What caught my eye this week.

You don’t need to commission a full-on report to know that we all have wildly different ideas about money – and about how much of it is, well, a lot.

And you don’t need to be a dedicated peruser of the personal finance Internet to know the rule is that the more money you have, the higher you set your number 11 on the That’s A Lot Of Money dial, either.

Just witness the regular handbags swinging on Reddit – quite possibly over the price of a handbag – or even the more respectful differences of opinion that follow some of our FIRE-side chats.

One person’s obliviously rich princeling is another’s squeezed middle striver.

But my job isn’t just to ponder the nature of these eternal tugs-of-war.

No, I’m here to introduce the latest one…

This time it comes courtesy of HSBC, whose new Wealth Report was covered this week by This Is Money:

Nine in 10 Britons earning £100,000 or more a year before deductions do not view themselves as wealthy, despite being in the top 4% of earners, new data claims.

On average, most Britons think an individual needs to rake in £213,000 a year before they can be considered wealthy, according to HSBC Premier’s new research.

At over £200,000, the sum most people view as the wealth threshold is over six times the national average annual salary.

Read the rest of the article to spot all your favourite features of the genre!

There’s the map of Great Britain showing how out of touch London is. The claim that Gen Z cares more about buzz than bonuses. And the must-have interview with an obviously rich person who splits her time between the UK and the US but who’s unfortunately benchmarking herself against peers earning millions, and so she feels a little brassic.

Tax twister

Okay, we all understand this.

Money is relative. Taxes eat very nearly half of seemingly vast salaries. A two-bed flat in Zone Two costs £1 million. And won’t anybody think of the school fees?

A more novel twist comes though when you pair this discussion with new research about high-earners’ attitude to taxes. Or how “we all deserve to be rich”, as Joachim Klement put it on his blog this week.

Again it’s no surprise to read how the research found that people who believe their good fortune is down to their skill or effort will then favour lower taxes on the proceeds.

I’ve thought that at times myself, and most of you will have too.

But as Klement explains, researchers at the University of Warwick also showed that even people who derive their winnings entirely from luck will call for lower taxes, compared to those who won nothing.

You can see this effect in the following chart, although it’ll possibly only make sense if you read the full article:

The bottom line is people who have a lot of money don’t want it taken off them, while those who don’t have the money think more of it should be.

Again, hardly rocket science. But I suppose there are only so many well-paid jobs for rocket scientists?

Keeping up with the Jones’ parents

Now I’m not sharing these thoughts because I think £100,000 a year is a vast fortune. Nor am I calling for another round of tax hikes.

If anything I believe that after many years of real terms wage stagnation, the UK has a poverty of ambition about what constitutes a very high salary – certainly versus our US peers.

And as for taxes, the national take approaching a post-war high seems like a pretty good place to say enough is enough, and that perhaps we need to draw a line in the sand and to try something different from here.

However it does all serve as yet another reminder as to how and why it’s so hard to talk to each other about all this. Let alone to reach a political consensus.

Entrenching wealth inequality will only make it worse.

I’ve been warning for years of the increasing risk of what I call ‘neo-feudalism’. It’s one reason why I favour high inheritance taxes.

Meanwhile an article in The Standard this week argues that London has become an ‘inheritocracy’.

The author concludes:

The major frustration in all this is that our 21st-century inheritocracy contradicts everything we were told: work hard, get good grades, land a solid job, and success will follow.

But that promise has crumbled.

Wages don’t keep up, work doesn’t pay, and in London, opportunity is inherited, not earned.

Leaving the city feels like failure, but the real failure is a system where talent loses out to wealth and good fortune.

Have a great weekend.

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What do we want? We want inflation protection, we want it now, and we want it, ideally, in a highly-reliable set-and-forget format please.

I’m a passive investor after all, and I’ve been hunting for alternatives since the passive investor’s choice of inflation insulation – a short-duration index-linked bond ETF – had a [checks glossary of terms] ‘mare during the post-Covid CPI blow-up.

The purpose of this article, then, is to run through the list of other potential antidotes to see how they actually performed when prices boiled over.

We’ve previously looked at the scale of defeat for short-duration index-linked bond1 funds, and also the so-so performance of the most obvious replacement – a DIY portfolio of individual index-linked gilts.

Here’s a quick refresher via a chart:

Data from JustETF, Tradeweb and ONS. February 2025

As you can see, neither of our index-linked contenders actually kept up with inflation. Disappointing.  

Partly the problem was that inflation-linked bonds were saddled with negative yields going into the pandemic inflation. And partly that the subsequent rise in yields – from negative to positive – inflicted a substantial price hit. 

Today a portfolio of individual linkers looks a good inflation hedge because they’re on positive yields. 

But assembling such a portfolio requires some work. For many, it seems like an arcane and fiddly task – like building your own microcomputer in the 1970s and ’80s. 

Isn’t there a BBC Micro, ZX81, or failing that, a VIC-20 of inflation containment you can just buy off the shelf? By which I mean a fund full of assets that eat rising prices for breakfast? 

We’ll answer that in the next six charts. They show how most assets that could be turned to as your chief inflation-tamer dealt with the money monster from October 2021 to year-end 2024.

Note: all returns in this article are GBP nominal, dividends reinvested.

Inflation vs money market funds

How did cash do, as represented by money market funds?

Data from Heriot-Watt/ Institute and Faculty of Actuaries/ESCoE British Government Securities Database and ONS. February 2025

Cash was comfortably trashed.

For comparison, the annualised returns are:

• Cash: 3.5%
• Inflation: 5.9%

Money market rates were positive versus inflation in 2023 and 2024, but not enough to make up the lost ground. What’s more, money markets have been a real-terms loser all the way back to 2009 (bar a 0.4% gain in 2015).

Cash is popular now. Rates are high and bonds burned many investors. But money market funds have historically provided a flimsy inflation defence.

Inflation vs gold

Gold had a stormer. In fact, without wishing to ruin the surprise gold was the best asset in our round-up. (Oh dear, I’ve ruined the surprise!)

Data from The London Bullion Market Association and ONS. February 2025

Annualised returns:

• Gold: 15.9%
• Inflation: 5.9%

Gold has a reputation as an inflation hedge. A distinction that’s surely been burnished by its recent performance.

But gold isn’t really tethered to inflation.

Even the few years covered by the chart indicate it dances to a different tune. Inflation whips up in late 2021 and absolutely rages in 2022. However, we’re firmly back in the realms of standard-issue 2.5% inflation by 2024.

Whereas gold is on fire in 2024, does merely okay in 2023, and registers a 0.1% real terms loss in 2022.

Overall, gold holders can be very happy with their choice this time, but its future reliability remains an enigma.

It’s entirely plausible that gold is propped up in inflationary situations because many people believe it is an inflation hedge.

They take refuge in gold as inflation rates climb while bailing on asset classes that succumb to price pressure.

The problem is the lack of:

1. A solid underlying theory which explains gold’s role as an inflation shield.
2. A string of historical examples that provide convincing proof that gold withstands the heat when CPI melts-up.

Gold at least seems to thrive during periods of great uncertainty – and inflationary shocks do contribute towards a general sense of systematic instability.

Inflation vs commodities

Raw materials are part of the very physics of inflation itself. Can they help us?

Data from Bloomberg and ONS. February 2025

Annualised return:

• Commodities: 5.9%
• Inflation: 5.9%

Commodities scored a draw – precisely matching the rise in headline rates over the period.

However, there’s a canary in the coal mine relationship between commodities and high inflation.

Rising raw material costs feed inflation, which means that commodities prices have historically front-run UK CPI by a year or so. If we zoom out to include commodities’ 28% gain in 2021, then we discover that the asset class did comfortably beat inflation after all.

There is also good evidence that commodities have historically outperformed other asset classes when inflation flares up. I’ll dig into this in more detail soon.

The other point worth making is that commodities are highly volatile and negatively correlated with equities and bonds. Rebalance sharp-ish when commodity prices spike and you may earn a juicy rebalancing bonus for your trouble.

Inflation vs World equities

The next chart seems to be saying: forget all the fancy stuff, just focus on pound-cost averaging and keep your head:

Data from MSCI and ONS. February 2025

Annualised return:

• World equities: 10.8%
• Inflation: 5.9%

Equities slipped below inflation’s high-water mark in 2022 and 2023. Only to surface and rise like a continental crumple zone, once the price pressure subsided.

Historically equities have typically reacted to inflation like it’s an essential vitamin. The right dose keeps stocks – and the rest of the economy – humming. But too much and financial weakness, nausea, vomiting, and cramps follow.

Still, equities have always recovered quickly once inflation has returned to reasonable levels. We saw that again this time.

Perhaps young, resilient accumulators should forget about hedging inflation and focus on outrunning it.

Inflation vs all-comers

Just for fun, here’s everything piled into one uber bar-room brawl of a graph:

If your portfolio was this diversified then you could hardly have done much more. Here’s the full rundown of annualised results, along with cumulative returns in brackets:

• Inflation: 5.9% (20.6%)
• Linker fund: 0.6% (2.1%)
• Cash / money market: 3.5% (11.9%)
• Individual linker portfolio: 4.1% (14%)
• Commodities: 5.9% (20.4%)
• World equities: 10.8% (39.5%)
• Gold: 15.9% (61.4%)

Personally-speaking, the recent price spiral has profoundly reshaped my portfolio. I have since sold my linker fund and bought individual index-linked gilts, gold, and commodities instead.

Hopefully that means that – in tandem with a chunky equity allocation – my portfolio is better equipped to meet future inflationary bow waves.

Still, if you go to an anti-inflationary arms fair, you’ll meet plenty of people willing to sell you on all manner of other solutions…

Inflation countermeasure or counterfeit?

Here’s a selection of oft-cited inflation-busters, charted over the same period as before only this time in ETF form:

Data from JustETF

As a range-finder, an MSCI World equities ETF (cyan line) hits the right-hand side of the graph at the 39.5% mark.

Inflation itself would score 6% – about double the red real estate line.

WOOD, the global timber ETF (magenta line), trails the pack with a cumulative return of 1.2%. I looked at UK property, too, which was the only fund to post a negative return over the period.

The clear winner is the oil and gas equities ETF (blue line). Fossil fuel supply shocks are often a large component of unexpected inflation. You’ll recall that Putin invaded Ukraine in February 2022, and unleashed energy blackmail against Europe soon after.

I’ve also included an oil and gas commodity futures ETC (yellow line). Initially it leaps too, hedging inflation up to year-end 2023. But it was no inflation-beater beyond that, lagging CPI by the end of 2024.

It’s intriguing that infrastructure (orange line), real estate, and timber all enjoyed bounces in early 2022 as inflation bit hard. But only infrastructure maintained its momentum before falling behind inflation in 2023.

True, infrastructure was an inflation-beater again by the end of 2024. But it only delivered half the value of the MSCI World during the period.

Finally, the Momentum and Quality factor ETFs haven’t added anything new beyond extra squiggles on the graph. It’s only a short timeline, but their correlation with World equities is much more apparent than any link to inflation.

Over-inflated

Okay, ‘less is more’ is the phrase that always comes to mind after a strong bout of inflation – or to one of my posts. Once again I’ve failed to master the art of shrinkflation when it comes to Monevator word counts.

So next time I’ll dig deeper into the UK’s extensive historical archives of high-inflation episodes to see which asset classes held the line against successive waves of money rot.

Time to slap The Investor with an enormous wage demand!

Take it steady,

The Accumulator

1. Colloquially known as ‘linkers’. []

What caught my eye this week.

It’s not been easy to find reasons to be optimistic about the shrinking British stock market in recent years.

But I think how private investors, fund managers, the investment trust industry, and investment platforms worked together to defeat US firm Saba’s designs on the trust sector might qualify.

As I wrote last month, there was something of a last alliance vibe about this coalition of the unwilling.

But so comprehensively was Saba defeated – it lost all seven showdowns, and on large turnouts of private investors who overwhelmingly voted no – that the result was quite heartening.

This was shareholder democracy in action, and I’m all for it.

Moreover the platforms showed that they can facilitate such a democracy if called upon.

Your vote counted

In the early days of Monevator, lots of readers urged me to write articles about the evils of nominee share ownership and the demise of paper share certificates.

I saw their point. But I also saw the changes as inevitable and not the most important battle to win compared to, say, lowering fees or spreading knowledge about index fund investing.

Anyway such appeals stopped long ago, whether because the proponents accepted the change or because they moved on to a realm where their voice was even less influential than here on this mortal coil.

But wherever they are, I hope they’re heartened too.

Nominee ownership and representation via electronic voting on platforms does not inevitably mean disenfranchisement, or to be kicked around by those with the billions and the biggest boots.

And that is good news, whether or not you agreed with Saba’s charges and proposals. (Personally I share some of his complaints. But I was not persuaded by the remedy he was offering.)

He gets knocked down, but he gets up again

Saba is now going after a new quartet of trusts, suggesting they be turned into open-ended funds.

Curiously, Moguls-featured Pershing Square isn’t on the list despite its yawning discount.

Anyway, we’ll have to whether Saba’s relentlessness eventually exhausts the opposition.

More UK investors are apparently getting in on the act too. For example, the hugely talented Christopher Mills is said to be raising money for a trust that will work to close discounts at rivals.

As somebody who sees rife opportunity in the trust sector, I’m not surprised.

Though ironically two Mills-affiliated investment trusts themselves sit on 25-30% discounts…

Passive engagement

I’ll leave more comment in that direction for our Moguls member posts though.

Indeed for most Monevator readers who sensibly invest in index funds, this might all seem a bit irrelevant.

But I’d suggest it’s very relevant.

As index funds take up an ever-larger share of the overall investing pie, it’s really important that cheap and effective investing for the masses doesn’t become a lazy synonym for disenfranchised investors and the fracturing of shareholder democracy.

That charge has already being made as index funds have grown to dominate the investing landscape. For example, from the New Statesman:

The upshot of this mix is an ownership regime with a chief interest in maximising assets – whether by minimising costs to take market share, or by promoting general asset price inflation – and takes little interest both in how capital is allocated and how any company within its diversified portfolio is governed.

In other words, such an ownership regime takes no ethical stance on what those companies produce, how they are run, what they sell or what impact they have on the planet.

It’s a valid concern.

Squint though and you can see this battle with Saba as upholding the thin end of the same wedge that ends with Vanguard cutting fees further in the US recently.

The common thread is what’s ultimately in the long-term interests of ordinary shareholders.

Perhaps there’s even a future where even index fund investors get to vote their wishes somehow on the vast range of issues raising by the firms their tracker funds hold – albeit perhaps by aggregating their general wishes at the fund manager level?

Time will tell. But I’m more hopeful about that sort of thing than I was two months ago.

Have a great weekend.

p.s. Two corrections! We featured a wonky graphic in the email of TA’s linker piece on Tuesday. Thanks to reader Richard for the heads-up, and see the corrected post for the right graph. Then the next day TA achieved a – very rare for him – double by misstating the age you can open a cash ISA. You must be 18, of course. Sorry cash-loving youngsters! And cheers to reader Tommo for spotting what I missed.

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