Growing up, I was often told that paying off your mortgage was the best financial decision you could make.

A funny lecture to give an eight-year-old, granted. But the thought got stuck in my head.

Paying down debt makes for sexy headlines. Santander observed earlier this year that joining in with Dry January – and reallocating all of your booze money to overpaying your mortgage instead – could wipe £28,373 off your mortgage payments over 25 years.

I’m thinking about taking up drinking for Christmas just so that I can join in by quitting again next year!

If you read Monevator though, you’ll know that often the smarter decision is to invest instead.

But what if you’re already investing as much as you want to, and you still find yourself having a few thousand pounds sitting around?  

Sure, you can make overpayments on your mortgage. But often after overpaying the first 10% of your mortgage value you’ll incur penalties.

And what if you suddenly want that money back? Well, then your bank will typically have its fists tightly closed around your cash.

Offset mortgages: the best of both worlds

Offset mortgages are a neat solution. Monevator has covered them in detail before.

To summarise, with an offset mortgage you put your cash into a designated account with your mortgage lender. It then subtracts that cash balance from your total debt balance each month before calculating your interest.

If you’ve got a £250,000 mortgage, say, and £40,000 in cash savings, then you only pay interest on the remaining debt of £210,000.

On paper it’s a fantastic idea. There’s no tax to pay on savings interest, you can make effectively unlimited overpayments, and you can withdraw your cash whenever you need it.

Here’s the catch

With my mortgage coming up for renewal soon – and having heard from so many offset mortgage fans over the years – I investigated to see if our next mortgage should be an offset.

That’s easier said than done, because these days, the offset mortgage sits in a murky and dusty corner of financial services – a relic of years past.  

Perhaps because rates were so low for so many years people forgot about them?

Whatever the cause, I was disappointed to find many lenders don’t offer offsets nowadays, or else restrict them to existing borrowers. So as a prospective offsetter, you might struggle to find a suitable lender.

Barclays (as of 16 December) offers a mere two offset mortgage options on residential purchases, compared to 28 products without offset functionality.

Yorkshire Building Society (YBS) (as of 17 December) similarly offers two – from a total mortgage range of 11.

So even for the few lenders that offer them, offsets are a niche product.

Mortgage maths

Regardless, let’s compare some of the options available (as of December) for customers with a 75% loan to value (LTV)1:

Lender	Product	Initial Rate	Fee
Barclays	Offset 2 Year Tracker	5.22%	£1,749
Barclays	Standard 2 Year Tracker	4.21%	£999
YBS	Offset 2 Year Fixed	4.09%	£995
YBS	Standard 2 Year Fixed	3.69%	£995

With Barclays you’re paying a 1.01% higher rate for the luxury of having an offset. And you can slap a £1,749 fee on top of that – a full £750 higher than with the standard tracker.

Why it should cost more? Who knows? Perhaps the bank has to share the data between the savings and mortgage teams via specially-trained carrier pigeon.

With Yorkshire Building Society, things are a bit better. It only wants 0.4% extra on the mortgage rate.

Higher rates and fees can destroy the benefits of offset mortgages

Now we’ll put some real numbers on these scenarios.

Let’s say Peter wants to borrow £400,000 over 30 years.

It’s worth bearing in mind that just because Peter likes the look of the YBS products, that doesn’t mean it will agree to lend against his property.

Hence we’ll imagine one scenario where he can only get a mortgage with YBS, and one where he can only go with Barclays:

Product		Initial Monthly Payment	Capital paid off after 2 years	Interest costs over 2 years + fee	Total cost over 2 years
Barclays – Offset 2 Year Tracker		£2,202	£12,236	£41,209 + £1,749	£42,958
Barclays – 2 Year Tracker		£1,958	£14,439	£32,563 + £999	£33,562
Barclays – additional cost for offset product					+£9,396
YBS – Offset 2 Year Fixed		£1,931	£14,719	£31,612 + £995	£32,607
YBS – 2 Year Fixed		£1,833	£15,547	£28,451 + £995	£29,446
YBS – additional cost for offset product					+£3,161

With Barclays, Peter would cost himself a whacking additional £9,396 for the luxury of having an offset mortgage.

With YBS, he incurs an extra cost of £3,161.

Show me the money

Okay, that’s the bad news out of the way. Time to unleash Peter’s savings to start raking in those offsetting benefits, right?

We’ll assume Peter is a 40% taxpayer (offsets would look a smidge better if he was a 45% taxpayer and a lot worse if he was only paying 20%), that he’s already used his £500 tax-free savings allowance, and that he has no ISA space remaining.

The offsetting benefits with an offset mortgage obviously depend on how much Peter actually has in savings.

So let’s look at four possible scenarios. (All the numbers are annual):

Lender	Savings Amount	4.5% Savings Account (after 40% tax)	Offset (interest saved)	Surplus vs Savings	Surplus after additional interest and fees
Barclays	£25,000	£675	£1,305	£630	-£8,766
	£50,000	£1,350	£2,610	£1,260	-£8,136
	£100,000	£2,700	£5,220	£2,520	-£6,876
	£200,000	£5,400	£10,440	£5,040	-£4,356
YBS	£25,000	£675	£1,100	£425	-£2,736
	£50,000	£1,350	£2,200	£850	-£2,311
	£100,000	£2,700	£4,400	£1,700	-£1,461
	£200,000	£5,400	£8,800	£3,400	+£239

Ouch!

Okay, considering the savings income alone – achieved because the interest reduction from using an offset is not liable for income tax – Peter is indeed significantly better off with an offset, compared to keeping the cash in a taxable savings account.

But the higher rates and fees that also come with the offsets quickly undo the gains.

With the Barclays mortgage costing an extra £9,396 in interest and fees, even if Peter had £200,000 to offset, he would still be better off on a standard tracker with his cash in a savings account.

I don’t doubt many people out there have plenty of cash. But it must be a vanishingly small proportion who want to have cash savings on hand equivalent to half their mortgage value.

With YBS, only when allocating £200,000 in cash against the offset does it start to make sense. But Peter still only benefits by £239 after all the extra costs of the offset option.

For my part, I wouldn’t tie up £200,000 in an offset mortgage for such mean gruel.

Also bear in mind that in any of these scenarios, Peter could presumably just have borrowed less in the first place and put the spare cash into his deposit.

What is your goal with an offset?

It’s easy to fall into a trap of making decisions because they feel good, rather than because they make financial sense.

When people talk about how offset mortgages have enabled them to get out of debt faster by saving thousands in interest payments… well, it all sounds very enticing.

Perhaps that was your experience. But given today’s rates, an offsetter is probably worse off than if they were on the vanilla option of stashing their cash in a savings account, or simply maxing out overpayments on a standard mortgage.

True, there are a few scenarios where offsets might still make sense.

Perhaps you want to hold large amounts of cash whilst you wait for the right buy-to-let opportunity to come up? Or maybe you get large bonuses every so often but you need to keep large amounts of cash on hand for school fees? Or for getting the yacht serviced?

The frustration for me is that offsets could be a really valuable product, especially with tax on savings the latest target of the Chancellor. 

The government plans for tax on savings income to rise to 2% above the respective income tax bands for 2027 to 2028. Who knows if further increases will follow.

So offset mortgages seem appealing for higher-tax rate taxpayers with cash to spare.

There’s also a lot to be said for having the flexibility to just drop extra cash into the offset when you have it, and pulling it back out when you need it.

But as of today, their uncompetitive interest rates and fees make them unattractive for most.

Your mortgage mileage may vary

As is probably obvious by now, I love the concept of offset mortgages.

But unfortunately the numbers don’t work for me.

Even if I had 50% of my mortgage balance available in cash, I still wouldn’t take out a product that only makes financial sense if I retain that cash balance for the whole duration of a two-year mortgage term.

If you need really do need to have lots of cash on hand – just in case, for some reason – then an offset may be worth considering.

Perhaps better rates will be available by the time you come to remortgage, too.

But as of right now, for most people I just don’t see a case for paying more to offset.

On the same note, if you already have an offset mortgage, then run the numbers to see if you’re actually benefiting as much as you think you are. You may well find that with a standard – cheaper – mortgage product and your cash held in a competitive high-interest savings account, you’d be better off overall.

Even if it does mean sacrificing your beloved offset!

1. LTV / Loan to Value is the value of the mortgage (i.e. the loan) divided by the value of the property [↩]

The Permanent Portfolio is a strategy for diversifying your wealth. It’s an asset allocation that looks like it was lifted from the Old Testament:

• 25% in cash
• 25% in gold
• 25% in shares
• 25% in long-term government bonds

Okay, so you’re not shipping corn in a Phoenician galley or laying down shekels at the local moneylender. You’re investing in stock market listed companies and government debt.

Nevertheless, for an asset allocation the Permanent Portfolio is about as back-to-basics as diversified gets – the 25% slug of gold giving it an especially Old World tang.

The portfolio’s roots lie in the high inflation era of the 1970s, when investing was simpler. Forget robot advisors or quant funds1 – the only thing most people used computers for was playing Pong or Pac-Man.

Back then people still held active funds and shares for decades. They phoned up their stockbroker to do trades – or visited them in-person!

A gloomy minority even buried gold coins in their garden or stashed them under floorboards, before hunkering down to wait for the inevitable nuclear conflict.

Plus c’est change

Nearly 50 years on – it’s a different world. (Well, sort of…)

You might well wonder then what the rather presumptuously named Permanent Portfolio offers us 21st Century investors.

Surely we’ve nothing to learn from an approach you could write on a fag packet? (If we still smoked…)

Well, I believe it’s worth pondering the Permanent Portfolio, and its deceptive simplicity. While it’s too straightforward for an investing stamp collector like myself, I recognise it as a thing of investing beauty.

The Permanent Portfolio’s returns have historically been pretty special, too.

Not the highest returns, granted. But that’s not the only way to judge how well a portfolio performs.

The history of the Permanent Portfolio

The Permanent Portfolio was the brainchild of Harry Browne, a US writer and politician.

Browne’s life was quite a journey – he wrote a classic of the US libertarian movement and ran for president – but it’s his evolution as an investor that’s relevant to us.

Beginning his investing career as a gold bug and newsletter writer, Browne morphed into a proto-passive investor. He came to believe nobody knew much about the direction of markets or the economy.

Expansions and recessions were inevitable but impossible to time. Investors should be fearful of inflation as well as deflation, and also of government interventions.

Cheap index trackers were the investments of choice. Why pay a fund manager when nobody knows anything?

This all resulted in the Permanent Portfolio – the pioneering all-weather asset allocation I outlined above.

The science bit

The Permanent Portfolio is extremely simple, but designed to preserve an investor’s wealth whatever fortune throws at it:

• In good times, the equities should do well.

• In retrenchments, long-term government bonds should shine.

• Gold protects you from calamities – as well as, hopefully, the sort of stagflation that prevailed in the 1970s.

• And cash, well it never hurts to have a supply of the folding stuff to call upon.

Rebalance annually and you might benefit from automatically selling high and buying low. More importantly, you keep your ship on an even keel.

Historical returns from the Permanent Portfolio

Here’s how a Permanent Portfolio, denominated in GBP, would have performed from 1970 against World equities and the 60/40 portfolio:

Permanent Portfolio = World equities, long gilts, UK money market, and gold priced in GBP. 60/40 portfolio = 60% World equities GBP / 40% medium gilts – up to 10-year maturities. Portfolios are annually rebalanced. Fees are not included. Data from Alan Stocker2, British Government Securities Database, A Millennium of Macroeconomic Data for the UK, The London Bullion Market Association, FTSE Russell, and MSCI. November 2025

Note: All returns in this post are inflation-adjusted GBP total returns.

Here’s the trend lines in the graph broken down into their risk and reward elements:

Portfolio	Annualised return (%)	Volatility (%)	Sharpe ratio
Permanent	4.2	6.8	0.62
60/40	4.1	9.3	0.44
100% equities	5	14.7	0.34

What’s most noteworthy about the Permanent Portfolio is its very low volatility:

• The average 4.2% return from the Permanent Portfolio came with a standard deviation of just 6.8%. That’s calm.

• By contrast, a 60/40 portfolio (World equities / medium gilts) delivered a 4.1% return and it ladled on more volatility – a standard deviation of 9.3%.

• 100% equities offered the best returns of all but upped the risk quotient yet again, subjecting owners to 14.7% annualised volatility.

Let’s now draft in the Sharpe ratio to help us make sense of that risk versus reward trade-off.

Risk rewarded

The higher your Sharpe ratio, the better your risk-adjusted returns. In other words, the more return you get per unit of risk, as measured by volatility.

On that score, the Permanent Portfolio’s 4.2% average return is achieved with far less grief than the other two portfolios dished out.

An allocation of 100% equities may offer the prospect of higher returns. But they’ll likely come with much more drama attached.

Meanwhile, you can see the Permanent Portfolio’s steady approach at work in the growth chart above. Its green line waggles, for sure. But it doesn’t feature the sickening cliff-drops that punctuate the 100% equities’ blue line or even the concave wilderness years that afflict the 60/40 portfolio (orange line).

Downside protection

The Permanent Portfolio’s relative chill makes it particularly well-suited to retirees and those derisking their portfolios before retirement.

Investors focused on wealth preservation need to avoid devastating losses. That’s exactly what Browne’s asset mix is designed to avoid:

The Permanent Portfolio has only suffered one bear market drawdown greater than 20% in the past 55 years. Compare that with the free falls experienced by more conventional load-outs:

• • 

The Permanent Portfolio’s extremely low 25% equities holding reduces the severity of dips when the stock market crashes.

Nicer nightmares

Even the nightmare scenarios tend to be less terrifying:

Portfolio	Deepest drawdown (%)	Longest drawdown
Permanent	-21.5	6 years, 6 months
60/40	-45.8	11 years, 11 months
100% equities	-56.1	13 years, 9 months

In inflation-adjusted terms, a 60/40 portfolio lost nearly half its value during its most abysmal run. 60/40 investors also had to endure almost 12 years underwater in the worst case before their portfolio reclaimed its old highs.3

In contrast, at worst the Permanent Portfolio declined less than halve the amount of the 60/40. And its longest bear market recovery time was 45% quicker.

As the table shows, running with 100% equities was hairier still when the brown stuff hit the fan.

Take a walk on the mild side

One of the dilemmas facing investors – whether we recognise it or not – is that long-term average returns conceal some colossal landmines. Monumental blow-ups that can wreak havoc with your plans.

This is known as ‘tail risk’ and you can assess a portfolio’s susceptibility to such extreme unpleasantness by checking its annual return distribution.

The more often a portfolio deep-dives into negative territory, the riskier it is:

A portfolio comprising 100% World equities has lost nearly 40% of its value – in a single year – twice in the last 50 years. And drawdowns of between 15% and 30% in a single year are standard.

On the other hand, double-digit advances are common, too.

In short, a 100% equities portfolio is an Oblivion-grade rollercoaster.

Contrast that with the more regular 60/40 portfolio:

Eye-watering losses are fewer and shallower. But by the same token, blistering gains are also less frequent. Annual returns are more likely to land in a middling comfort zone.

If you like the sound of that then you’ll love the Permanent Portfolio’s track record:

The Permanent Portfolio hardly ever racks up a double digit loss. In the vast majority of years it makes steady progress and conserves what you have.

Why the Permanent Portfolio works

The key to the Permanent Portfolio’s stabler returns is its diversification, especially its out-sized allocation to gold:

Asset class correlation matrix: monthly real total returns 1970-2025 

	Gold	World equities	Long gilts	Money market
Gold	1	0.01	-0.02	0.04
World equities	0.01	1	0.14	0.1
Long gilts	-0.02	0.14	1	0.39
Money market	0.04	0.1	0.39	1

Quick correlation recap:

• 1 = Perfect positive correlation: when one asset goes up so does the other
• 0 = Zero correlation: the two assets being measured have no influence upon each other
• -1 = Perfect negative correlation: when one asset goes up, the other goes down

These are extremely good numbers. Low and near-zero figures indicate the portfolio’s assets are exceptionally diversified.

Permanently at odds

Even well-differentiated equity sub-asset classes typically have correlations ranging from 0.8 to 0.9+. The highest here is 0.39 betwixt long gilts and money market (which stands in for cash in the mix).

Even 0.39% is a moderately low correlation as it goes, while the other – still better – numbers go a long way to explaining the low-volatility nature of the Permanent Portfolio. Basically when one of its asset is face-planting then the others usually trot on, relatively unbothered.

Of course, by the same token if World equities are on a tear, then it’s also likely that others among the assets will be dragging their heels.

Hence, during bullish times it’s important to focus on the Permanent Portfolio’s goal of balance. Otherwise you’ll be forever grousing about how some laggard or another is cramping your style.

Diversification and gold

Here’s an illustration of how gold in particular has historically proved a diversifier for UK equity investors:

The chart shows how well gold counteracted falls in World equities. Exactly when you’d most want to see a non-stock asset go up – to offset the pain of plunging share prices!

It’s especially notable because in a crash correlations increase. That is, most assets tend to fall together. So if you can own something that doesn’t, you’ll someday probably be glad of it.

Bottom line: the big allocation to gold is the oddest but perhaps also the most important aspect to the Permanent Portfolio.

What have you done for me lately?

The Permanent Portfolio regained popularity between the stock market crash of 2008 and the peak of the gold market bull run in 2011. Scarred by memories of the still-recent global equity rout and attracted by the allure of gold, new adherents flocked to its defensive asset allocation.

With hindsight that was poor timing. This particular golden age didn’t last long – the yellow metal nose-dived 40% from late 2011 until the end of 2015.

Gold has since bounced back with a vengeance, however. And stock markets have soared too.

Yet Permanent Portfolio investors had to cope with their worst ever drawdown of -21.5% in 2023, as all four assets struggled with the post-Covid inflation and interest rate double-whammy.

Survivor’s gilt

No asset was more of a liability in 2022 and 2023 than long gilts. They suffered a dreadful 61% decline from their peak at the outbreak of Covid.

Despite that shock, I’d say the Permanent Portfolio coped reasonably well. Its 21.5% loss in 2023 is no more than a bad cold in comparison to the worst maladies that can befall a stock-heavy asset allocation.

And since then the Permanent Portfolio has recovered its losses and resumed its forward march.

Do recent events mean that long gilts are broken? No. They’re no more broken than equities or gold right after they crash. Those assets are just as capable, if not more so, of delivering an appalling performance.

The real learning point is that although the Permanent Portfolio looks outwardly dull, it actually invests in three highly unpredictable assets. Each one can punch the lights out or punch you in the face.

The genius of Harry Browne is that he chose these volatile assets because they can cover for each other.

One of them is usually charging forward, while another is heading for the field hospital.

Meanwhile cash plods along keeping up the rear.

It’s hard to credit, but highly-volatile individuals can create a surprisingly harmonious environment even though all appears to be churn and chaos.

Think The Expendables, but with Sharper ratios.

Investing in the Permanent Portfolio

The Permanent Portfolio is a self-reliant DIY investors’ dream.

Not as simple as the very simplest global shares and bond mix, admittedly. But a Permanent Portfolio shouldn’t take more than half an hour to set up, and the same again once a year to rebalance.

My co-blogger The Accumulator gave an example setup in his review of model portfolios for DIY investors.

Needless to say you should be investing in ISAs and SIPPs to avoid your portfolio being ravaged by tax.

Permanently a place for the Permanent Portfolio

Active investing is my passion. At times I’ve approached 100 holdings. I’ll also accept higher volatility for hopefully higher returns.

So the Permanent Portfolio is too simple for me. And realistically, I can’t imagine putting 25% in gold.

All that said, compared to when I first learned about the strategy a couple of decades ago – back when I was happily all-in on equities – my need to diversify has increased. The absolute amount I have invested has grown a lot, and my time horizon has shrunk.

The Permanent Portfolio – and its history of decent returns with minimal volatility – is a useful reminder that well-considered diversification need not be a recipe for stagnation.

Those looking to reduce volatility in their portfolios – especially around retirement D-Day – could do worse than spend a few minutes thinking about what it has to teach us.

1. Yes, I know there were a handful of pioneering quant funds and already some use of computers. But nothing like the algorithmic trading that dominates activity today. [↩]
2. Stocker AJ. 2024. “Total Returns for UK Gilt Sectors of Different Maturities from 1870 Onwards.” [↩]
3. This assumes no new savings. [↩]

What caught my eye this week.

There’s a growing sense – I’d argue a reality – of intergenerational inequity in the UK, as with many other developed countries.

Whether the old having so much more than the young is an inevitable consequence of late capitalism, a comorbidity of a broken housing market, the demographic bulge bracket baby boomers not paying their way, or just what happens when an economy is no longer booming like it did in the 1950s and 1960s is hard to tell.

Probably it’s a bit of everything. But in any case, assuming we don’t want to transition permanently into neo-feudalism, the next question is what’s to be done?

One option is to directly favour the young with government largesse. For various reasons, mostly political, we’ve triple-locked away that solution for now.

The other obvious redress, redistribution, is even more controversial. At least outside of the editorial meetings of Socialist Worker.

Redistribution – taxing those with more to give to those with less, obscured by so many smoke and mirrors – at least treats the thing directly. Handy if the age aspect is a red herring, and really we’re just looking at greater wealth inequality.

The big snag though is that redistribution tends to infuriate those whose stuff is being redistributed.

As the UK tax take of GDP soars, statistics showing the top 1% already pay 30% of all income tax imply they have a point – even if income tax is not everything.

The bank of grandmother and grandad

There’s one kind of redistribution that both the richest and the rest of us tend to support though.

And that’s inheritance passing wealth down the generations.

True, long-time readers know that this is where I’d personally position the nation’s best tax-collecting apparatus.

On both moral grounds and in light of my neo-feudalism fears, I’d far prefer to tax dead people who can’t feel the pain than young people working, saving, and still not having enough money for a house deposit or a proper pension.

But hey, I’m in a minority. Inheritance tax is widely considered to be the UK’s most unpopular tax. Most people hate it.

And yet it exists – and from the perspective of its critics, it gets in the way of the frictionless redistribution from the father to the son.

(And the mother and daughter of course, but as we’re in the realms of neo-feudalism here, let’s have all the trimmings!)

How soon is now?

By far the best and easiest way to avoid inheritance taxes tithing such wealth transfers is for the eventually-to-be-deceased to give their money away sooner.

Currently no tax is due on anything given away if you live for seven more years.

To me, this longevity lottery seems a bit ridiculous – if again entirely in keeping with the same medieval thinking that makes inheritance taxes so unpopular.

Why should a family be penalised because a beloved elder gets an unexpected cancer or meets the wrong end of a bus?

Nevertheless, encouraging the rich to pass down their wealth sooner does have one undeniably huge benefit, as Jonathan Guthrie outlines in a (paywalled) article in the Financial Times this week.

As things stand, Guthrie writes:

…the most striking feature is how little we decumulate. Most folk die with more than 60 per cent of their peak lifetime assets.

Adult offspring are therefore liable to inherit large sums when they themselves are approaching retirement, when the utility of the money may be lower.

Giving sooner improves the lives of heirs earlier, and in material ways. Perhaps the chance for a parent to take a few years off to care for young children, or for a family to buy a house with bedrooms for all the kids from the start. Compare such uses to the money simply sitting in a septuagenarian’s bank account, maybe with a bit of the interest funding one more Caribbean cruise that gilds the lily.

Earlier inheritance might even help with the housing market, if it reduces the tendency for older generations to rattle around in big houses full of rooms they don’t use while young families grin and bear an open-plan kitchen-diner-hallway-sofa-bedroom.

Well, solves it for the moneyed classes at least. But that’s neo-feudalism for you…

An age-old story

Guthrie suspects traditional inheritance practices have yet to adjust for extended longevity, writing:

When lives were shorter and child-rearing began earlier, legacies from dead parents materialised closer to the point of greatest utility for heirs.

This must be right. Even oligarchs in the Middle Ages were lucky to make it to 60.

Naturally we all want to live longer lives. But if it means ever more wealth piling up at the right-hand of the curve where it’s unlikely to ever be spent, then something – literally – has to give.

I’d suggest if we’re to avoid a ‘Gen Z Uprising’ in the history books alongside the First Baron’s War, the Peasant’s Revolt, the Boston Tea Party, and the Bolshevik Revolution then more efficiently keeping it in the family isn’t going to be enough in the long run.

But getting wealth redistributed sooner – to where it will do the most good for those who are fortunate enough to inherit – is at least a start.

Have a great weekend.

p.s. Thanks to everyone who entered our Christmas sweatshirt competition. I’ll contact the winners this weekend to make sure they’re not Russian chatbots or whatnot, and announce the ‘lucky’ recipients next Saturday!

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