Duvet day at Monevator as we update our asset allocation quilt with another year’s worth of returns.

The resulting patchwork reveals the fluctuating fortunes of the major asset classes across a decade, and invites a question…

Could you predict the winners and losers from one year to the next?

Asset allocation quilt 2025

Data from JustETF, Morningstar, and FTSE Russell. January 2026

The asset allocation quilt ranks the main equity, fixed income, and commodity sub-asset classes for each year from 2016 to 2025 from the perspective of a UK investor who puts Great British Pounds (GBP) to work.

Here’s what you need to know to read the chart:

• Returns are nominal ¹. To obtain real annualised returns, subtract the average UK inflation rate of approximately 3.4% from the nominal figures quoted in the final column of the chart.

• Returns take into account the Ongoing Charge Figure (OCF), dividends or interest earned, and are reported in pounds.

• Again, these are GBP results. If our numbers differ from yours, check that you’re not looking at USD returns. (It’s either that or our minds have been obliterated from staring too long at the crazy pixel explosion above.) 

Shady business

While our chart may look like the worst pullover pattern ever, it does offer some useful narrative threads.

For starters we can see investing success is not as simple as piling into last year’s winner. The number one asset in one year typically plunges down the rankings the next. A reigning asset class has only held onto its crown for two consecutive years twice – broad commodities achieving the feat from 2021 to 2022 and gold from 2024 to 2025. 

Long periods of dominance are possible – gold has had a spectacular decade. The yellow metal has topped the table three times and only dropped into the bottom half twice in the past ten years (2017 and 2021). It’s even surpassed the annualised returns of US equities in the ten-year return column. Not bad for a lifeless lump of rock. 

But the investment gods are fickle. Gold was the second worst performer in the table when we first published our asset allocation quilt in 2021.  Which is as nothing to the 31-year bear market gold inflicted on its investors from 1980 to 2011. 

This isn’t some strange quirk that only pertains to shiny dubloons. Any investment can suffer multi-decade declines. That’s why diversification is so important. 

Getting defensive

Disillusionment with bonds has been a major talking point round these parts since the asset class crashed in 2022. 

Many Monevator readers have retreated into cash since then. 

But though cash (in the shape of money market funds) has beaten UK government bonds (gilts) since 2021, gilts have trashed cash over longer periods. 

Notice how badly money market lost to intermediate gilts from 2016 to 2020. Dig deeper into the historical record and you’ll discover that average gilt returns are twice as high as the money market’s. 

However, high inflation periods – as per 2022 to 2023 – are government bond Kryptonite.

Gold, commodities, and index-linked gilts are all good – if imperfect – countermeasures during inflationary episodes. 

Hence, it’s worth understanding the full range of defensive assets: nominal government bonds ², short index-linked government bonds, commodities, gold, and of course cash.

At least one of those asset classes usually rides to the rescue when the stock market chips are down. As ably demonstrated by the All-Weather portfolio and the Permanent Portfolio. 

A chequered past

Notice how commodities and gold occupy two of the top four places in the 10-year column right now. 

Yet broad commodities was at the foot of the table in 2021 – with gold joining it in table-propping ignominy, as previously mentioned. 

You can see from its returns how volatile broad commodities is: swinging from agony to ecstasy like a volcanic situationship. 

Gold is like that too, though it’s true nature is disguised by its current hot streak. 

Equities and longer-dated bonds can be just as fickle.

But what makes these odd bedfellows work together in a portfolio is their tendency to come good at different times. To cover for each other’s weaknesses. To deliver a decent overall result in the long run.

Diversification is less risky than betting the farm on whatever’s worked recently. 

Even US stocks can suffer lost decades. The S&P 500 lost 4% per year from 1999 to 2008 before grabbing the lead from the rest of the world in the aftermath of the Global Financial Crisis. 

Stitch in time 

However you weave your response to the challenges of investing, the asset allocation quilt makes it plain that the best way to anticipate the future is to be ready for anything. 

Instead of trying to predict next year’s winner, discover the strategic rationale that makes each of the main asset classes worth holding. 

Buy into the assets that suit your objectives and investing temperament then reap your reward when their day – or year – comes around again. 

Finally, as uncertainty abounds, let’s be thankful that if you banked on the default position of global equities then you did just fine.

In fact, more than fine over the last decade. That 12.8% annualised return – 9.5% in real terms – is phenomenal!

Take it steady,

The Accumulator

1. That is to say they are not adjusted for inflation.[↩]
2. Intermediate gilts in the table.[↩]

What caught my eye this week.

The formerly fêted fund manager Terry Smith has had a few rough years in the markets, but last year was a doozy.

The UK investors who once poured money into his flagship Fundsmith vehicle saw their domestic market deliver nearly 26% in 2025.

A global tracker – a better comparison for the free-roaming Fundsmith – delivered roughly 14%.

But Fundsmith managed just a 0.8% return.

Barely there, and handily outpaced by cash in the bank.

Never mind the returns, feel the quality

Now Terry Smith is a big and famously acerbic boy who has rained on many a parade over his long career. While the schadenfreude must be positively Wagnerian in some quarters and it’s never nice to kick a man while he’s down, he doesn’t need me defending him.

I will just a tad though.

Like Nick Train – another once-loved but now seemingly reviled fund manager ¹ – Smith invests exclusively in ‘quality’ type shares.

This doesn’t (just) mean ‘quality’ the way a car salesman might quip about that vehicle you’re eyeing up.

The quality factor describes a particular kind of company that boasts – among other things – high returns on equity, strong profit margins, and the ability to turn most of its profit into cash.

And since the reset of 2022, these kinds of companies have been in the doghouse. I know because I favour them with my stock picking myself. Although happily my returns in 2025 were an order of magnitude better than Smith’s. (But now I’m doing the schadenfreude dance…)

Of course, Smith and Train didn’t exactly call out the tailwinds that boosted their returns during the low interest rate era.

Worrywarts like me saw ‘bond proxy’ companies increasingly owned by weak hands who would rather be invested in bonds, and which were thus primed for a fall when interest rates rose.

Train in particular dismissed such concerns, while Smith just continued to talk like you’d need a lobotomy to own anything other than his favoured firms.

But when the reckoning came, those multiples duly corrected – and the share prices went south.

The evils of indexing

The fact that even good investors suffer when their style is out of favour is of course another of the many arguments for passive investing.

I’m one of diminishing band who still believes both Smith and Train have skill. But I also think most people should invest the bulk of their money in index funds, rather than bet their net worth on either the jockey or the horse they’re riding.

However Smith has continued to lend his voice to the chorus warning that those same index funds are part of a wider problem.

In his letter to investors this week, he recapped the now-common argument that the growing share of money invested in index funds is distorting the market, concluding:

…even if we are right in diagnosing this move to index funds as one of the causes of our recent underperformance and it is laying the foundations of a major investment disaster, I have no clue how or when it will end except to say badly.

He would say that, wouldn’t he? He’s an active fund manager.

Well no. The greatest active investor of all-time, Warren Buffett, cheerily urges people – including his wife – to put their money into tracker funds.

For my part, I am not sure exactly what I think.

It’s a 6-7

While Smith’s recap in his letter on the perils of excessive indexing is uncharacteristically muddled, I’ve read more persuasive arguments as to why the weight of money in index funds is distorting prices. At least at the margin and especially for the biggest companies. (Here’s the latest).

I’ve also read comprehensive counters too.

Now you may wonder why someone who has been writing a blog about both active and passive investing for 20 years cannot be more definitive about this?

The truth is the maths is non-trivial and it’d take a good chunk of time to separate theoretical outcomes from any real-world implications. So I’m leaving it to the investing titans to argue it out.

With that said, I’ve mentioned to my co-blogger The Accumulator that, on a gut level, I suspect indexing becoming mainstream will have some kind of downside. Apparent free lunches in investing always do.

But whether they will be enough to make any meaningful difference – let alone be something that should prompt everyday investors to return to paying the known cost of active investing – is another matter altogether.

On a practical level, if I was a passive investor I might favour equal-weighted funds a bit more, though that’s been a losing bet for years. Then I’d wait to see what happens!

There’s no world in which index funds crash while a preponderance of active funds soar, that’s for sure.

Remember, active funds basically are the market. ² If passive and index investing has been unduly inflating prices, then beyond the edge cases it’s doing it for all investors.

Have a great weekend.

[continue reading…]

1. At least judging by the comments I read on the Internet.[↩]
2. One caveat, which is what some of the anti-indexing arguments are based on, is if a company isn’t included in a popular index fund then it won’t get the same passive investing flows and active investor attention.[↩]

The principles of achieving financial freedom are timeless. Economies change, governments come and go, and your cable TV, The National Geographic, and Loaded magazine subscriptions give way for broadband, Netflix, and that meditation app that you’re always too busy to use.

Yet while hairstyles wax and wane (I’m personally bringing back the bouffant for 2026) these words from Charles Dicken’s Mr Micawber are eternal:

“Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness.

Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

– Wilkins Micawber (David Copperfield, by Charles Dickens)

What’s that you say? The same age-old steps to prosperity? In this economy? With the chancellor hiking your taxes? And inflation crimping your spending power? After Brexit buggered your job prospects?

Please. There’s always something screwing with our plans. But we’re talking about ‘eternally true’ steps here, not quick hacks for your lunch break.

The Richest Man in Babylon didn’t get that way on the back of the Thatcher boom or some optimism around Cool Britannia.

No, the destined-to-be-wealthiest bloke in the bazaar worked and saved hard, put his money into productive assets like olive groves and manger rentals, bred goats for those sweet, sweet shekels, and tried not to blow the lot at the local frankincense and myrrh joint.

And thousands of years later you can do the same thing.

Well, maybe go easy on the goats. But you take the point.

It’s always a good time to get going

In two decades of Monevator we’ve lived through a once-in-a-generation financial crisis, a pandemic, an economically witless national temper tantrum, and the worst bond crash ever.

Yet myself, my co-blogger, and many of our readers still achieved financial freedom.

• Be inspired by the financial journeys of other Monevator readers by browsing our FIRE-side chat case studies.

Of course, we’re all at different points in our lives.

A lot of Monevator readers are wealthy. A good chunk long ago ditched the 9-5.

But plenty of you are still in your 30s and 40s, and laying down the foundations for your own financial freedom plans.

We even have some masochistic readers fresh out of university who suffer through our 2010-chic website design and debates in the comments about something called ‘defined benefit pension plans’. ¹

What a 20-something with credit card debt needs to hear now is different from what a 55-year old who hasn’t topped up their National Insurance payments should do next.

Ditto someone getting started with a global tracker fund versus another fussing over inheritance tax.

This is why one Monevator article will elicit a “no shit Sherlock!” from one reader even as another sends me an email thanking us for unblocking a topic they’ve been struggling with for ages.

And yet there are core steps that will be part of almost every successful financial journey.

You’ll need to cut your cloth, sure. But the essence of these truths have applied forever – and they will apply to you.

• Struggling to keep your first job while paying exorbitant rent and building an emergency fund? Many of us have been there, and the only way is up.
• Got a well-paid job and a mostly paid-off mortgage? You still need to know where your money is going or else it will trickle through your fingers.
• Three hungry kids to feed? That’s treble the reason to get on top of it all, not an excuse to give up.
• Six-figures in cash ISAs but nothing in the stock market ‘casino’. That’s a recipe for working deep into your 60s and retiring much less well-off than you need to.

The mechanics of investing are simple in 2025. You’ll find Monevator articles on everything from cheap global tracker funds and ISAs to exotic tax mitigation schemes.

But having the right mindset will never come from technology.

A simple-to-use investing platform can make it easy to automate your saving. But it can’t reach into your brain to make you understand why investing is more important than taking another weekend getaway, even as your net worth languishes near-zero.

Ten steps to financial freedom

For some people then the following list will come as revelation after revelation – if they’re lucky enough to find our site in the first place.

But a great many more of you will mostly be nodding along in agreement.

No worries. Repetition doesn’t just build muscle. It also strengthens our neural pathways.

Let’s get going and feel the burn!

#1. From now on, you’re good with money

No ifs and buts. No saying, “I’m terrible, I just don’t know where it all goes…”

If this is you then by finding Monevator you’ve already shown you’re ready to change.

Take responsibility for your finances and you’ll be more financial secure eventually – but happier and more determined from today.

• From now on you’re good with money
• The origins of our money mindsets

#2. Take stock of You, Yourself Ltd

You need a plan. Begin by working out what you’re worth in financial terms, where your money is coming from, and where it’s going.

Then figure out where you’ll be in a year, five years, 10 years, and 30 years.

Finally, the fun bit – deciding where you want to be. (Note: ‘deciding’. It’s up to you!)

• Taking stock: your statement of affairs
• How to work out your own financial independence plan
• Scrimping and saving to start your snowball rolling

#3. Get rid of debt. Everything except the mortgage

Being in debt makes other people rich. You’re not borrowing from anyone other than your future self. That future you will be poorer, less financially secure, and/or live a less abundant life because you wanted something now, before you could afford it.

You can’t save while you’re in debt, and it grows like a weed. Kill it.

• The really obvious thing we all forget when borrowing money
• Why you must get out and stay out of debt
• How to imagine your future self – White Coat Investor

#4. Discover the secret that all successful savers know

You think it’s hard to save money? Some of us find it easy!

Successful savers don’t have titanic willpower. (Seriously, you should see me faced with a tube of Pringles.) We mostly just employ tricks to smooth the process.

The big one is to allocate a percentage of your income to savings each and every month. This money goes out the moment you’re paid.

You won’t miss it – it was never yours to spend. Rather, it’s yours to save.

With enough time and a sound investment plan this one step alone can make you rich.

• I, robot
• Simple savings tips to meet your investment goals
• The first law of personal finance: spend less than you earn

#5. Splash out on a rainy day fund

Before you put a penny into the stock market, get some cash savings. Then, when the boiler blows up, your partner announces that they’re pregnant, or you need new glasses, your financial plans aren’t derailed and you don’t go into debt.

Having cash in the bank feels great. You even get paid interest for the pleasure!

Save three months’ salary in case you lose your job. Six months’ worth is even better.

• Everything you need to know about emergency funds

#6. Buy what you want – but cut the crap

To stay financially motivated over the long haul, you need to know what you’re saving for. Only misers love money for its own sake.

So what’s it to be? A secure retirement? Financial freedom and an F-U fund? A holiday home? A sports car bought without a penny of debt? Your daughter’s wedding?

Meaningful goals will help you save, but you’ll need to sacrifice some small stuff to get the big prizes. It’s time to stop the waste – all those extra shoes and fast-depreciating electronic gadgets that steal money away from what you really want.

• It’s meaningless unless you’ve defined your goals
• Conjure big savings without impacting your quality of life
• The martial art of substitution

#7. Commit to long-term investment in the stock market

We Britons famously love our cash savings. But if you want your wealth to grow much faster than inflation over the next 10, 20 or 30 years – let alone escape from the rat race – then you’ll need to begin to amass productive assets.

The simplest and best way to start doing this is by investing in the stock market.

Markets go up and down over shorter periods of months and years. But over the decades the global stock market has always risen. By drip feeding in your funds, you can smooth out the highs and lows, and take advantage of any dips along the way.

A low-cost index fund that spreads your money across the globe is the best way to start. Indeed it may be the only stock market investment you’ll ever need.

As your wealth grows you’ll need to think about other assets that protect more than grow your wealth. But until you have something to protect – and assuming you already have an emergency fund and no expensive debt – put your spare money into equities.

Be sure to use tax shelters: ISAs and SIPPs. It’s an ever more hostile environment for your savings. You need to maximise all your tax breaks if you want financial freedom.

• How to start investing on a budget
• Why a total world equity market is the only index fund you need
• How to open an online broker account
• What to do if you left it late to start investing
• How to be a capitalist
• Tax-efficient investing in the UK

#8. Own your own home (when you’re ready to)

Why does your landlady rent a home to you? Because she believes she’ll make a profit – either because your rent at least covers her mortgage and maintenance costs, or because she thinks property prices will grow faster than the difference.

Well, if you buy your own home then you can pocket this profit for yourself – tax-free.

True, property often looks too expensive to buy, particularly in the South East.

And pat phrases like “it’s always gone up in the long run” ring infuriatingly trite when you’re about to sign over a huge chunk of your salary for three decades to come.

But the truth is we really do all need to live somewhere – and that buying your own home is hard to beat as a bedrock of financial security. (Investing in property you rent out to others is a trickier question these days…)

If you’re nervous (good for you) then you can reduce the risk by looking for a smaller home than your peers are buying, and in an up-and-coming area. Perhaps one that needs some modest updating that you can do at weekends over a few months to increase its value without too much extra spending on your part.

With that said, stamp duty is now very costly at higher levels. Once you’re spending £250,000 or more, try to buy a home you’ll be happy to live in for 5-10 years or more.

Avoid new builds, which typically have a ‘new car smell’ premium in their sticker price.

How you finance buying your home is a separate thing altogether. Obviously shop around for a competitive mortgage. And remember, fixing your mortgage payments is about security and certainty, not trying to make a quick buck betting on interest rates.

• Ten reasons why houses are often a better investment than shares
• Why your own home is an asset and an investment
• Should you pay off your mortgage or invest?

#9. Work hard and smart to create multiple income streams

In an ideal world you’d run your own business to reap the most reward from your labour. If buying shares in global companies is the surest route to wealth, then owning most or all of a profitable private company puts that on steroids.

However starting a business is very tough. The majority of new companies fail. Full-time entrepreneurship is definitely not for most people.

As friend of Monevator Nick Maggiulli wrote in The Wealth Ladder:

Elon Musk has been known to say: “Starting a business is like chewing glass and staring into the abyss.” When people ask him what he can do to encourage entrepreneurs, he replies: “If you need encouragement, don’t start a company.”

You might think this is just a joke, but it’s not. I’ve heard far too many ultra-successful people say something similar about running businesses.

I agree with Musk and Maggiulli. However going all-in on a do-a-die startup is not the only way.

After all, we live in a golden age for side hustles and second income streams.

Look for extra revenue sources that supplement rather than replace your salaried job. Anything from a hobby that makes money or an investment property to small and sweaty local businesses – think laundromats and snack dispensers – or a self-published book that you wrote about local celebrities.

I know people who’ve made a success of all these. And incidentally, if you hate the sound of one of them then don’t write me an angry comment below. Clearly it’s not for you – so look for another.

If you can’t find a way to turn something you know or you’re good at into a few hundred extra quid a month, then try harder.

With that said, very high-earners often retort that making a few grand a year from a side hustle isn’t worth it compared to their improving their salary. And I agree.

If you’re a rare bird on six-figures then the best thing you can do is to apply compound interest to your salary.

Just be sure to save and invest the gains. You won’t have any extra income streams to fall back on, and you don’t want to presume that the good times at work will last forever.

(Never mind AI or your ambitious underlings – think about your health and burnout.)

I’d still look to do something extra too, but you can make it more passive. Maybe even a buy-to-let where it’s still profitable. Diversify everything!

• You don’t need to go nuclear on working for a living
• Why a little side income is worth a lot more than you think
• If you want to make easy money, do something hard
• Ideas about growing your salary (needs updating!)

#10. Never give up…but know when to stop, too

Money is a tricky topic and investing can be daunting. In the UK we still don’t like to talk about such things.

So it’s easy to feel like you’re doing worse than you should be. Especially if you judge success by outward displays from the people around you. Triply so if you’re going by social media.

But what matters from a financial perspective is your income, your net worth, and the long-term direction of travel for both. Not the size of your house or the car you drive or whether Bitcoin is up or down this afternoon.

(What really matters has nothing to do with money, but that’s for another day…)

A lot of people have said over the years that following Monevator made them feel less lonely when pursuing financial freedom. Not just from our articles, but also thanks to the community in our unusually constructive comment sections.

I hope that’s true for you, too.

One step after another

Whatever your circumstances, do everything we’ve discussed today and you’ll be on the road to a better place.

Of course your exact mileage may vary.

Some readers will start in debt and end up in a comfortable retirement. Others will start with modest savings and finish rich.

And let’s be honest, a few who take this road could still find the future difficult, and maybe someday wonder why they bothered.

Nobody here said life was easy. And tragedies aside, we’ll all get old – however financially free we become – and we may then need somebody to look after us.

But we can start by looking after ourselves.

Even so, it will take guts to stay the course, with all the temptations and challenges life throws our way.

So let’s have a quick pep talk befitting our more nationalistic times – from no less a man than Winston Churchill, the greatest-ever British Prime Minister:

“Never, never, never give up”.

And he got the cigar, after all.

Enough is enough

Finally, try to know when you have enough. It sounds fanciful when you’re young and starting out, but many of the kind of people who are capable of achieving financial freedom ultimately overshoot. They end up with piles of treasure they didn’t need.

It’s a trickier problem than you’d think. A good rule of thumb is however rich someone is, they’ll tell you they need twice as much before they’ll believe they have ‘enough’.

Then repeat the exercise at 2X. Indefinitely.

It might help to remember you can’t buy extra time. You can always get more money if you need it. But you can never get the years back.

Strike a balance, and try to enjoy the ride. Because ultimately the journey – not the destination – will be your life.

Besides, you’ll probably hanker for the old hard-scrabble days when at last you make it!

• How passive investing is improving your mental toughness
• Sticking to the plan when the funk comes to visit
• How to keep to your long-term savings goals
• Staying on-target once the financial honeymoon is over

There are more than 2,000 more articles in Monevator’s archives covering everything you ever wanted to know about investing (and, admittedly, much more). Get stuck in, and do come back to tell us in a decade how you got on!

1. More likely if you’re young then you’re reading this on email. If so please have a stiff drink before visiting the website![↩]