With my brain struggling to admit that it’s 2026, now seems like an ideal time to dive back under the duvet of 2025. (Still warm from the glow of double-digit equity returns or the world being on fire – I’m not sure which!)
Somehow it never appears to be a good time to invest. And yet Monevator’s Slow & Steady model portfolio earned 9.4% in 2025.
That’s the third year in a row the portfolio has advanced more than 9%. Not bad for a 60/40 portfolio run with a passive investing strategy.
Overall, our model portfolio has notched up a 7.3% annualised return over 15 years from the start of 2011 to the end of 2025:
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.
The journey so far
The last 15 years has proved to be a benign era for investing. The portfolio has only suffered one major setback – the bond crash of 2022:
Inflation is UK CPI. Data from the ONS.
Squint at this chart and you’ll notice the inflation-adjusted return line (light green) has yet to recover the heights it reached in December 2021. The portfolio is still down in real terms.
Nominal returns are deceptive!
Many happy annual returns
The divergence between nominal and real returns is clearer still when we look at annual results:
2025 inflation is an estimate based on November’s CPI annual rate.
2022 was a bear market retrenchment for our model portfolio in real terms. 2023’s annual return was cut in half by inflation too, and 2025’s return reduced by a third.
Nominal returns may leave you feeling warm and fuzzy. But remember it’s real returns that will ultimately pay your electricity bills.
Anyway that’s the negative take. More positively, the same chart shows we’ve only seen three down years out of 15, and only one otherwise sub-average year – the forgettable 2015.
Apart from those damp squibs, the S&S’s returns reflect a mostly exceptional period for investors.
Asset class annual returns
Here’s how the portfolio’s component funds fared in 2025:
Any fund return lower than the black CPI bar is negative after inflation.
For once, UK equities were the star of the show! In an event as rare as a Brit winning Wimbledon, the unloved FTSE All-Share did us home investors proud.
If you’re worried about overexposure to US big tech then a tilt to the cheapo, value-oriented UK is one way to solve the problem.
I wonder if the trading apps will now start pushing Greggs shares instead of Nvidia?
(Yes, Greggs is down of late. What can I say? I’m long sausage rolls.)
Asset class 15-year returns
Over the lifetime of the Slow & Steady portfolio, any allocation away from world equities has been punished by relative disappointment:
15-year returns comparison for the existing fund line-up. Note, the actual portfolio has only held global property, small cap stocks, and index-linked bonds 1 for the past ten years.
Diversification outside of the S&P 500 (the main driver of World equity returns) hasn’t paid off (yet):
- Riskier emerging markets and small caps didn’t deliver additional rewards.
- Commercial property acted like a weak equities fund.
- Government bonds lost money in real-terms.
But the moral of the story isn’t that diversification is dead:
- The US can trail the rest of the world for years.
- It can take a decade or more for equities to recover from a bear market.
- Diversification very definitely works during darker periods than the last decade and a half.
- Ten-year expected return forecasts look bad for US equities and good for bonds. That would be a reverse of the past decade. (No guarantees, mind.)
With five years remaining of the portfolio’s 20-year mission, I’m not moved to do anything drastic now.
Portfolio maintenance
We rebalance every year to ensure the Slow & Steady doesn’t drift too far from its preset asset allocation.
Our equity/bond wedges are fixed at 60/40 so there’s no change there.
All that remains is to shift our 40% bond asset allocation by 2% per year until our defensive elements are split 50/50 between nominal gilts and short-term index-linked bonds.
Which means that this time:
- The Vanguard UK Government Bond index fund decreases to a 21% target allocation
- The Royal London Short Duration Global Index Linked (GBP hedged) fund increases to a 19% target allocation
The reason for this is that we believe short-term index-linked bonds help defend the purchasing power of a portfolio once you’re ready to spend it.
(See our No Cat Food decumulation portfolio for more on this thinking.)
Inflation adjustments
We increase our regular cash injections by RPI every year to maintain our inflation-adjusted contribution level.
This year’s RPI inflation figure is 3.8%, and so we’ll invest £1,360 per quarter in 2026.
That’s an increase from £750 back in 2011. We’ve upped the amount we put in by 81% over the past 15 years, simply to keep up with inflation.
New transactions
This quarter’s trades play out as follows:
Emerging market equities
iShares Emerging Markets Equity Index Fund D – OCF 0.2%
Fund identifier: GB00B84DY642
Rebalancing sale: £587.19
Sell 237.785 units @ £2.47
Target allocation: 8%
Global property
iShares Environment & Low Carbon Tilt Real Estate Index Fund – OCF 0.18%
Fund identifier: GB00B5BFJG71
New purchase: £483.11
Buy 204.172 units @ £2.37
Target allocation: 5%
Developed world ex-UK equities
Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.14%
Fund identifier: GB00B59G4Q73
Rebalancing sale: £289.27
Sell 0.359 units @ £805.10
Target allocation: 37%
UK equity
Vanguard FTSE UK All-Share Index Trust – OCF 0.06%
Fund identifier: GB00B3X7QG63
Rebalancing sale: £590.02
Sell 1.721 units @ £342.86
Target allocation: 5%
Global small cap equities
Vanguard Global Small-Cap Index Fund – OCF 0.29%
Fund identifier: IE00B3X1NT05
New purchase: £26.01
Buy 0.052 units @ £502.48
Target allocation: 5%
Nominal gilts (conventional government bonds)
Vanguard UK Government Bond Index – OCF 0.12%
Fund identifier: IE00B1S75374
Rebalancing sale: £746.85
Sell 5.466 units @ £136.63
Target allocation: 21%
Royal London Short Duration Global Index-Linked Fund – OCF 0.27%
Fund identifier: GB00BD050F05
New purchase: £3333.50 (includes £269.29 reinvested dividends)
Buy 3075.184 units @ £1.084
Target allocation: 19%
New investment contribution = £1,360
Trading cost = £0
Average portfolio OCF = 0.17%
User manual
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Take it steady,
The Accumulator
- Short index-linked bond returns are FTSE Actuaries UK Index-Linked Gilts up to 5 yrs index then Royal London Short Duration Global Index Linked Fund from 29 February 2016.[↩]
@TA:
Another good year indeed.
Re: “This year’s RPI inflation figure is 3.8%, …”
Could you please say just a little bit more about this phrase? For example, is it the 12 months RPI figure to November 2025, or something else? Also, do you use the same definition of a year for CPI too? Apologies for being picky, but what I understand by the term annual inflation figure for 2025 will only be available later in January when the ONS is scheduled to publish the inflation data for Dec 2025.
Happy new year
Was a bit shaken by index linked bonds undershooting CPI over 15 years till I saw it was a fund.
A bit tangential but I was surprised to see that Interactive Brokers claims retail users on their platform achieved 19.2% average returns in 2025, outperforming the S&P500 17.9% return.
The only footnote is that its aggregate returns on accounts holding >$50k.
https://www.businesswire.com/news/home/20260102281120/en/Interactive-Brokers-Individual-and-Hedge-Fund-Clients-Outperformed-the-SP-500-on-Average-in-2025
@Al Cam – You’re right, the RPI upweight is the change over the last 12 months of 3.8%:
https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/czbh/mm23
I update at the same time every year, so am always operating with the figures published in December which measure inflation until end of November.
The CPI estimate for 2025 in the annual returns chart is the same 12-month change currently 3.2%:
https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/d7g7/mm23
You are of course correct that the actual annual rate for 2025 won’t be known until later in Jan so I’ve flagged that the 2025 figure is an estimate.
CPI over 15 years is the annualised change in the CPI index Dec 2010 to Nov 2025 i.e. the latest data available.
@B. Lackdown – HNY! It’s the 0-5 years index linked gilt index until the fund launched in Feb 2016. Linkers were on negative yields for most of the period so losses were pretty much baked in. Now they’re on positive yields so should be fine as long as not sold at a big loss.
@TA:
Thanks for the clarification.
I think your point that “Nominal returns are deceptive!” is well made, but sometimes overlooked, as real returns are generally not to hand. I dare say we could spend a lot of time/energy debating the best deflator. FWIW, I think CPI/CPIH is as good as any – although people should probably bear in mind that their household consumption choices/idiosyncrasies are generally far more influential on their financial well-being than household inflation, howsoever measured.
Agreed, the money delusion is real and I’m still kinda shocked by how deceptive it can be. The portfolio earned returns north of 9% in 11 out of 15 years. Amazing! But in real-terms, it’s come in right around average. Dagnabbit.
Yup, the burst of high UK inflation Q3 2021 to Q4 2023 has a lot to answer for. And whilst I am still not personally convinced inflation woes are entirely behind us yet, it will take many years at 2%PA (the BoE CPI target) or less to smooth out the impact of that period – which incidentally was repeatedly and significantly under-estimated by the BoE (and others).
@TA
Probably a newbie question, but can you elaborate on this:
> All that remains is to shift our 40% bond asset allocation by 2% per year until our defensive elements are split 50/50 between nominal gilts and short-term index-linked bonds.
Specifically, why the gradual adjustment? Is it safer to do it this way rather than all at once?
Thanks @TA – another excellent update and useful links to past posts.
Your analysis certainly shows how inflation has eroded real returns.
I’m aware that the BoE has a dual mandate – not only the primary objective of price stability (the 2% CPI), but also the secondary objective of supporting the economic policy of the government of the day (growth, employment levels, etc). Personally, I think the Bank gives too much weight to that secondary objective, which undermines the priority of curtailing inflation.
It’s interesting how the central bank mandates differ. I see the ECB for example has a more hierarchical mandate, and will seldom act when inflation is on target, even if growth is weak.
It’s a pity there isn’t something like ‘mean reversion’ when it comes to inflation, or that the Bank can’t target an ‘average’ CPI of 2%. That said, having seen the problems associated with Japan’s deflationary years, I can understand why there’s a reluctance to risking deflation.
Until a few years ago my future cashflow model for retirement showed that Mrs Mack and I would be able to cover our annual expenses by each withdrawing only the Personal Allowance from our SIPPs, which I think would have given us a retirement at the bottom end of the ‘comfortable’ range. Unfortunately, sustained inflation and years of stealth taxes have materially changed that.
@Mack,
Not sure when you last checked the RLS numbers – but it is worth remembering that these have increased by somewhat more than inflation since they were introduced IIRC in 2019. I think there are also separate figures for single/couple and also London/rest of UK.
Nevertheless, fully agree that a) fiscal drag is insidious, and b) deflation can be harmful too.
While I don’t replicate this portfolio I do like to do a rough comparison against it. Having just checked for 2025 I seem to have managed an 11.5% total return for my SIPP, although I started the year 70/30 equities/bonds and shifted to 55/45 by year end. And was very underweight the US/S&P500/US tech, and overweight UK equity for the whole of 2025. I think City Of London IT was my best performer.
The current bond allocation I have isn’t all in gilts, I have 25% of portfolio overall in nominal gilts and the rest a mix of other bond types.
My allocations are not purely age-based but very much influenced by some of the estimates and forecasts you mention in your Expected Returns article, as well as yield bias. So far from passive asset allocation, although it seems to have converged with what you might expect for my age and proximity to retirement.
I guess even with your portfolio you’ve made conscious decisions on fund choice.
@Trinity — The reason for the gradual shift is that the higher bond versus equity rating over time is meant to run parallel to the (model) investor getting older, and thus closer to retirement (/taking money from their portfolio) and to reduce so-called sequence of return risk.
Appreciate I’ve thrown a few terms at you there but clicking around the site should help. 🙂
A couple of starters:
https://monevator.com/sequence-of-returns-risk/
https://monevator.com/when-to-derisk-before-retirement/
@Trinity – There’s no right or wrong. Many passive investors on the Bogleheads site advocate splitting your bond allocation 50/50 between nominal govies (anti-recession) and linkers (anti-inflation).
But the yields on linkers were sharply negative for most of the lifetime of the Slow & Steady. So you were guaranteeing an annual loss in exchange for a measure of inflation protection.
Plus inflation protection wasn’t a priority when I first constructed the portfolio. A newbie investor can generally trust that long-term equity returns will safeguard purchasing power over time.
So I decided to gradually shift to a higher linker allocation over the portfolio’s lifespan – the assumption being that inflation hedging is more important when retirement looms large.
As it turned out, it would have been better to have more in linkers than nominal bonds in 2022. Though if the Covid crash had turned into a full-on recession / depression the reverse would most likely have been true.
In the end, it’s about weighing up your balance of risks; fortune decides the rest.
@Mack – I modelled the same thing for Mrs TA and I. The personal allowance plus 25% into ISAs would have covered us. It’s a salutary example of ‘No plan survives contact with the enemy.’ The enemy being reality in this case 🙂
@Trinity @TA — Oops, ignore my comment above, apols for the confusion. The perils of moderating on the phone on the tube, illustrated again! 😉
@TA, @Mack:
Totally agree that plans change and will hopefully continue to change too!
FWIW, I have been a fan of floor and upside for many years and when I pulled the plug almost exactly nine years ago my plan was to start my DB pension in approx. ten years. My DB plus SPs (in due course) would comprise our [partly] inflation protected flooring. In the gap from retiring to commencing my DB [and SP’s] I decided to build most of the required floor with nominal products and an assumed rate of inflation. I assumed 3.5%PA, which somewhat outpaced CPIH initially, and by about four years in our cumulative CPIH from retirement was <2%PA. However, we all know what then happened and by Q1 2023 cumulative CPIH was winning. To date, our cumulative CPIH (over the period since pulling the plug) is still above 3.5% PA, but seemingly on a slowly decreasing trajectory. I also commenced my DB some four years earlier than originally planned. So whilst my inflation assumption looks about OK, I bought too many years of flooring – which came with a non trivial opportunity cost, if you like to look at things that way. We are still to start our SP's, but it seems possible that not only did I buy too many years of flooring but too much flooring on average per annum too. This is far from the worst situation to be in, but is something that is rarely mentioned.
Plans definitely change, and often for reasons beyond your control or influence.
@Al Cam (15)
We have debated this many times at SLIS, but I continue to struggle with your concept of too much flooring. Are you saying that you underspent your floor? In which case, had the surplus been instead allocated to upside (the opportunity cost), what were/are your plans for the upside other than to watch it (hopefully) grow further? You have previously said you have no legacy motive and you have quoted studies that secure income is more likely to be spent to the benefit of retirement lifestyle.
The alternative that I can envisage is that you fully spent your floor plus some money drawn down from the upside. I suppose this is the scenario that most retirees would consider as normal. In this situation the only reason that comes to my mind why you would consider that you had too much flooring is as follows: you considered that your essential expenditure was more than covered by the floor, and as a result somehow regret that too little of your discretionary spending came from the uncertain upside. As there is always a psychological hurdle to cross to decide to spend some of the upside on discretionary spending, why would this be preferred over spending from the floor?
@DavidV,
In our experience (thus far) as I am starting to see it, there are a couple of obvious questions:
a) what is my upside actually for; and
b) why did I not retire earlier?
OTOH, nothing is certain and in the final reckoning it may turn out that I retired too early – ie we may still run out of money before we run out of life. Who can tell?
musing on all this “how are we doing against inflation” question :-
suppose you had started investing in 2023, and you were aiming to cope with 2023 inflated by 3% annually – level – prices, I think you’d be really happy with 2025 returning around 9.5%.
the problem might be that S&S has to adjust to inflation the wrong way round: we increase the contribs for the remaining future investment period by inflation, but there’s nothing we can do to auto adjust the existing savings to the price shock.
Also, the rule that we “just increase contribs by inflation” to make everything fine. How? in 2023 our pay maybe rose 5% while we had 15% inflation, where are we supposed to get the necessary?
You actually want to increase contribs to bring the existing pot up to the
needed level, so build in a level of how much of it was excess growth, and estimate what your gap to a minimum target is, type-of-thing. Then it’s all
a game of how much do I need to work vs how much of a leg up can I get from investment.