Interactive Investor

‘Real Returns Ready Reckoner’ shows inflation decimating already falling returns on investments

29th April 2022 08:23

Rebecca O'Connor from interactive investor

The ready reckoner is designed to help people understand the impact of inflation on their money, according to where they store savings and investments.

  • Gold, global equities, UK equities and residential property (capital growth) annual returns beat inflation in the year to end of March 2022, according to the latest quarterly returns-after-CPI inflation tracker from interactive investor
  • Interest rates on cash savings are rising, but an average one-year fixed rate paying 1.06% has delivered a negative real return after inflation of -5.94%
  • Gold has rocketed in value in the first quarter of this year, with an actual annual return to end of March of 19.63% and a real return of 12.63%
  • Global corporate bonds were the worst performers and negative before inflation, at -1.69% and after inflation, at -8.69%, in the year to March 2022
  • The average interactive investor ISA account was up 5.8% but in real terms, down -1.2% in the year to the end of March; while the average SIPP account was up 4.8% but down -2.2% after inflation over the period
  • ISA and SIPP portfolios ‘less bad’ than cash savings, although all were negative after inflation in the year

Only investors in gold, UK equities and residential property managed to beat inflation in the year to the end of March, according to interactive investor’s latest ‘Real Returns Ready Reckoner’. This is a unique quarterly chart that tracks the returns before and after inflation, among a range of asset classes and product types.

The cost-of-living crisis has brought into focus the impact of inflation on our energy, food and transport bills. The ready reckoner is designed to help people understand the impact on inflation on their money according to where they store savings and investments.

Becky O’Connor, Head of Pensions and Savings, interactive investor, said: “It is hard to beat the rising cost of living by reducing spending, but it’s also hard to beat the risk from inflation of real losses when saving and investing, for those looking to preserve the value of their money.

“Returns from gold, global equities, UK equities and residential property on average beat inflation in the year to March 2022, but don’t expect this to always be the case. Past performance is never a guide to the future. Even gold, which is famed for its inflation-busting properties, can be flighty, and sensitive to all kinds of things, not least the strength of sterling and the US dollar.

“Despite continuing to grow above inflation, global equities and UK equities also experienced the biggest drop of all the asset classes we compared in annual real returns, compared with the previous quarter ending December 2021.

“Choosing investments is rapidly becoming an art in deciding where real returns will be least bad, at least for as long as rampaging inflation is expected to last.

“In the long term, with investing, although there is still risk of loss, there is also a better chance of beating inflation over time than there is with saving in cash accounts. That will at least be the case until savings rates rise sufficiently in response to base rate rises. That’s why well balanced, multi asset portfolios, including equities, bonds, property and alternatives more broadly, can be so useful.”

Average annual actual and real returns over 12 months to March 2022, based on 7% CPI annual inflation to end of March

Asset/ product type

Annual return, end of March 2022

Annual return to end of Dec 2021

Real annual return after UK CPI inflation, to March 2022

Real annual return to end of Dec 2021

Average easy access cash savings accounts (interest)*

0.33%

0.17%

-6.67%

-5.23%

Average 1-yr fixed rate bond (interest)*

1.06%

0.59%

-5.94%

-4.81%

Global equities (MSCI World Index)**

15.39%

22.9%

8.39%

17.5%

UK equities (FTSE All Share)**

13.03%

18.32%

6.03%

12.92%

Residential property – capital growth***

14.3%

10.4%

7.3%

5%

Residential property – rental yield, gross (to Feb 22)****

4.93%

4.98%

-2.07%

-0.42%

Gold **

19.63%

-2.87%

12.63%

-8.27%

Global corporate bonds**

-1.69%

-2.06%

-8.69%

-7.46% 

ii ISA investor performance- average

(capital growth and income)

5.8%

13.7%

-1.2%

8.3%

ii Sipp investor performance – average (capital growth and income)

4.8%

12.2%

-2.2%

6.8%

Source: Interactive Investor research, April 2022

The Consumer Price Index (CPI) measure of inflation was 7% in March 2022, up from 5.4% at the end of December 2021, and continues to rise. Meanwhile the Bank of England base rate is set to increase further from the current rate of 0.75%. The base rate has risen from 0.25% at the start of the year.

 

Notes to editors

Data sources as follows:

  • *Moneyfacts Treasury report
  • **Morningstar Direct
  • ***Nationwide
  • ****Zoopla
  • ii customer account data is from the ii Private Investor Index 

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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