What caught my eye this week.

Here’s a reminder as to why I tag Moguls – our premium membership content for select Monevator readers – as ‘not for everyone’.

Our last two Moguls articles showcased a model portfolio of mostly actively managed investment trusts that aims to deliver a natural yield for long-term income.

In contrast, the latest SIPP report just dropped from Interactive Investor. And it reveals that for the first time, passive funds have overtaken active funds as the most popular choices for SIPP investors on the II platform – for both accumulating and deaccumulating investors.

According to the accompanying bumph:

Appetite for investment trusts has waned in recent years, and our data illustrates this is the case for investors across the board.

By contrast, allocations to ETFs have surged with SIPP investors wooed by their simplicity and low costs.

Play a sad bagpipe lament from Spotify as you peruse the waning of the investment trust era:

Source: Interactive Investor

Six out of the top ten funds for accumulators are now passive funds. Three of them are Vanguard LifeStrategy offerings. Global trackers make up the rest of II’s popular passives list.

This is all to be celebrated.

My pitch for Moguls is not a cunning bluff. I believe most people should be passive investors. That this message has got through – and that more investors are widely-diversifying using the funds highlighted – is cheering, and a far cry from when this blog began life back in 2007.

Some of us are investing nutters though. Or we just have a competitive urge to try to do better.

I hope investment trusts survive to help us scratch our itch. And if they don’t, there’s always stockpicking.

Passive investors can be passionate investors too, of course. Please sign-up to our Mavens premium content if that’s you. The Accumulator has been knocking it out of the park with his monthly deep dives.

A quick note on RSS feeds

I was surprised to learn this week that a few Monevator readers still follow our site via RSS. (If you’re under 30 and have no idea what I’m talking about, ask the nearest Gen X-er).

Sadly I found out this because our age-old RSS feed seems to have broken.

We’re not yet sure exactly what’s gone wrong. It looks like some kind of redirection issue. But as best I can tell this source feed should be good for now. You might have to resubscribe to follow it.

I’m aware some icons around the site still point to the old and possibly terminally knackered RSS feed. But I’m not changing the links until I’m sure what’s up.

Personally I’d subscribe via email. The writing has been on the wall for RSS for years. But we’ll try to keep supporting it for as long as we can.

Have a great weekend!

[continue reading…]

After many false dawns, it looks like the UK fintech darling Monzo could be a public company by the end of next year. It will be a red – or coral pink – letter day for early investors who backed the challenger bank a decade ago. But an IPO could also put this rare win for crowdfunding and capital gains tax on a collision course.

Think of stuffed pillows running into a buzzsaw.

That’s because Monzo was not eligible for Enterprise Investment Scheme (EIS) status for any of its five money-raising rounds on Crowdcube. For reasons I’ve never understood – lingering ill will after the financial crisis, perhaps – financial outfits such as neobanks are not eligible for EIS tax relief.

• See my guide to the Enterprise Investment Scheme for much more on EIS.

Long story short, unlike most crowdfunded projects in the UK, because Monzo was not EIS-eligible, gains could be liable for capital gains tax if and when Monzo does IPO and an investor decides to sell.

And given the big cuts to the CGT allowance since Monzo raised its money, this is going to hurt.

Making money out of Monzo

I should declare my interest: I’m a Monzo shareholder.

Alas I missed the first Crowdcube fundraising round. But I lucked my way into the second round and did a small follow-on investment in the third.

That first round though is the stuff of crowdfunding legend.

Monzo – then called Mondo – raised the £1m it sought in a mere 96 seconds, and crashed the Crowdcube servers. Just 1,877 ordinary investors were able to buy shares at 51p, for a pre-money valuation of £29m.

The maximum investment amount for that round was capped at £1,000. But with Monzo sporting a share price of £14.41 as of its last institutional valuation, the resultant 28-bagging return would still see first round backers sitting on an investment of £28,255 today. On paper anyway.

Crowdfunding investors in the next couple of rounds have done well too. Monzo’s share price quickly escalated through these rounds – from £1 to £2.35 then £7.72 – with the price topping out at £14.41 after a couple of institutional raises.

This reflected a company valuation of £4.5bn when Monzo enabled its staff to sell some shares in 2024.

Monzo crowdfunders and capital gains tax

Considering the nice-problem-to-have plight of Monzo’s earliest investors reveals just how much harsher the UK’s capital gains tax regime has become in recent years.

The annual CGT allowance was £11,300 when Monzo first raised money in 2017. The allowance had increased to £12,300 by the 2020-21 tax year.

But it was slashed to £6,000 in 2024.

And the annual CGT allowance is just £3,000 for the 2025-26 tax year.

Ignoring any other share gains, a Monzo shareholder who bought the maximum shares in the first round and sells them at a future IPO at today’s share price would book a capital gain of:

• £28,255 (sale proceeds) minus £1,000 (cost of shares) = £27,255

The £3,000 CGT allowance will then reduce their taxable gain to £24,255.

Assuming they are a higher-rate tax payer, this will result in a tax bill of:

• 24%*£24,255 = £5,821

From memory all the early Monzo rounds were capped at £1,000 per investor. We won’t hear stories of crowdfunded Monzo millionaires. But the amounts will still be large enough to deliver a nasty tax surprise for the unwary.

Take it as a reminder to double-check for EIS status when making investments in start-ups.

For example, I’ve noticed quite a few European and even US companies raising money on crowdfunding platforms in recent years. These do not qualify for EIS, so you’ll miss out on any long-term capital gains exemption benefits, as well as the income tax relief you get with EIS.

How you’re taxed, and what to do about

I actually have a friend who invested the maximum in the first two Monzo rounds. Despite him thus having unicorn status in the crowdfunding pantheon, when I told him about the recent IPO rumblings he was unaware (or had forgotten) that Monzo did not enjoy EIS relief, and thus he’d be on the hook for CGT.

Again, read our primer on capital gains tax in the UK.

But to summarise:

• You only become liable for CGT when you dispose of a chargeable asset. (That is something liable for CGT, such as Monzo shares).
• Dispose usually means sell. Until you sell there’s no gain so no CGT to pay.
• To get your Monzo shares into an ISA, you’d have to sell them and repurchase in the ISA. (I’ve heard chatter that ‘transferring’ to an ISA sidesteps CGT. It doesn’t!)
• As I mentioned you can make £3,000 in capital gains in a year tax-free.
• CGT is charged at 18% for basic-rate taxpayers and 24% for higher and additional-rate payers.

You can already see the easiest way to avoid CGT when Monzo floats will be to not sell your shares!

That way there’s no gain realised, so no tax to pay.

But of course you might want to sell your Monzo shares – or those in another successful start-up without EIS status.

Perhaps you think Monzo’s mooted £6.5bn valuation sounds toppy? Or maybe after a decade with your money locked way, you just want to take some off the table?

On valuation, we’ll have to see where Monzo floats. But £6.5bn isn’t crazy for a fast-growing fintech.

The US neobank Chime recently filed for IPO. Its valuation is put at $20-25bn. Chime has fewer customers than Monzo – eight million versus Monzo’s 12m – and it looks less attractive on other metrics too. Against that it does address the far larger US market.

Achieving a big valuation matters when investing in risky start-ups. You need to squeeze all the gains from your winners to make up for the losers.

For instance I’ve written for Moguls about a 31-bagger that I’ve kept hold of, hoping for a 100-bagger.

It’s a far smaller company though. I concede it’s hard to imagine Monzo 28-bagging again anytime soon.

Tax mitigation options are limited

Even if you do want to sell, I wouldn’t rush in a situation like this.

For starters, think about your tax band.

Whether you’ll pay capital gains tax at the basic or higher CGT rate is determined by your total income. That is, your income from sources such as your salary combined with your capital gains.

Even if you’re normally a basic-rate taxpayer, this calculation may take you into the higher-rate income tax band and thus see your capital gain taxed at the higher CGT rate. You’ll probably want to avoid this if possible – by selling fewer shares so your total income remains within the basic-rate band, say, or by making one-off pension contributions to reduce your earnings.1

The most tax-efficient way to unlock your money would be to sell enough Monzo shares to realise a £3,000 gain each year, but no more. This way you’d defuse down your gains without paying CGT.

True, that will take a long time if you’re sitting on gains of £55,000 from multiple investment rounds.

But who knows? If you’re unlucky the market might reduce your gains too, once Monzo is listed on those high seas.

Which is another reason to sell, I suppose. Cozy private valuations will be a thing of the past once Monzo is a public company.

Monzo as a microcosm

A post about reducing capital gains tax on multi-bagging crowdfunding gains will prompt tiny violins from a decent majority of readers.

Perhaps accompanied by some schadenfreude, given how often I’ve called for higher inheritance taxes – which are arguably another tax on good fortune.

Indeed, some of you will ask what’s the difference?

Plenty, I say!

Firstly, investors who backed Monzo supported one of the UK’s few fast-growing tech-ish behemoths.

Don’t we want more of that? Why then are we whittling down the CGT allowance to trivial levels?

The CGT allowance should have at least risen with inflation since 2017. This would equate to over £15,000 for the current tax year.

Also, compare investment gains from startups to the vast majority of inheritance gains, which were simply earned by buying a big house back when they were cheap and living in it.

I don’t begrudge people their individual good luck in property. But high house prices don’t do much for economic growth or general prosperity in the round.

The second difference is that unlike the recipient of an inheritance, people risked their own savings to earn these gains from Monzo.

My friend I mentioned is doing well enough now. But back in 2017 his first £1,000 investment was meaningful money for a 20-something getting his career underway.

Statistically he was likely to lose all his money in Monzo. The ranks of super-successful crowdfunded companies are thin – the better-than-average late-2010s fintech included.

I lost the lot with a couple myself. Even the exit of Freetrade delivered only derisory gains in the end.

Compare that with the lucky recipient of an inheritance. They risked nothing and did nothing to earn their windfall except to not piss off their parents too badly.

Best of British

Ultimately what kind of environment do we really want in Britain?

I vote for a vibrant, go-getting economy that rewards hard word, risk taking, investment, and entrepreneurship over taxing income and gains to enable more feudal hoarding and social immobility.

Of course the EIS scheme does what I want. The only snag with Monzo is it didn’t qualify.

But EIS was introduced way back in 1994. A different time and place to today, when relatively few were in the higher-rate tax band, shelters like ISAs (then PEPs) were growing in scope, and wealth creators with lumpy incomes could make big pension contributions in the good years without penalty.

Famously, even New Labour in the late 1990s was relaxed about people getting rich. They’d come to understand that growth fuelled the engine that ultimately paid for the state and benefited everyone.

Then of course we had a boom in London for most of the first 15 years of the 21st Century, with the UK capital attracting bright talent who founded multi-billion-pound startups like Skype and Revolut.

Perhaps the peak of this era for Monevator readers came with the pension freedoms of a decade ago.

But recently? Brexit dragging down GDP, skilled foreign workers, entrepreneurs and investment going home or elsewhere, frozen tax thresholds, an exodus of millionaires and billionaires, London property stagnant for a decade, the NHS and other services creaking even as we pay more taxes, and higher rates on capital gains and dividends even as allowances have been slashed.

On the surface today’s post is very niche. Only a few tens of thousands of individuals will be able to cash in when Monzo floats. Most of them were late-round investors so even their gains won’t be huge.

But as a reflection of what the British economic engine can achieve at its best – and how recent times have thrown grit in this machine – I’d suggest it’s relevant to us all.

1. Note: This calculation does not affect your marginal income tax rate. It only determines the CGT rate you’ll be charged on capital gains. [↩]

Many DIY investors have given up on bonds. They’ve thrown their lot in with money market funds instead. I think that’s a mistake.

The evidence suggests that replacing bonds with money market holdings is liable to suppress portfolio returns and leave you under-diversified in the face of future stock market crashes.

Let’s see why.

Money market vs gilts: five-year returns

Our first comparison pits a money market ETF versus an intermediate gilts ETF in a cumulative nominal return head-to-head:

Investing returns sidebar – All ETF returns quoted are nominal, GBP total returns (including interest and fees). All asset class index returns are annual, inflation-adjusted, GBP total returns (including interest but not fees). ETF returns data and charts come from JustETF. Gilt annual returns are from JST Macrohistory1 and FTSE Russell. Money market annual returns are from JST Macrohistory and the Heriot-Watt / Institute and Faculty of Actuaries / ESCoE British Government Securities Database. UK inflation statistics are from A Millennium of Macroeconomic Data for the UK and the ONS. May 2025.

Strewth, intermediate gilts lost 28.4% in the past five years! And that’s without trowelling on extra misery from inflation, which the data provider doesn’t incorporate into its graphs.

The real terms loss is more like 38%.2

So much for bonds’ reputation as a ‘safe’ asset.

The money market also inflicted a 9.6% real-terms loss too – but that’s only a quarter of the kicking meted out by bonds. One in the nuts rather than four-times in the nuts.

I find it easier to compare real annualised returns when assessing investments, so I’ll translate the ETF results into that format as we go. (I’ll use inflation-adjusted annual index returns to continue the match-up all the way back to 1870.)

Here’s the real annualised returns for the past five years:

• Money market: -2%
• Intermediate gilts (All stocks): -9.2%

Money market wins!

Money market vs gilts: ten-year returns

We’re supposed to care more about the long term, right? Our investing horizons ought to be counted in decades not a handful of years.

Let’s zoom out to the past ten years, the maximum time frame offered by most data houses:

Do I hear: “So you’re telling me that gilts lost money over the last ten years? I’m out.”

Meanwhile, money market funds – popularly billed as ‘cash’ – are up 15% in nominal terms.

(Incidentally, money market funds are ‘cash’ in the same respect that bonds are ‘safe’. Read that article for more.)

Real annualised ten-year returns:

• Money market: -1.5%
• Intermediate gilts (All stocks): -3.6%

Money market wins!

If you can call a loss winning.

Money market vs gilts: 15-year returns

Let’s keep going. If money market funds are the superior product then they should dominate beyond the last decade. Ten years is nothing much. We overweight its importance due to recency bias.

Well, this complicates the picture.

If you held both ETFs in equal measure for the past 15 years then your money did better in gilts – despite the enormous bond crash of 2022.

Real annualised 15-year returns:

• Money market: -1.8%
• Intermediate gilts (All stocks): -0.9%

Gilts win!

On this view, money market funds were twice as bad as gilts over the last 15 years.

Mind you, gilts still turned in a decade and a half of negative returns. Nobody comes out of this looking good.

Money market vs gilts: 18-year maximum ETF timeframe

The easily-accessible ETF data runs out around the 18-year mark. Money market funds are only lagging further behind at this stage:

Gilts returned 64% more than money market funds over the entire period that both asset classes became accessible via ETFs.

Real annualised 18-year returns:

• Money market: -1.4%
• Intermediate gilts (All stocks): -0.1%

Gilts win again!

True, 18 years worth of negative returns for both asset classes is a poor show. There’s no denying that.

Over the longer run though, they still both offer the expectation of a real-terms gain, which is why they have a place on our list of useful defensive diversifiers.

Thrive or dive

Money market returns were undone over the 18-year view by the period of near-zero interest rates triggered by the Global Financial Crisis (GFC).

Meanwhile gilts were scuppered by the abrupt return to interest rate ‘normality’ as central banks fought post-Covid inflation.

Lost decades happen. That’s the nature of risk.

We’ve documented such wilderness years for equities and gold:

• The Japanese stock market crash
• European stock market returns – check out the French! On second thoughts don’t. It’s too scary.
• UK and US bear market recovery times
• Is gold a good investment – including gold’s biggest market crash. Grim reading for gold bugs.

Nothing is ‘safe’. Every asset class can destroy wealth. That’s why the likes of shares offer you potential returns high enough to beat cash in the bank.

Because we can’t know which risks will materialise in the future, we diversify our portfolios by holdings assets that respond differently to varying conditions.

Not diversifying tempts fate like a farming monoculture. It works until it doesn’t and then failure can be catastrophic.

Keeping hold of what you have

It’s especially important to diversify your defensive, non-stock assets as your pot grows to a significant size. Preservation becomes as desirable as growth, psychologically, once you cross a certain threshold.

The growth side can still be adequately diversified by a single global tracker fund.

However defensive asset allocation is trickier, and neglected because it is complicated to execute, suffers from industry over-simplification, and is less well understood by the public at large.

To be fair, it’s not an easy problem to solve. I guess that’s why many people are throwing up their hands and dumping everything in money market funds.

But I digress.

Money market vs gilts: 125-year returns

Let’s finish off our money market versus gilts drag race. We don’t need to stop after 18 years. We can keep comparing bonds and money market returns all the way back to 1870.

If money markets really do beat govies then they’ll be back in the lead before long, eh?

Turns out there is no truly long-run timeframe (beyond the past ten years) over which money markets beat government bonds.

Indeed gilts offer twice the reward of money markets if we take the 125-year average as a yardstick for expected returns, which is a reasonable thing to do.

If we were comparing equity returns, which asset class would you invest in? The one that did better over the last ten years? Or the one that delivered twice the return over the last 125?

Why is it different for money market funds versus bonds?

Why have bonds been cancelled?

The trouble is this happened only yesterday in our cultural memory:

The bond crash of 2022 rendered gilts toxic in the minds of many who lost money in it, or those who see its backwash polluting the trailing return figures. 

In contrast, money market funds came good over this short period. (Albeit after delivering 12 years of negative real returns in the previous 13 years.)

There’s a straightforward explanation for this reversal in fortune.

Steep interest rate rises (as per 2022) batter longer duration securities like intermediate gilts.

But they boost money market funds because such vehicles are chock full of short-term instruments that quickly benefit from higher rates.

Short versus long durations

The simplest analogy is fixed-term savings accounts.

If you knew interest rates were about to rise then you’d surely hold very short-term fixed savings accounts beforehand – or better yet, easy access. This way, once interest rates rose, you’d only have to wait a matter of days or weeks to switch your dosh to a bank account offering a plusher rate of return.

But what if interest rates were about to fall and stay down for years?

Then you’d want to lock up your money for as long as you could. You’d know the banks were about to pull their best offers and replace them with stingier ones.

Money market funds are the equivalent to easy access bank accounts in this analogy. They’re the fixed income place to be when interest rates rise, but the place not to be when they fall.

The rub though is that none of us know the trajectory of interest rates. Even the experts fail to predict the future path of interest rates with any reliability.

This is part of the reason why it makes sense to hold both bonds and money market funds. (Or straight spondoolicks instead of money market if you can squirrel enough away into cash ISA boltholes.)

The last five years of fixed income returns are dominated by a nasty sequence of interest rate hikes. Hence money markets won.

But the main event 17 years ago was unprecedented interest rate cuts to near-zero – intended to defibrillate Western economies in the wake of the GFC. Hence money markets lost.

Signal to noise ratio

Trailing returns are shaped by the events that they capture.

The shorter the time frame under review, the more likely it is to reveal only the singular events it records – while telling us little about the mean behaviour of the asset class.

Extraordinary events may not repeat in your future.

I was listening to a podcast recently that claimed business investment was suppressed in the 1950s because people assumed World War Three was all but inevitable given their recent experience.

The important thing about the 125-year record is it contains most of the information we’ve gathered to date on money market funds versus gilts.

Such data covers how each asset performed during two World Wars, two pandemics, one Great Depression, stagflation, the bursting of a tech bubble, plus multiple inflationary shocks, recoveries, go-go years, and interest rate cycles.

This long view tells us that gilts delivered much better average returns across the full spectrum of known economic conditions.

If you ever check past performance figures before investing, then this is the timeframe to care about – because if you’re playing the percentages, then 125 years is the most signal-rich comparison we have.

The underlying rationale

Financial theory helps explain why gilts should eventually reassert their return superiority over money market funds.

It’s that risk-reward trade-off again.

Gilts are the riskier asset in that they’re more volatile. Longer duration bonds can suffer violent reversals such as those seen in 2022. They also frequently deliver double-digit returns, for good or ill.

Double-digit gains and losses are comparatively rare for money market funds. They’re more stable, like cash.

But over time, there’s a price to pay for stability – a lower long-term rate of return. (Also known as cash drag.)

We invest in equities because they’re risky, not because they’re easy to live with. We want to pocket the greater reward that we can reasonably expect for taking this greater risk. Every DIY investor who knows what they’re doing has bought into this.

So why not with bonds?

Diversify your defences

My real argument isn’t pro bonds or money market funds.

I think there’s a case to be made for both.

How much you hold depends on who you are, your financial situation, and your time of life.

For accumulators, the biggest danger is you’re scared out of your wits and the market by a horrendous stock market crash. Intermediate government bonds better protect you against that fate than money markets.

Later in life, especially as a retiree, inflation is likely to be your fiercest foe.

Money market funds against inflation are like high city walls against early cannon. They’re not a good defence but they’re better than nothing. They typically outclass intermediate gilts in that situation.

Meanwhile, gold is an unreliable ally against inflation.

I personally think older investors should seriously consider allocations to individual index-linked gilts and / or commodities and / or gold.

That way you’re defended by multiple layers of fortifications when the inflationary enemy is at the gates.

Take it steady,

The Accumulator

1. Òscar Jordà, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, and Alan M. Taylor. 2019. “The Rate of Return on Everything, 1870–2015.” Quarterly Journal of Economics, 134(3), 1225-1298. [↩]
2. I use annual index returns to calculate inflation-adjusted returns. [↩]