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How returns can lead us astray

by The Accumulator on May 19, 2026

There’s a table you’ve probably seen on just about every investment platform known to humanity. It shows recent returns history and looks something like this:

Cumulative performance

Investment	1-year (%)	5-year (%)	10-year (%)
All Stocks gilts	5	-24	-0.8

Nominal cumulative total returns 2015-2025. Data from JST Macrohistory ¹, FTSE Russell, and British Government Securities Database ². May 2026.

This kind of data is so ubiquitous it’s only natural to believe it must be helpful.

For example, it enables you to make quick fire comparisons over what seems like quite a long period of time:

Investment	1-year (%)	5-year (%)	10-year (%)
All Stocks gilts	5	-24	-0.8
Money market	4.3	16.9	19.5

The conclusion looks obvious in this case. Gilts (UK government bonds) have been a disaster. Cash has quietly ticked along. If you want a defensive diversifier to offset equity risk, then the numbers speak for themselves.

Except they don’t. They’re only telling you something about the recent past.

Given the way we’re wired, though, it takes a hefty dollop of willpower not to extrapolate those numbers out into the future. Like an implicit join-the-dots exercise.

But on your guard or not, the table is still an attribute substitution honey trap! What we want to know is whether an investment will do well in the future.

That’s an impossible question to answer so the table plays to our cognitive biases, and invites us to subconsciously smuggle in an easier question, “What has the investment returned over the last 10 years?”

Beguiling figures like this fulfil our need for a quick resolution but deny us the full picture.

A postcard from the last war

The five and 10-year gilt returns in this table don’t tell us that bonds are broken or that cash is the superior investment over time.

Rather, it’s mostly a record of one seismic event: the interest rate shock of 2021 to 2023. When rates rise sharply, existing bond prices fall.

UK government bonds lost over 40% in real terms during that period. ³ And that asteroid strike is now baked into the return figures like the line of iridium which marks the end of the dinosaurs.

This isn’t evidence of a chronic problem with bonds. Gilts had one very bad year in the past half century. (Indeed 2022 was the second worst year on record in real terms.)

But that loss – when spread out across the ten-year return average in the table – makes bonds look like a long-term loser.

The nuance, the underlying cause and how it applies, the market awareness – the table skates past all of this.

Most importantly, it doesn’t show the silver lining. That the same rate rise which massacred bonds in 2022 simultaneously reset yields to the point where expected returns from bonds are considerably higher now than before.

It was all going so well

Let’s look at the same table as it appeared at the end of 2020:

Investment	1-year (%)	5-year (%)	10-year (%)
All Stocks gilts	8.2	30.5	70.4
Money market	0.2	2.3	4.3

Bonds were crushing cash! Once again the conclusion is obvious. Only this time it pointed in the opposite direction.

The table flattered bonds in 2020 – pumped up as they were by falling interest rates in the wake of the Global Financial Crisis and the pandemic.

As Covid-19 vaccines were rolled out, many investors fretted that a similar shot in the arm of the economy could spell trouble for bonds as rates rose again.

But neither they, nor the table, could predict the scale and speed of the interest rate snapback. They couldn’t predict how fast the global economy would reopen, or the size of President Biden’s economic stimulus, or Vladimir Putin cutting gas supplies, or central bank dithering, or fire-starter Liz Truss as prime minister.

In retrospect the bond massacre looks inevitable. In reality, it was contingent.

So the table didn’t just fail to warn you. It actively pointed in the wrong direction relative to the risks, twice.

And these issues aren’t just a problem with bonds.

Hold my beer!

US equities and gold look amazing right now in similar tables due to their multi-year hot streaks.

Does their run-up in value signal a tottering Jenga tower of risk piled upon risk?
Or has the playing field fundamentally tilted in favour of these markets?
Or are these cycles perfectly normal (if three-body problem unpredictable) when you examine the behaviour of risky assets?

Bet now!

A better picture

The next chart compares UK government bonds against the money markets over multiple periods from one to 50 years.

Orange means gilts won over a particular time-frame. Green means money market won:

The numbers in the boxes show the winning asset’s lead in percentage points.
The rows enable you to see which asset class led at the end of each year.

For example, money markets beat All Stock gilts by 1.8 percentage points annualised over the ten years up to 2025. Whereas, gilts beat money markets by 3% per year (on average) over the 10 years 2011 to 2021.

All numbers are inflation-adjusted.

As you can see, while the money markets score some wins, especially over shorter timeframes, gilts dominate overall.

And gilts maintain their edge over the very long term, too.

Real annualised returns to year-end 2025

Investment	75-year (%)	100-year (%)	126-year (%)
All Stocks gilts	1.2	1.4	0.8
Money market	0.8	0.4	0.4

It’s so over for money market funds – they earn half the long-run average of gilts!

Actually, it’s so not over…

When money markets win

The mosaic chart above shows that 1981 was the last time money markets scored a 10-year victory over gilts before 2022.

That’s because interest rates and inflation were stratospheric in the 1970s.

These are the known failure conditions for nominal bonds: inflationary environments where spiralling prices wreck fixed income returns and central banks push rates higher to limit the damage.

To be fair, both asset classes are typically hit hard in these circumstances. But it’s better to be caught in a shorter duration interest-bearing asset like cash when inflation stalks the land.

So what happened when Britain last experienced a long period of rising rates?

Real annualised returns by decade: rising rate environment

Investment	1950s (%)	1960s (%)	1970s (%)
All Stocks gilts	-3.7	-1.7	-3.3
Money market	-1.8	2.1	-2.7

Good grief! The money markets did beat gilts for three decades (and change). Even though cash-like funds were clearly no picnic at the time either.

From my perspective, this reminds me that even a 126-year long-run return, shorn of context, doesn’t tell me everything I need to know about the relative merits of two asset classes.

During that particular period in history, successive British Governments stamped on the interest rate brakes to contain episodic inflationary surges – but they eased off again too soon as unemployment rose, setting the conditions for the next CPI pressure wave.

It was a terrible time for bonds but cash made a huge loss too.

Gonna need a bigger framework

I’ve come to the conclusion that return tables alone are a seductive but misleading tool. They compress a complex, time-dependent story into a single number that skips the ifs and buts.

I don’t believe that you, me, or anyone that we could hire can predict the future.

If it was so damn easy then why was anyone holding bonds in 2022?

And if bonds are doomed now, why is anyone still holding them?

It’s because bonds aren’t doomed. Their expected returns are better now than they were in 2020, as I’ve already mentioned.

Nominal government bonds also have a specific strategic role to play in portfolios as an:

Equity diversifier
Deflation / disinflation hedge
Volatility dampener
Refuge in a demand-led recession

So much for bonds. But people will dump gold and equities too next time they run into serious trouble. Mostly when it’s too late already.

We clearly need a better framework for deciding which assets to hold.

The minimum viable alternative to a quick returns comparison

I think a strategic investor should ask:

What role does this asset play in my portfolio?
Under what conditions does it work? When does it not?
Why might it continue to work in the future?
What’s my back-up if the asset fails for a protracted period?

There are various tools at our disposal to answer these interconnected questions.

Financial theory

This helps explain what assets are for, their sources of return, and so whether we have reasonable grounds to expect the investment to work in the future.

Expected returns

Enable you to take a view on the prospects for an asset class in the years ahead.

The advantage of expected returns is that they’re informed by current market conditions. Hence they can be a useful corrective for the very human tendency to project out recent trends.

The disadvantage is that market conditions can change quickly.

It’s important therefore not to take expected returns too seriously. They’re not forecasts. They’re formulas that are easily defeated by the unforeseen.

Long-term asset class history

The long term view reveals how each asset class performed during different economic regimes.

This enables you to understand:

When it works
When it doesn’t work
How regularly an asset class experiences conditions that cause it to thrive or dive.
How often does an asset class experience negative returns? How long and deep can those drawdowns be? Can you live with that?

If you hold an asset class as a diversifier, for example, then does it actually work? That is, does it have a track record of diversifying the appropriate risk?

For instance, if you hold an asset that’s reputed to rise when equities fall, how often does it do that? Once or twice in spectacular fashion? Or on a recurring basis?

Under what circumstances does the diversifier fail to respond? Does it actively flourish when equities drop, or just limit the damage by falling less far?

Ask whether an asset can behave the way you need it to, when you need it to. What are the chances?

Bear in mind that if an asset class wilts in unfavourable circumstances for such an investment, that’s evidence it’s behaving as expected, not that it’s useless.

Every asset can win big, drift sideways for years, dive underwater for a decade, behave unexpectedly… If you think you have found something that doesn’t, think again.

Ask how much of this asset should I hold given I know it can fail badly for extended periods?

Ten years worth of returns tells you next to nothing. A quarter of a century doesn’t really cut it.

Fifty years is okay and 100 years is good. Starting from 1900 is ideal.

Don’t rule out sepia-tinged events just because they happened a long time ago. I’m specifically thinking of the Great Depression or major wars.

Granted, the economy has changed. But the nature of risk has changed less so. Recall the dictum: history doesn’t repeat but it rhymes.

Predict the unpredictable

Most of all, stay lively to recency bias and resist plausible but simplistic theories. The world is rarely so neat. Bolts from the blue can upend current trends without warning.

The world wasn’t preparing for a pandemic in 2019. People weren’t talking about AI before Chat GPT3 launched in 2022. (Zuckerberg was betting on the metaverse at the time, for goodness sake).

Remember that everything you know is already priced in. For example, demographic decline and the size of government debt.

Embrace uncertainty and risk. That’s the source of your excess returns over those who go nowhere in cash.

Take it steady,

The Accumulator

Bonus appendix – even more gilts vs money market tables

I wrote up these tables then cut them from the main article. I’ll leave them here in case anyone finds them useful.

Nominal annualised returns to year-end 2025

Investment	1-year	5-year	10-year	15-year
All Stocks gilts	5	-5.3	-0.07	1.8
Money market	4.3	16.9	19.5	21.8

Real annualised returns to year-end 2025

Investment	1-year	5-year	10-year	15-year
All Stocks gilts	1.6	-9.8	-3.3	-1.2
Money market	0.9	-1.7	-1.5	-1.6

Gilts only achieve a real positive return on a 22-year view. Money market on a 28-year view.

Nominal annualised returns to year-end 2020

Investment	1-year	5-year	10-year	15-year
All Stocks gilts	8.2	5.5	5.5	5.3
Money market	0.2	2.3	4.3	21.3

Real annualised returns to year-end 2020

Investment	1-year	5-year	10-year	15-year
All Stocks gilts	7.3	3.7	3.4	3
Money market	-0.7	-1.2	-1.5	-0.9

Long-term real annualised returns

All Stocks gilts

1.2% (1900-2020)
0.8% (1900-2025)

Money market

0.49% (1900-2020)
0.4% (1900-2025)

Jordà O, Knoll K, Kuvshinov D, Schularick M, Taylor AM. 2019. “The Rate of Return on Everything, 1870–2015.” Quarterly Journal of Economics, 134(3), 1225-1298.[↩]
Cairns A, Wilkie D, ESCoE Historical Data Repository. “Heriot-Watt / Institute and Faculty of Actuaries / ESCoE British Government Securities Database.” ESCoE.[↩]
Most UK government bond funds follow the All Stocks gilts index.[↩]

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Weekend reading: The write stuff

by The Investor on May 16, 2026

What caught my eye this week.

I met up with an old university friend recently who works in quantum computing. When I last saw him 20 years ago he hadn’t yet written important papers on how to get quantum computers to do useful stuff. Or maybe he had but nobody cared. It was all still science fiction.

Weekend Reading – featuring the week’s best money and investing articles from around the web – can be read by any logged-in Monevator member. Alternatively please subscribe to our free email newsletter to get future editions direct to your inbox.

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This time next century, we’ll be billionaires

by Finumus on May 14, 2026

Photo of a tall mountain with caption “The $1bn question” to represent the difficulty of compounding $1bn

Your 100-year-old spinster Great-Aunt Maggie dies. The family solicitor calls you in. You are expecting a small bungalow, several boxes of yellowing paperwork, and perhaps a lecture about probate.

Maggie had always seemed almost aggressively frugal. She wore old clothes. She walked to the library. She grew vegetables. She did not own a car. As a child, you vaguely wondered if she might be poor.

Apparently not.

Because Maggie’s estate turns out to be worth about $1bn.

How?

You’d always had a vague idea that Aunt Maggie had once been American. It turns out Maggie’s father was a notable American financier. In 1926, when Maggie was still in her cot, he put $53,300 into the JPMorgan S&P 500 Zero-Fee Magically Accumulating No-Tax Miracle Fund.

Then Maggie did the hard bit.

Nothing.

Maggie did not sell. She did not switch platforms. She did not rotate into Japan in 1989. She did not decide Cisco looked cheap in 2000. She did not panic in 2008. During COVID, she didn’t go on TV and cry. She just went to get her vaccine.

She did not pay an adviser 1% a year to ask her whether she had an attitude to risk.

Maggie just lived to 100 and let America do its thing.

Neat.

Magical thinking

Now to be clear, no such fund existed. Or could have existed.

The S&P 500 did not take its modern 500-stock form until 1957. Retail index funds did not exist. Accumulation share classes did not exist. Zero fees did not exist – and taxes certainly did.

But let’s leave those implementation details aside for a moment.

Maggie has compounded her way to billionaire status.

Unfortunately, you have not.

Heirs and graces

We’ll assume Maggie was UK-domiciled in the end and her estate subject to UK inheritance tax.

Ignore allowances because this is billionaire maths – the estate pays 40% inheritance tax (IHT).

So you inherit $600m.

Still an excellent result. But no longer billionaire status.

The first thing that happens after a century of perfect compounding is that HMRC turns up and removes 40% of the mountain.

$1 billion to one in the stock market

Here is the Maggie checklist for getting to one billion:

Start early
Start with a large sum
Own one of the best-performing major stock markets of the next century
Pay no fees
Pay no taxes
Do not spend any of it
Do not sell, gift, switch, merge, rebalance, or otherwise crystallise a tax event
Finally: do not die

Simple.

Time

Compound interest is often called the eighth wonder of the world:

Many people understand the compound interest formula. Hardly anyone behaves as if they believe it.

At a 10.34% nominal CAGR for US equities, Maggie needed only $53,300 to get to $1bn over 100 years. But give her 50 years and she needs $7.3m. With 30 years she only needs… $52m.

This is why compounding is exceedingly dull. It takes decades for anything to happen:

The 10.34% column is the Aunt Maggie thought experiment scenario: nominal US equities, no tax, no costs, no product failure, no bad behaviour, and a century of hindsight.

For the grown-up model, I am going to use 5.2% real as a long-run global-equity return assumption. That is the long-term real equity return (in the past!) per Dimson and Marsh.

At 5.2% real, the starting sum needed to reach $1bn in today’s money after 100 years is:

Call it $6.3m.

That is the clean answer. Your ancestor did not merely need to be sensible. They needed to be rich already.

But let’s face it, plenty of Monevator readers are.

Maggie owned the winner

The S&P 500 is pretty much the best-performing stock market over the last century.

If Maggie had been born German, for example, it would have been a different story. But we’ll assume we’re all investing in 100% global equities nowadays, because we don’t believe in picking markets any more than we believe in picking stocks.

The leaks

Let’s take the clean $6.3m starting pile that becomes $1bn after 100 years at 5.2% real.

Then we’ll let the British state, fund managers, and biology have a go at it.

The model I’ll use is deliberately simple:

5.2% real gross equity return
0.20% annual implementation cost
2.0% dividend yield
39.35% additional-rate dividend tax
0.5% FX spread on foreign-currency distributions, equal to a 1bp annual drag on a 2% yield
40% IHT events at years 30, 60, and 90 (assume each generation just leaves assets to the next)
Allowances, bands, reliefs, and clever planning ignored

Again we’ll assume that not a penny is ever spent from the pot.

A 0.20% annual fee turns the clean $1bn into $827m.

Taxing a 2% dividend yield at 39.35% creates a 0.787% annual drag. With the fee included, the family ends with $390m.

Add a 0.5% FX spread on those same distributions and you shave off another $4m.

The family is now at $386m.

Then three IHT events take the $386m to $83m:

The line chart below is the same argument in picture form.

The top dark blue line is the spreadsheet. The chopped blood-red line is reality.

Yes, Britain has a wealth tax

Whether or not Charlie Munger ever actually said it, the aphorism is correct: the first rule of compounding is never to interrupt it unnecessarily.

Dying is quite the interruption. Especially in the UK, where Maggie’s estate pays 40% IHT.

Of course, you can give your fortune away at least seven years before you die, assuming you know when that will be. But if you gift chargeable assets then the gift is normally a disposal for capital gains tax (CGT).

People occasionally suggest that Britain should have a wealth tax. Is that as well as this one? Or instead of?

Will your fund make it to 2126?

The spreadsheet says: buy global equities and wait.

Fine. Which fund?

We are asking a product to survive for 100 years. It must keep its mandate, stay cheap, avoid forced mergers, avoid weird domicile changes, avoid legislation, and remain available on future platforms.

There are, to my knowledge, no global equity index funds that have done this.

But some investment trusts have! The AIC has a list of investment companies launched before King Charles III was born. Several are more than 100 years old.

The AIC’s 30-year return table includes:

Trust	Launch date	£1,000 after 30 years	CAGR
F&C Investment Trust	19/03/1868	£14,110	9.2%
City of London Investment Trust	01/01/1891	£10,635	8.2%
Scottish Mortgage	17/03/1909	£27,887	11.7%
Alliance Trust	21/04/1888	£12,268	8.7%

I could not find a clean, comparable 100-year total-return table that I would trust enough to print.

That absence is itself the point. But the table does show that collective investment vehicles can live for more than a century.

Are tax wrappers any help here?

If you’ve managed to get $6m – about £4.5m, our required starting capital to get to a billion – into an ISA, then well done.

But I bet you’re over 60.

And there lies the problem: the ISA tax shelter is only effectively inheritable by a spouse, so the wrapper dies with the younger spouse, unless you keep remarrying younger people ad infinitum. [Who knew tax planning could be so rock and roll?! – The Investor]

Still, ISAs can take a lot of the sting out of dividend tax and, of course, you can rebalance without worrying about CGT.

It also emphasises the tax-minimising principle: fill your ISA, your spouse’s ISA, and, if you can afford to, your kids’ and grandkids’ ISAs. Consider going into debt if you have to in order to make sure you use the annual allowance. [Like everything here this is not personal advice! Potentially very risky. Read the linked article, seek advice if needed – The Investor]

Pensions were a potential perpetual tax shelter for a while, enabling you to compound wealth down the generations with no dividend tax, CGT, or IHT. Unfortunately, that wheeze has been rugged by Reeves. (Yes, beneficiaries pay income tax on withdrawals, but the original pension got income tax relief on the way in, so call that a wash.)

Reeves’ actions also exemplify the tax risk. The rules keep changing, rarely to your advantage.

Once you’ve got a few hundred million in your ISA, will they come along with an ISA lifetime allowance?

The one weird trick that completely avoids IHT

Do not die.

The government has not found a way to close this loophole yet: your estate only pays IHT when you die.

So… don’t.

Unfortunately, living a long life is mostly down to luck. But there are a few things that you can do to improve your chances.

Just as we don’t give financial advice here, we don’t give health advice. But here’s a shortlist of things you can do in order to reduce your potential IHT liability:

Don’t be overweight. This is now much easier to fix with money via drugs.
Exercise: cardio, strength, balance, and enough mobility to get off the floor.
Get vaccinated.
Do not do obviously risky stuff.
Proactively manage your health. The NHS is not going to do it for you.

So what would actually help?

Maggie already had all the answers:

Start early
Start with a lot
Avoid putting all your eggs in one basket
Minimise fees
Mitigate whatever taxes you can
Don’t spend any of the pot
Try not to die

This time next century, you’ll be a billionaire. (Maybe.)

What is the point?

There is an obvious objection to all this.

What is the point of becoming a billionaire in 100 years if you don’t get to enjoy spending the money? You don’t want to never treat yourself because coffee will cost $1m in a century.

That pushback is totally fair.

But for some of us, the money itself has long since ceased to matter. It’s for the love of the game!

Be sure to follow Finumus on Bluesky or X and read his other articles for Monevator.

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Three things I’ve changed my mind about during 20 years of investing [Members]

For MAVENS and MOGULS by The Accumulator on May 12, 2026

God, has it really been 20 years since I first dropped a few plucky pounds into my workplace pension?

“Why don’t you celebrate it by writing up three things you’ve changed your mind about since you started,” said The Investor.

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