.

Be patient

It takes time to gain a dog’s trust and loyalty. Be kind. Be consistent. Look forward to seeing a happy wagging tail each morning!

Owning a dog may prolong your journey to financial independence. But what matters most is being judicious about what you sacrifice, rather than giving up everything you want along the way.

In The Mr & Mrs’ household, our dogs and financial independence have – on balance – been reconciled. The dogs help us stay on the path to financial independence. Because we are all in it together.

In time you will be able to see all The Mr & Mrs’ articles in their dedicated archive.

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Weekend reading: The sci-fi stock market

What caught my eye this week.

The sky above the port was the color of television, tuned to a dead channel.

So runs the first sentence of William Gibson’s Neuromancer, a book I first read as an 11-year-old and have judged technology against ever since.

As one of the first few thousand people in the UK to encounter the ‘World Wide Web’ in the very early 1990s, I half-saw Neuromancer becoming half-true.

Admittedly I wasn’t sliding through coloured shards of anti-viral software in a 3D manifestation of hyperspace.

But I was chatting to equally astonished kids in faraway Hyderabad. And I had an alternate life as a Dwarven catburgler in a multiplayer text-based MUD.

It was the shape of things to come.

All together now

To be honest, I’ve not re-read Neuromancer for 20 years. Which is probably why reality seems to be catching up, regardless of what Gibson actually wrote.

For example, I remember a scene in which a flash mob is summoned as some kind of tactical distraction, and the attendant street punks and ne’er-do-wells cause mass chaos both on the ground (or in ‘meatspace’, as the cyberpunks called it) and across various digital venues.

I’m not sure this scene takes place. Thinking about it now, I suspect it might have been in one of the sequels.

But it certainly should have been in an early Gibson novel, because the man was a visionary about the unintended consequences of hooking humanity up to – and together with – technology, and those consequences are running amok in the stock market today.

Now showing

How else to explain the loony activity we now routinely see in the stock market each week?

The latest was a re-run of the Gamestop drama from earlier this year, only the meme stock in the spotlight this time was US cinema chain AMC.

Shares in the hitherto struggling operator doubled in a day. At one point it was up around 30-fold for the year. A giant push by retail traders from Reddit (and piling-in professionals) took the market cap to $30 billion.

Showing a commendable nimbleness at getting with the program, AMC management first wooed its new small owners with free popcorn. It then (rightly) dumped a load of new shares on the market to raise hundreds of millions of dollars the next day.

So AMC’s future (though not its sky-high valuation) looks assured for now. All without a corporate restructuring or a tense boardroom meeting with bankers on Wall Street in sight.

In some corners of the market, this is how the game is played these days.

It’s fake it until you make it on a corporate scale.

Page not found

It makes me feel old, if I’m honest. As Ben Carlson writes on his blog:

The strange thing about this meme stock saga is we have and have not seen this movie before.

Yes, speculation is as old as the hills and that part of the markets will never go away.

But this is also very different from past excess.

This isn’t some hot new innovation people are bidding up in hopes it becomes the next big thing. This is a company people know is not worth its current value. No one is even pretending that’s true.

This is the internet bleeding into the markets in a big way. It’s a coordinated viral meme working its way through the stock market.

Ben nails it here. Like him, I believe the frictionless physics of the Internet has found its real-world proxy in the shadow theater of the financial markets, and the Internet-raised youngsters are having a field day.

And so, increasingly, are the professionals. Hedge funds struggling to gain alpha in the mostly-efficient market must see excess irrationality to be gorged upon in these recurring bouts of zania.

As Michael Batnick puts it:

Small money might have lit the match, but big money is pouring gasoline on the fire.

Indeed while it’s still tempting to dismiss the meme stock pops and flops as an short-term consequence of bored lockdown trading, we can also see the outlines of how history will remember this era in wider market trends.

For another incarnation of the zeitgeist, see the SPAC boom in the US. That’s seen hundreds of companies raise many, many billions for what are euphemistically called ‘blank cheque companies’.

You might argue there’s a legitimate case to take companies public this way, especially if you’re one of the key promoters who got unfathomably wealthy from mad fad.

But that doesn’t explain SPAC’s sudden explosion in popularity. Cheap money and this Fake It ‘Til The Market Makes It mindset does.

Then of course there’s crypto, and Elon Musk sending Bitcoin hither and thither with a Tweet. Once an outlandish outsider, Musk’s antics over the past few years are starting to seem like they were the shape of things to come, like a Shane Warne or John McEnroe of the markets.

Retire to a quiet room

Some old hands see a return to normality with crypto recently crashing, SPAC enthusiasm dying down, and the price of the frothier tech shares also falling.

Well maybe.

Short of the punchbowl suddenly getting yanked by either the markets or by Central Banks, I suspect Josh Brown may be more on the money in a brilliant essay for Fortune:

Jerry’s not on Twitter. He’s tired of hearing about all the rhetorical twists and turns on the app that are constantly pushing his stocks around.

Sports commentators and actors turned venture capitalists are causing gyrations in the value of his retirement portfolio with their online antics.

Remember when stocks traded on fundamentals? Or at least they traded based on people’s perceptions of the fundamentals. What do they trade on today? It was always a popularity contest. Now it’s a three-ring circus.

It makes no sense. Jerry is tired.

Upstairs there’s a burst of excitement, the sound of a young man cheering. It’s Jerry’s kid, Aiden.

Aiden’s been out of school for years. He’s making as much as Jerry did 30 years ago.

Josh says your father’s stock market is never coming back.

I wonder if it’s all another sign that William Gibson’s surreal sci-fi future is rushing forward.

We’ll see.

Have a great weekend everyone. Fingers crossed for 21 June, eh?

From Monevator

Managing an investment portfolio: how to keep it on track – Monevator

Learning Cantonese and learning investing – Monevator

From the archive-ator: Understanding the low interest rate era – Monevator


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

First-time buyers in England offered homes at up to 50%-off – Guardian

UK house prices jump by 10.9%, the fastest in seven years – Reuters

Brexit-supporting Wetherspoons’ boss wants more EU migration – Sky News

G7 nations confident of reaching a global tech tax deal – BBC

US adds 559,000 jobs in May as fears of hiring slowdown fade – Guardian

Crypto mining booms on subsidised energy in Argentina – MSN

A bet on emerging market outperformance is a bet against the US dollar – Factor Research

Products and services

Employer perks you could be missing out on – ThisIsMoney

We both get £50 to invest at Seedrs if you sign-up via my link and invest £500 in 30 days – Seedrs

Clone investment scams: what are they and how to spot them – Hargreaves Lansdown

It’s time to lock into a cheap fixed-rate mortgage – ThisIsMoney

Could you get a better savings rate from a bank you’ve never heard of? – Which

Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade

By 2024 just 7% of shop payments will be in cash, predicts report – Guardian

Why advisers are moving towards retainer-based fees – Think Advisor

Homes for sale for flexible workers, in pictures – Guardian

Comment and opinion

In defence of buy-to-let landlords [Search result]FT

Three types of enough – Calibrating Capital

Couples need £26,000 a year to be content in retirement – Which

Is $1 million still worth $1 million? – Of Dollars and Data

Too frugal for me – Humble Dollar

A bear case for future stock market returns – Banker on Fire

How inverted thinking can improve your investing – Acorns

Natural selection favours index funds – A Teachable Moment

It’s a weird time to be an investor – Abnormal Returns

Now that’s what I call financial independence: 26 – The Escape Artist

Naughty corner: Active antics

Tobacco and defense sectors offer shelter from inflation – Fortune Financial

Stocks, bonds, bills, and inflation [PDF; a feast of US data]CFA Institute

John Lee: a dark year has been kind to my portfolio [Search result]FT

Permanent capital: the Holy Grail of private markets – Enterprising Investor

Covid corner

Covid infections rise by two-thirds in a week in the UK – BBC

US now says the Pfizer vaccine can be stored in a standard fridge for a month – Yahoo

“I’m not too scared to reenter society. I’m just not sure I want to.”The Atlantic

Covid long-haulers continue to baffle doctors – Bloomberg via MSN

Vaccine lotteries are sad, but also perfect – The Atlantic

Evidence of Covid lab leak would have been destroyed, says ex-MI5 boss – Sky News

We have bigger problems than Covid-19’s origins – The Verge

Kindle book bargains

(Don’t have a Kindle? Buy one – they’re great and save a ton of space!)

Liars Poker by Michael Lewis – £0.99 on Kindle

Business Adventures: Twelve Classic Tales from the World of Wall Street by John Brooks – £0.99 on Kindle

Legacy by James Kerr – £0.99 on Kindle

Think and Grow Rich by Napoleon Hill – £0.99 on Kindle

Environmental factors

President Biden to suspend Trump’s Arctic drilling leases – BBC

Socially responsible funds do not deliver excess returns – Advisor Perspectives

World at risk of hitting temperature limit within next five years – BBC

Off our beat

Answering the call – Humble Dollar

Why quirky people are attractive – BBC

Number of smokers hits an all-time high of 1.1 billion – Guardian

America has a drinking problem [Interesting history of booze]The Atlantic

From Hartlepool to the hangman: the flag-wavers now running the Tory Party could take Britain back to the gallows – Prospect

The massacre of Tulsa’s ‘Black Wall Street’ – Vox

Cultivating the art of noticing in the age of scrolling – Literary Hub

A long lead time – Seth Godin

And finally…

“Never buy anything from someone who is out of breath.”
– Burton Malkiel, A Random Walk Down Wall Street

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Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”.

The post Weekend reading: The sci-fi stock market appeared first on Monevator.

A head of Marketing for those businesses who can’t afford their own

We believe that marketing should be accessible to all businesses, regardless of size. So if you want top marketing expertise but feel you simply can’t afford it, then look no further than us.

We provide your own part-time Head of Marketing and expert marketing resource for a fraction of the cost of an internal marketing team. And we work with you to create cost-effective marketing campaigns that get you results.

Whatever your business and marketing objectives, we can help. With expertise covering the whole marketing mix – from the latest digital / online to more traditional offline techniques, we cover whatever you need.

Just as importantly, because we offer part-time support and can tailor our package to your business, you only pay for what you need.

Opening up access to affordable marketing

Because we’ve helped many other small-medium sized businesses – businesses such as Baker Smith – we know the challenges of the businesses we support. We speak their language, and understand their frustrations with the agency world and it’s often opaque digital marketing jargon. And because we talk to small business owners so often, we frequently hear how agency services are tailored towards large companies – even though smaller businesses might benefit from marketing support the most.

Use Enough aims to change that. Our marketing package is a cost-efficient way of getting marketing expertise and experience just when you need it. You can choose either our pay as you go service, buying our input as you need it, or alternatively you can take up our monthly retained service which guarantees you a certain number of days support a month. Either way, you only pay for what you need.

Whichever route you choose, you’ll get to work with an experienced marketing professional with a proven track record. What’s more, they’ll be someone who’s familiar with small businesses, who talks your language and gets stuck-in.

  • Choice of pay as you go or retainer service
  • Tailored to small-medium sized businesses
  • High quality marketing expertise
  • A fraction of the cost of an internal marketing team
  • Cost-effective marketing campaigns that get results
  • Expertise covering the whole marketing mix 

High quality marketing expertise for a fraction of the cost of an internal marketing team

Many small businesses find it difficult to afford their own Head of Marketing. Few have the money to benefit from an expert marketing team or pay for an external agency. At the same time, many owners are too busy running the business to do the marketing themselves, or just don’t know where to start – particularly with so much marketing now through digital channels. And those businesses that do manage to afford an external agency often find themselves blinded by agency jargon, so aren’t really sure if they’re getting value.

But businesses can’t afford to let agencies spend budgets indiscriminately or leave marketing to look after itself. As more and more companies move from surviving Covid and into growth mode, competition for sales is becoming increasingly intense. Whether through digital marketing or traditional advertising, marketing is often the key to winning this contest. Small businesses need to fill the marketing gap fast.

That’s where Use Enough comes in.

Is this you?

For most businesses, marketing is vital to build sales. Owners want more leads that then convert into more business – but too frequently they don’t know how to achieve that. We help businesses target the right customers, with the right proposition, through the right channels.

In particular, we help businesses who;

  • aren’t getting enough visitors to their business, or..
  • aren’t getting callers to their phone, or..
  • aren’t getting visitors to their website, or it’s not really generating sales for them
  • or if, when it comes to marketing, they aren’t sure where to start

If any of those issues sounds like your business, it’s a sign that you need an experienced marketer by your side.


What to do now

If you’ve made it this far, then you’re probably keen to learn more and have a chat to see how we might be able to help you.

Please call now or leave your contact details, and we’ll have a conversation about your business and the issues you’re trying to address. We can then work out the best way we can help you – whether that’s by developing a marketing strategy for you, getting your website in shape, or focusing your digital advertising. If you like what we suggest, we’ll agree the kind of support package you need, and take it from there! 

Investing for beginners: Risk, returns, time, and diversification

One of the most critical factors when considering risks and rewards in investing is time.

Some investments look great over certain periods of time and terrible over others.

The length of time you hold a particular investment can change its risk/reward profile.

Small percentage differences add up over the long term.

We also need to think about volatility. In essence volatility describes how often or how far a particular asset goes up and down.

Does this look like a good investment?

The graph shows the great stock market crash of October 1987. London’s largest companies lost one-third of their value in just a few days!

How would that make you feel?

Here’s what happened over the next five years:

The big crash is still visible, on the left hand side, but UK shares were back to their pre-crash levels just 18 months later. The stock market then went basically nowhere for the next three years.

The best time to invest was when it felt worse – right after the crash!

Past performance is no guarantee of the future. But we shouldn’t ignore its lessons.

Today the Great Crash of ’87 barely registers on this four-decade graph of the FTSE 100:

Will the coronavirus crash of Spring 2020 – that very visible scar on the right of the graph – look similarly trivial in a few decades time?

The long-term might not be long enough

You might conclude markets always come back if you wait long enough.

But investors who bought Japanese stocks in the late 1980s would differ.

Two decades on from hitting a high of 38,957 in December 1989, the Japanese 225 index was still two-thirds below its previous peak:

Indeed it was only in February 2021 that the index finally breached the 30,000 level again.

And as I write the Nikkei 225 is still far below its all-time high, more than 30 years later.

You say you’re a long term investor. But how long is long term?

Lower-risk assets can still lose money

Let’s twiddle the dials on the Monevator Investing Time Travel Machine to consider another historical example.

Does this look like a good investment?

That graph shows the progress of a UK gilt fund between 2008 and the start of 2012.

Pretty nice.

Gilts – UK government bonds – are the safest investment after cash for UK citizens. So a fund invested in gilts should preserve your wealth, right?

Well, here’s how the same gilt fund did between the start of 2012 and autumn 2013:

Investors in this lower-risk fund lost money, even after reinvesting all the income from gilts.

And here’s how that gilt fund did compared to UK shares:

The ‘safe’ gilt fund (blue) fell in value 3%, while the ‘risky’ FTSE 100 (red) increased by 15%. (Aside: shares were more volatile.)

Same difference

I am not making the argument that you should own shares versus bonds, or vice versa.

Let alone for avoiding Japanese markets, or anything so specific.

With these examples I’m just trying to illustrate the right way to think about investing.

Because any investment must be considered over different time scales – not just the past month or even the past year.

So-called safety is relative, and often depends on valuation.

And things can go down and bounce back, or stay down.

Most of us have no skill at judging how different types of investment will do – especially over the short to medium-term.

Usually it’s best for most people not to try.

Time and diversification

Unfortunately we don’t have a time machine. We don’t have a crystal ball, either.

So we cannot invest in the past with hindsight. And we cannot be sure of tomorrow’s winners.

However we can spread our risk among different kinds of investments (or assets).

By holding a collection of assets, we can smooth out the ups and downs. We might even turn the volatility we’ve seen above to our advantage!

Recipe for poor returns – Chop and change holdings to chase recent strong performers. Ignore history, diversification, and valuation.

Recipe for good returns – Have a plan, stick to it, consider neglected asset classes. Remember history and reversion to the mean.

Different kinds of investments – such as cash, bonds, property, and shares – are called asset classes.

For example, cash is an asset class. Whereas Tesco shares are a specific investment (a tiny piece of ownership of the giant grocer) within an asset class (shares).

Here is a typical spread of returns from six different asset classes over an illustrative 10-year period:

It doesn’t matter what the different assets are for our purposes. This is just an example.

The important thing to look at is the shape of the graphs, and the numbers in the following table.

Total Return
Worst year
Best year







Note: Numbers for illustration only

In this table:

Total return: how much you’d made by the start of year 10
Annualised: the equivalent annual rate of return
Worst year: the lowest return in a single year for that asset class
Best year: the highest annual return for that asset class

By looking at this series of returns and graphs, we can see that:

Different assets behave differently at different times

The smoothed annualised return hides a lot of big yearly swings

Small differences in annual return can make a big difference long-term

Why pick one when you can have them all?

If only we had that table in year one! Then we’d have put all our money in Asset D and made a fortune.

But we didn’t and we never will, except by luck.

We can’t be sure about the future. As for being guided by the recent past, if anything, the best asset over the prior ten years is more likely to do relatively worse over the next ten years. (But again, no guarantees).

What if we hedged our bets and split our money across all six assets?

Here’s how things would have turned out after a decade.

Total Return
Worst year
Best year


Note: Numbers for illustration only

The worse year we’re down 3.5%, versus the worst 22% decline in Asset F

The best year we’re up 14.7%, compared to the best 57% rise in Asset D

Our return of 59% beats four of the six classes’ individual total returns

Volatility is lower compared to holding either one of those outperforming assets. Which is nice

What if we tried to take advantage of the volatility, by trimming our winners and adding to the poor performers every year?

As a simple illustration, here’s what happens if every year we sold everything and then reinvested our money again, equally split between the six asset classes:

Total Return
Worst year
Best year


In this illustrative example, annually rebalancing across the six assets classes improved our total and annual returns.

Key takeaways

Holding a mix of different kinds of assets can smooth your returns

The peaks and troughs are lower, and so are the maximum losses

The price you pay for diversification is you will never make the best returns achievable (in theory) by holding only the best asset class

But since you can’t know in advance what will do best, is that really a downside?

This is one of an occasional series on investing for beginners. You can subscribe to get our articles emailed to you (we publish three times a week) and you’ll never miss a lesson! And why not tell a friend to help them get started?

Note on comments: This series is for beginners, and any comments should reflect that please, rather than confuse or make irrelevant points. I will moderate hard. Thanks!

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Weekend reading: Do it yourself investing

I would struggle to pick my favourite Morgan Housel article – I was already a fan back in his Motley Fool days – but he just posted another.

Urging investors to play their own game, Housel says:

Someone recently asked how my investment views have changed in the last decade.

I said I’m less judgemental about how other people invest than I used to be.

It’s so easy to lump everyone into a category called ‘investors’ and view them as playing on the same field called ‘markets’.

But people play wildly different games.

If you view investing as a single game, then you think every deviation from that game’s rules, strategies, or skills is wrong.

But most of the time you’re just a marathon runner yelling at a powerlifter.

So much of what we consider investing debates and disagreements are actually just people playing different games unintentionally talking over each other.

As Monevator’s resident naughty investor who finds it hard to write freely on his own blog these days, I hear you Morgan.

Of course that’s my choice. I believe most people should be passive investors. So I’m wary of leading the wrong people off the right path.

Still, we’re big fans of do it yourself investing around here. For me that starts with realizing there’s no one right way to be an investor.

Lots of people have insights to share – even if it’s just to reinforce why you’re doing it your way. And soon we’ll bringing you some of these additional perspectives, courtesy of our very successful call for new writers a few weeks ago.

For now, have a great weekend! Only three sleeps to go until we can eat under a strange ceiling, like civilized human beings.

From Monevator

Are bonds a good investment in 2021? – Monevator

Investing for beginners: Risk, returns, time, and diversification – Monevator

From the archive-ator: Seven reasons why you shouldn’t start your own business – Monevator


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

OECD calls for higher inheritance tax after pandemic – Guardian

Monzo to offer paid leave after pregnancy loss – Guardian

AirBnB sees surge from staycations and vaccinated boomers – ThisIsMoney

Hostile UK border regime traumatizes visitors from the EU – Guardian

Exodus of EU truckers leaves UK hauliers facing shortages [Search result]FT

Eviction ban to end 1 June: what it means for renters and landlords – Which

Meet the academic who fired up moonshot investing [Search result]FT

Products and services

TSB launches two-year fixed mortgage with a rate below 1% – ThisIsMoney

Why Britons have been buying woodland during the Covid crisis – Guardian

Bitcoin’s waning dominance stirs warnings of crypto market froth – Yahoo

High Street names pledge to keep taking cash at their tills – Which

Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade

Thematic ETFs are booming in today’s manic market – Axios

Counting the cost of your lockdown subscription services – ThisIsMoney

Homes for sale near theatres, in pictures – Guardian

Comment and opinion

Perspective – Indeedably

UK property is booming, but nobody has noticed [Podcast]Property Hub

Four investing lessons from David Swensen – Of Dollars and Data

Let’s talk about inflation – Pragmatic Capitalism

Trust fund kids are not taking over the world [Search result; disagree]FT

Individual stocks have crashed while the US market soars – AWOCS

Beware of sci-fi portfolios –

Ermine’s hybrid rant/review of Die With ZeroSimple Living in Somerset

Women and financial literacy: more uncertain than not knowing [Research]SSRN

Expensive US market mini-special

Various ways in which the US market looks pricey these days – Validea

Howard Marks finds nothing to buy in expensive market – Bloomberg via Yahoo

The US CAPE ratio is very high and it will matter… – The Irrelevant Investor

…which is why it makes sense to take action now – Compound Advisors

Naughty corner: Active antics

Fund managers can be ‘nudged’ into outperformance – Institutional Investor

Our best investments are often down to luck – Humble Dollar

Larry Swedroe: SPAC or SPAM? – Evidence-based Investor

Covid corner

England will ‘flex’ Covid vaccinations to tackle Indian variant, says minister – Guardian

Why getting vaccinated is more popular in the UK than the US – Vox

The NHS Covid legacy: long waits and lives at risk – BBC

Hankering for a hug? A guide to post-lockdown greetings… – Guardian

…and sex – Guardian

Kindle book bargains

What It Takes: Lessons in the Pursuit of Excellence by Stephen Schwarzman – £0.99 on Kindle

Radical Candour by Kim Scott – £0.99 on Kindle

Hired: Six months undercover in low-wage Britain – £0.99 on Kindle

The Future Is Faster Than You Think by Peter Diamandis and Steven Kotler – £0.99 on Kindle

Environmental factors

How cities will fossilize – BBC

The contradiction of mining for a green energy revolution – New York Times

Tesla suspends Bitcoin payments, cites fossil fuel concerns – Coindesk

Gresham House Energy: batteries included – IT Investor

Off our beat

Selling hours – Seth’s blog

Efficiency is the enemy – Farnam Street

Two days a week is perfect for working from home – The Atlantic

The economics of movie product placement – The Hustle

The great online game – Not Boring

College is a ruthless competition divorced from learning – The Atlantic

And finally…

“When you look at the results on an after-fee, after-tax basis, over reasonably long periods of time, there’s almost no chance that you end up beating the index fund.”
– David Swensen, Unconventional Success

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Best bond funds and bond ETFs

Global bond markets are even bigger and deeper than the world’s stock exchanges so how on Earth do you choose the best bond funds or bond ETFs from the bewildering array of products available?

If you’re looking for a bond fund to properly diversify your portfolio beyond equities then we can paint the target quite quickly for UK investors.

High-quality, conventional (often called nominal), government bonds are the best strategic diversifiers for a portfolio with a large amount of equities.

We’ve previously explained the purpose of bonds within a passive investing portfolio.

For UK passive investors, it comes down to investing in UK government bonds (known as gilts) and/or the government bonds of other advanced nations.

We think the best bond fund vehicles are ETFs and index funds because their low fees leave more return in the pockets of investors – as opposed to fat-cat fund managers.

Find out why cost matters so much.

Are bond funds a good investment in 2021? In case you’re wondering.

We’ll explain our choices below, but first let’s run through our picks for best bond ETFs and bond index funds.

Best bond funds and ETFs – UK gilts

Cost = OCF (%)
Yield-to-maturity (YTM)
Credit quality

Vanguard UK Gilt ETF
Bloomberg Barclays Sterling Gilt1


Vanguard UK Government Bond Index Fund
Bloomberg Barclays Sterling Gilt2


Lyxor Core UK Government Bond ETF
FTSE Actuaries UK Conventional Gilts All Stocks


iShares Core UK Gilts ETF
FTSE Actuaries UK Conventional Gilts All Stocks

iShares UK Gilts All Stocks Index Fund
FTSE Actuaries UK Conventional Gilts All Stocks

Invesco UK Gilts ETF B
Bloomberg Barclays Sterling Gilt

Source: Fund providers’ data (A dash means data not provided).

These are intermediate gilt ETFs and funds because for most investors intermediates offer a better balance of risk versus reward than long bonds (far more risky) or short bonds (a miserly reward).

Dedicated long or short bond allocations will be right for some, though. You can find a few suggestions in our cheapest trackers guide.

There is little to separate the products in the table, which is as it should be. Competition between index tracker providers is fierce, so most advantages have been eroded away.

You can be confident you’re in the right ballpark so long as you choose a low-cost bond ETF or bond fund, with a good track record among its peers. More on that below.

First, a couple of notes about the bond features picked out in the table.


Average duration is an approximate guide to how much a bond fund will gain or lose in response to a 1% change in market interest rates. 

For example:

A bond fund with a duration of 12 will lose around 12% of its market value for every 1% rise in its interest rate.
The fund’s price will similarly jump about 12% if its rate drops by 1%.

The higher a bond’s duration, the greater the capital gain or loss as its market interest rate fluctuates.

The market interest rate of a bond is not the base rate set by the Bank Of England. The market interest rate is a product of supply and demand for each individual bond on the bond market. If the Bank Base Rate hiked by 1% that doesn’t mean that every bond will follow suit.

Yield-to-maturity (YTM)

The expected annual return of your bond fund is its current yield-to-maturity. This number will fluctuate as bond prices move but the main takeaway is that there’s nothing between these products, and that high-quality government bond returns are very low these days.

Credit quality

This is a guesstimate of the financial strength of the bond issuer – the UK Government in the case of the funds in our table.

AAA is top-notch while BBB- sets the floor for investment grade. Below that is ‘junk’.

The higher the credit quality rating, the better. It means there’s less chance the issuer will default on payments, according to the bond rating agencies.

Bond rating systems and verdicts vary slightly by agency but the main message is stick to investment grade.

In other words, don’t touch someone else’s junk.

Bond fund credit quality for a fund is the weighted average of all its bonds ratings.


Location matters because funds based in the UK are covered by a better investor compensation scheme than those in Ireland or Luxembourg.

It’s highly unlikely that you’ll ever need to worry about this provision, especially given the scale of the fund providers in the table, but it’s a wrinkle worth knowing about.

Brexit has not proven to be an issue with respect to fund domiciles.

Best bond funds and ETFs – UK gilts results check

Source: Trustnet multi-charting tool

Performance wise it’s neck-and-neck between our field of bond funds over three to ten-year timeframes. Don’t compare funds over a one-year time period – that’s too short to tell you anything meaningful. Longer is better.

Important caveat: we’re mainly checking the results to make sure that our candidates are doing a good job. A fraction of a percentage point in performance makes little odds and doesn’t tell us which fund will nose ahead next year or next decade.

That said, while the two Vanguard funds are not the cheapest (by OCF) they have posted marginally better results than their rivals across all periods greater than a year.

As ZXSpectrum48k points out in the comments, this is due to the slightly longer durations of their bond holdings. That will play well during periods of falling interest rates (especially in a recession) whereas the other funds are likely to edge ahead when rates rise.

You’re unlikely to notice that difference (especially as bonds will be the lesser fraction of most portfolios), so any of the picks would be a fine choice.

Note: Fidelity’s Index UK Gilt Fund P is another potential contender but was excluded from this year’s round-up because of its very short track record.

Best bond funds and ETFs – Global hedged to GBP

Cost = OCF (%)
Yield-to-maturity (YTM)
Credit quality

iShares Global Government Bond ETF (IGLH)
FTSE G7 Government Bond Index


Vanguard Global Bond Index Fund
Bloomberg Barclays Global Aggregate3


SPDR Bloomberg Barclays Global Aggregate Bond ETF (GLAB)
Bloomberg Barclays Global Aggregate


iShares Core Global Aggregate Bond ETF (AGBP)
Bloomberg Barclays Global Aggregate


Vanguard Global Aggregate Bond ETF (VAGP)
Bloomberg Barclays Global Aggregate4


Source: Fund providers’ data (A dash means data not provided).

iShares Global Government Bond ETF is the clear leader in the best bond funds hedged to GBP category.

That’s because it’s the only dedicated government bond fund in our pack.

The other four index trackers are aggregate bond funds. That means they hold corporate bonds and various other bond types too.

This level of diversification means aggregate bond funds are actually less likely to counterbalance the fall of equities than government bonds.

Stock market crash protection is the overriding point of bonds in strategic asset allocation, and so the Global Government Bond ETF tops the table.

The lower risk of high-quality government bonds shows up in the yield-to-maturity numbers in the table.

The aggregate bond funds have higher yields because investors demand more return to take on the risk of holding them.

In my view, a greater capacity to soften the blow in a crisis is worth the higher cost and lower reward of holding government bonds.

We’ve previously seen how well the iShares Global Government Bond ETF performed versus the iShares Global Aggregate Bond ETF during the coronavirus crash

Why aggregate bond funds at all?

There isn’t much choice when it comes to global government bonds hedged to GBP, which is why the aggregate bond funds make the table.

They all hold north of 50% in high-quality government bonds and their holdings are investment grade.

If you prefer to trade-off some crash protection for a little extra yield then these products make sense.

Do check their holdings and credit ratings though, so you know what you’re dealing with. Especially as none of the fund managers bar Vanguard have bothered to publish an average credit quality score.

Best bond funds and ETFs – Global results check

Source: Trustnet multi-charting tool

Again, the main objective in comparing results here is to make sure there isn’t a weird outlier on the shortlist and to see if any fund is consistently dragged down by hidden costs.

This check already caused me to cross off Xtrackers Global Government Bond ETF because it was bedeviled by volatility, according to Trustnet’s data.

Vanguard’s Global Bond Index fund leads the aggregates on our table by virtue of its long track record and strong showing over three years.

Note, the iShares Global Government Bond ETF lags the pack over three years – which is exactly what you’d expect for a low-risk fund compared to aggregate bonds holding corporate debt.

Currency hedging to GBP

Diversifying across global government bonds came into vogue in the aftermath of the Great Recession as many countries lost their cherished AAA credit ratings – the UK among them.

As government debt continues to balloon, many investors prefer not relying on the full faith and credit of their home country.

If you opt for global bonds then make sure you pick a fund that hedges its return to the pound. That removes currency risk from the defensive side of your portfolio, if you’re a UK-based investor.

While currency risk may sometimes be viewed as a positive, diversifying factor for equities, the same is not true for government bonds.

Currency exchange rate fluctuations add volatility to your returns when the role of government bonds in your portfolio is to lower it.

Some investors leave their global bonds unhedged. Betting on exchange rates is an advanced move, though. It’s only justifiable if you really know what you’re doing.

So, given the diversification benefits of global government bonds why would you go for a 100% gilts tracker?

Mainly because the gilt trackers are one-third less costly to own, offer more yield, and promise marginally more crash protection.

Don’t sweat the small stuff

From a big picture perspective, any of the index trackers gracing these best bond funds (and bond ETFs) tables tick the right boxes.

I’ve touched on the important details but even those differences will likely prove marginal to your results over many years of passive investing.

The most important investing decision is to diversify between equities and government bonds in the first place.

Choose a competitive bond index fund or ETF as the main brace of your defensive asset allocation and you’ll be on the right course.

For inflation-linked bonds and other asset classes check out our cheapest trackers guide.
For best global equity trackers suggestions.

Take it steady,

The Accumulator

Float Adjusted
Float Adjusted
Float Adjusted and Scaled Index in GBP
Float Adjusted and Scaled Index in GBP

The post Best bond funds and bond ETFs appeared first on Monevator.

Are you childish about money? The origins of our money mindsets

Covid restrictions were easing, and I was mildly thrilled to be in the garden of some dear friends – a couple I’ve known for decades.

Thanks to lockdown building works, their house had grown since I’d last seen them. So had their twin boys.

But my friends still had some personal growth to do.

They’ve always bickered. They were bickering again and to be honest that was also comforting.

But it seemed a shame.

My friends were past the hard slog phase of their life. Yet they didn’t seem ready to enjoy the sunny uplands.

Happy holidays?

“Finally we can get away after 12 months in this house and I don’t want to be arguing about spending £50 on a few croissants at the hotel,” he said.

“It’s not a hotel – it’s a horse farm!” she protested. “And it won’t be croissants – it’ll be a bowl of cornflakes.”

“She’s annoyed because we’re going to Wales. And she’s too tight to understand the value of giving the boys an experience like learning to ride.”

“I’m not annoyed. But it’s going to be raining and it’s going to cost £3,000 for five days and you wouldn’t let me even look for a cheaper place to stay.”

“She’s annoyed because we’re not flying to Portugal. Even though we would spend more if we did!”

“I just want to get value for my money. Not rain in Wales.”

“Well I paid for it anyway! I want the boys to burn off some energy, and we can easily afford it. This place is great – friends told us about it. Why spend hours bickering about £50 on breakfast?”

“I just believe we can get the same experience for half the price,” she said. “Maybe somewhere warm, too.”

“Get this…” he sighed. “She wants us to drive there – to Wales, for seven hours – because the hotel is a few miles from the station and I said we’d just get a taxi. She’s complaining taxis are a waste of money. As if seven hours driving isn’t a waste of time.”

“It’s not a hotel – it’s a horse farm. And I don’t want to be the mug that turns up from London in my Hunter wellies with banknotes falling from every pocket. I am not that dumb bitch!”

That silenced us all for a moment.

Meet their money mindsets

So, you think you have a handle on this pair?

London is expensive. Raising children, too, and they have twins. A double helping of expenses moving through their budget like an anaconda swallowing a turkey.

Money is tight. One of them thinks this is best addressed by a staycation. The other by saving on avoidable expenses like paid-for breakfast and taxis.

We can see both sides, right?

But here’s the twist: money isn’t tight for this couple.

Both of my friends – who are not married and have always kept their finances separate – are now (multi) millionaires in their own right.

True, being a millionaire isn’t what it used to be.

But clearly they can afford a mini-break in (lovely, incidentally) Snowdonia.

“Why is she squabbling over this? Can you talk some sense into her? She listens to you. I don’t want to be faffing over fifty quid for the rest of my life when I could be enjoying myself. We have – what – 30 years left? Maybe 20 good ones. You know us well enough for me to say this… We could afford to take the same holiday every week for the rest of our lives. Every single week!”

It didn’t seem like the best time to bring up sustainable withdrawal rates.

“He seems to think having money means it’s perfectly okay to be taken advantage of. Well I don’t. I’ve shopped around for cheaper flights and better deals all my life. Why should I stop now? It’s careless.”


Now we were getting to the bottom of it.

How they made it

Some context before we get to the money shot.

He has always had money. Born into relative privilege – public schools, annual skiing holidays, aggressively spendthrift friends in his 20s – he was also unfortunate enough to inherit early.

She had a far harder upbringing. Messy home life. University the escape route. By her own admission she was fortunate to join the small company she did 15 years ago. But she worked most weekends to stay at the top.

Last year her company was acquired. Years of stock grants paid out.

So on paper they now have roughly the same net worth.

The snag is that what their net worth represents to them (and how they obtained it) means that they see money (and how to use it) very differently.

His and hers

He has never had to worry about money. He has had other hardships (as I said both parents died young) but solvency has never been his concern.

He’s seen money used as a tool since childhood. His family speculates, invests, wins and loses, and celebrates freely when things go right.

And while I wouldn’t want to suggest he was on the shortlist for the Bullingdon Club, he has certainly moved in circles where to spend money without any visible care is a virtue, rather than a vice.

Her childhood was much more threadbare.

But it’s not just that she now wants value for money for financial reasons.

It’s that saving money, shopping around, getting deals, not being that ‘dumb bitch’ as she put it – these things have defined her.

He is a product of his upbringing, though maybe harder for many of us around here to identify with. Fretting about £50 is demeaning. It spoils things. Begrudging spending on friends and family is somehow unloving.

For her the price of avoiding being a slave to money is eternal vigilance.

For him that very vigilance is being a slave to money!

Their different life experiences – and these resultant money mindsets – are animating how they interact with money today, and fueling their conflict.

Money is child’s play

Perhaps ironically, the older I get the more I see how such childhood experiences shape our later attitudes.

This is universal. It’s nothing to be ashamed of.

But it’s worth figuring out how your money mindset was formed in order to avoid some of these problems.

Perhaps your parents had a scarcity mindset? They never risked changing jobs or rocking the boat at work. Only saved in cash – nothing riskier like shares. Urged you to get and keep a stable job.

Or maybe one parent was a sometime successful creative? Lurching from feast to famine. Ending up with riches – but before then vanishing from your life for five crucial years when things were going badly?

Did you live in a big house from the day you left the hospital because your grandmother inherited a fortune?

Or maybe your family has never had money. Nobody went to university, either. All this seems like science-fiction to you. But you have come across the concept of financial freedom and you’re wondering if you can have it, too.

All these different experiences will shape how you think about money. And often in contrary ways! We rebel as much as we follow an archetype.

The key is understanding where you came from, and how much is still relevant to your life today.

Our money mindsets must move on

In picking her battles over small amounts of money when she now has bags of it, my friend is a bit like a Japanese World War 2 soldier stuck on a Pacific Island in the 1970s.

Still fighting a war that in their minds never ended.

I know a couple of self-made people from modest upbringings who hate their work now but they just will not stop. They say they don’t want their kids to ‘suffer’ like they did (and their parents did) by having to worry.

They intend to leave their kids a small fortune to solve this.

What they don’t realize is that with their private school education, top-flight university degrees, and a decade of bringing similarly well-off friends back to the family home at weekends, their children are in a thoroughly different place to them already.

Indeed if they really want to worry about their (blamelessly) entitled kids’ relationship with money – sort of futile, I suspect – they should start thinking about very different problems altogether.

But you can hardly fault the motivation.

At the other end of the spectrum, in my professional life I’ve also seen people make a lot of money and become obnoxious. Leave partners, laugh at those who cashed out with less, grow awful goatee beards. They try to be something they’re not – at least until the hedonic adaption kicks in.

Thankfully it seems to be just a phase they go through.

In these cases it’s hard not to see the geek who was laughed at in school still trying to show the world they’re worthy of respect.

A spending plan

I’m no psychologist and I’ve struggled with this money mindset stuff myself.

For example I wrote about how as soon as I earned more than my father, I took my foot of the gas.

I don’t think earning a fortune is the be-all. But I do think that was a dumb reason not to earn more.

Then there is my internal debate over frugality versus simply being a tightwad.

Still, I don’t let my own issues and failings hold me back from giving my friends my unqualified advice.

I explained to my friends that I thought they were each acting out their childish beliefs. No offence!

And I suggested they create a joint ‘rest and recreation’ account that they funded with significant cash inflows every month. Approaching five-figures between them.

Family adventures could be funded from this account, which they can easily afford indefinitely.

They were not to squabble over spending this money. That was the whole point. At the same time they should be alert to their transferring the bickering to another aspect of their financial lives.

(They are looking to buy a new house soon. And I know in that battle I will be solidly backing her view instead…)

Mini-me, mini-you

My friends’ issue may seem like a high-quality problem to have.

Most of us could do with more money. We are best-advised to book holidays months in advance so that we get more value from looking forward to the experience, stretching our spending further.

In contrast my friends need to stop shrinking the dividend from their quality time. They are doing this by turning every indulgence into an argument.

But wherever we are ourselves, the takeaway lesson is universal.

Your inner child is still trying to pull the purse strings. If you don’t notice how then you will be doomed to misunderstand money all your life.

Can you see a little you telling you what to do? Share your money mindsets in the comments below

The post Are you childish about money? The origins of our money mindsets appeared first on Monevator.

Weekend reading: Meet Mr Average

What caught my eye this week.

Have you ever described yourself as just another average kind of personal finance blog-reading mostly passive occasionally active FIRE-obsessed crypto skeptic?

Well Indeedably did us all a favour this week by collating the data on what Mr Average really looks like:

“Average” varies by locale, so let’s consider the English version, as told by the statistics.

A white 40-year-old man. Married to a white 38-year-old woman. With two school-aged children.

Living in a commuter town somewhere in middle England. Home is a three-bedroom, 720 square foot, house worth £249,000. £96,000 remains outstanding on the mortgage.

Their pensions, investments, savings, cars, and other possessions are worth a combined £133,600.

Giving them a total net worth of £286,600.

Their household annual income was £38,550 before tax, resulting in a disposable income of £29,900.

This means they house, clothe, feed, and entertain the whole family on £81 per day.

It’s invariably interesting to see how one compares to these sorts of statistics.

Unless one is looking at the average age from the wrong side of 45. Then it’s more like an Edvard Munch painting lit by Saturday morning’s PC screen.

Arm wrestling Mr Average

I’d never skip reading Indeedably’s posts in full. Even the bit in this one where he questions:

Pseudonymously written blog posts, whose content is regularly interrupted by confidence undermining random advertisements for haemorrhoid cream, lottery tickets, and Mongolian throat singing lessons?

Ouch! All I can say in our defense is that Internet advertising is mostly personalized to the reader’s own browsing habits…


How much like Mrs or Mr Average are you feeling these days? And do you aspire to retire to a life less ordinary – or something more mundane?

Let us know how Middle of the Road you are in the comments below.

Have a great weekend all!

From Monevator

Best bond funds and bond ETFs – Monevator

Are you childish about money? The origins of our money mindsets – Monevator

From the archive-ator: Too big to scale – Monevator


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

House prices boom, at least outside of London… – Reuters

…and Nationwide predicts the price growth will continue – Guardian

Long hours are killing 745,000 people a year, global study finds – BBC

UK-listed firms fall to ‘pandemic plundering’ as bosses profit – ThisIsMoney

Leonard Blavatnik named UK’s richest person with £23bn fortune – BBC

San Francisco tech firms sit on record amounts of empty space – CNBC

Crash rules everything around me – A Wealth of Common Sense

Products and services

“Custom indexing unlocks lots of benefits” [Podcast]Morningstar

Comparing the cost of UK holiday destinations – ThisIsMoney

Natwest to allow personalized bank transfer caps to beat scammers – Which

Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade

More Britons pursue a holiday home in Portugal – ThisIsMoney

Houses with outbuildings for sale, in pictures – Guardian

Comment and opinion

Larry Swedroe: the endowment effect – The Evidence-based Investor

Three reasons not to worry about hyperinflation right now – MathBabe

Merryn S-W: are ageing populations really bad for the economy? [Search result]FT

Good retirement savers are lousy spenders – Leisure Freak

The black box economy – Vox

Lessons from the Great Crypto Crash of May 2021 – The Escape Artist

Profits beat prophets in today’s market – Bloomberg

The spectacular failure of the endowment model – Advisor Perspectives

Twin certainties – Humble Dollar

Naughty corner: Active antics

Fund managers are betting on a boom and inflation – MarketWatch

High-yield spreads are the best single macro indicator – Verdad

Mishits – Enso Finance

S&P 500 CAPE ratio says US market is in an epic bubble – UK Value Investor

A diverse portfolio is a strong portfolio – The Evidence-based Investor

Covid corner

Tests for travel: how to get a green light to go abroad – Guardian

What has gone wrong in Singapore and Taiwan? – BBC

Covid R number inches up across England – Evening Standard

Emptying the nest. Again – New York Times

Kindle book bargains

Lab Rats: Why Modern Work Makes People Miserable by Dan Lyons – £0.99 on Kindle

What It Takes: Lessons in the Pursuit of Excellence by Stephen Schwarzman – £0.99 on Kindle

Hired: Six months undercover in low-wage Britain – £0.99 on Kindle

The Future Is Faster Than You Think by Peter Diamandis and Steven Kotler – £0.99 on Kindle

Environmental factors

Low emission zones do work – Guardian

IEA: no new oil, gas, or coal if we’re to hit net zero by 2050 – DIY Investor

The biggest climate stress test so far – Klement on Investing

“It’s a dirty currency”: Bitcoin’s growing energy problem [Search result]FT

Climate crisis to put millions of UK homes at risk of subsiding – Guardian

It’s hard to poison a feral pig – Undark

Off our beat

Life satisfaction is better for older people, even when they get sick – Klement on Investing

When all moments have equal value – Raptitude

Daniel Kahneman: “Clearly AI is going to win”Guardian

All hail King Pokémon! – Input

The optimal amount of hassle – Morgan Housel

The blandness of TikTok’s biggest stars – Vox

Fungi and urban planning – The London Review of Books

And finally…

“In most of our decisions, we are not betting against another person. Rather, we are betting against all the future versions of ourselves that we are not choosing.”
– Annie Duke, Thinking In Bets

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The post Weekend reading: Meet Mr Average appeared first on Monevator.