Our in-house passive portfolio is having a distinctly average year: up 7.8% so far in 2026, or about 4.7% after inflation.
The tale is one of double-digit equity gains, dragged down by bond fund ankle weights:
Actually, the story of 2026 is the story of the portfolio’s lifetime.
The equities bloc (in the green zone below) has performed creditably to amazingly. The 13.7% annualised return of Developed World ex-UK going back well over a decade is extraordinary:
However nominal UK government bonds have almost single-handedly stolen the icing on the cake. The gilty party has lost 3% per year, leaving the Slow & Steady with a 7.6% annualised return since launch.
(Which I’m happy with, to be clear. The objective was only ever to be average.)
The Slow & Steady is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000. An extra £1,360 is invested every quarter into a diversified set of index funds, tilted towards equities. You can read the origin story and find all the previous passive portfolio posts in the Monevator vaults. Last quarter’s instalment can be found here.
All returns in this post are nominal GBP total returns unless otherwise stated. Subtract about 3% from the portfolio’s annualised performance figure to estimate the real return after inflation.
Too good to last
There was a plot twist in the story that led us to this chapter.
You may recall bonds had a remarkable ten-year run from 2010. But they then fell off the cliff, down 39% from the high point:
Data: Vanguard U.K. Government Bond Index Fund: 31 Dec 2010 to 02 Oct 2026.
Here’s an action-replay of the upward leg of the chart above:
Vanguard’s gilt tracker racked up 6.6% annualised returns from 2010 until its peak in March 2020.
Now for the shocker:
The same fund has dished out a -5.7% annualised loss in the six-and-a-half years since.
Bonds have recovered a little since their October 2022 trough – picking up 2.8% annualised to-date since then. Still, that’s little consolation when inflation has averaged 3.4% and World equities 13.5% in the meantime.
Are bonds broken? Is it a buying opportunity? I’ve read commentary that cuts both ways.
But…
I wouldn’t start from here
If I were starting a similar passive portfolio from scratch, then nominal bonds would be allocated a reduced role compared to the Slow & Steady, given what I know now.
I’d likely split the defensive allocation evenly between gold, commodities, short index-linked bonds, and nominal bonds.
If I rerun the historical tape from the end of 2010, that alternative Slow & Steady earns 8.2% annualised instead of 7.6%.
The difference isn’t huge. The portfolio is about 10% bigger. So it’s less about what could have been and more about what may come next.
A multi-layered defensive array is better fitted for the range of threats that menace passive investors. Not least the storm clouds of inflation and economic uncertainty.
This portfolio only has four years to run, so I should think about making those changes anyway.
New transactions
Every quarter we blow another £1,360 on the market dice and hope to roll sixes. Our stake is split between our seven funds, according to our predetermined asset allocation.
We rebalance using Larry Swedroe’s 5/25 rule. That hasn’t been activated this quarter, so the trades play out as follows:
Emerging market equities
iShares Emerging Markets Equity Index Fund D – OCF 0.18%
Fund identifier: GB00B84DY642
New purchase: £108.80
Buy 39.4804 units @ £2.76
Global property
iShares Environment & Low Carbon Tilt Real Estate Index Fund – OCF 0.18%
Fund identifier: GB00B5BFJG71
New purchase: £68
Buy 27.9077 units @ £2.44
Developed world ex-UK equities
Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.14%
Fund identifier: GB00B59G4Q73
New purchase: £503.20
Buy 0.5395 units @ £932.72
UK equity
Vanguard FTSE UK All-Share Index Trust – OCF 0.06%
Fund identifier: GB00B3X7QG63
New purchase: £68
Buy 0.1833 units @ £370.90
Global small cap equities
Vanguard Global Small-Cap Index Fund – OCF 0.29%
Fund identifier: IE00B3X1NT05
New purchase: £68
Buy 0.1188 units @ £572.42
UK gilts
Vanguard UK Government Bond Index – OCF 0.12%
Fund identifier: IE00B1S75374
New purchase: £285.60
Buy 2.1336 units @ £133.86
Royal London Short Duration Global Index-Linked Fund – OCF 0.27%
Fund identifier: GB00BD050F05
New purchase: £258.40
Buy 237.9374 units @ £1.09
New investment contribution = £1,360
Trading cost = £0
Average portfolio OCF = 0.17%
User manual
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Take it steady,
The Accumulator
Can I suggest that, with a duration of close to 13 years, the ‘All stocks’ gilt fund was barely ‘intermediate’ in 2020 and, hence, the large and rapid increase in yields was bound to cause the large losses seen from 2021-2022. It is noteworthy that this nominal loss was the largest seen since 1900 (when dated gilts were first introduced – undated gilts, i.e., consols, had a very tough couple of years in the early 1970s) – a consequence of low yields, low coupons, and the issue of gilts with longer maturities.
Perhaps a lesson to be learnt is that controlling the duration of the fixed income held by not letting it get ‘too large’ is an important consideration (at the expense of complexity, this can be done by combining a ‘short’ fund or cash with a longer one). Of course, defining ‘too large’ needs some thought!
Yep, going to say the same. A duration issue more than a bond issue I reckon. Didn’t TA write a article about matching duration to life time, ie duration equals half horizon…….
@TA:
Always interesting, and FWIW I can live with average.
The overall S&S performance remains remarkably similar to our Pots – albeit ours is/was constructed and used rather differently.
As it approaches its 16th birthday, any thoughts about what you might do with the S&S when it reaches 20?