‘Real Returns Ready Reckoner’ shows inflation takes shine off gold...

...yet the precious metal holds its own compared to other assets, says interactive investor.

Gold was the only asset class to withstand the ravages of inflation and deliver decent growth to investors in the second quarter of 2022, according to the latest ‘Real Returns Ready Reckoner’ from interactive investor.  

The quarterly tracker of investment and savings performance before and after inflation (nominal and real) also shows that while real annual returns from savings accounts remain in negative territory despite interest rate rises, easy-access accounts (real return: -8.94%) and one-year bonds (real return: –7.8%) were offering more in June than the annual real return achieved by global equities (real return: -11.96%) over the year to June 2022. The real return from savings rates available in June were still marginally behind the annual return from UK equities (real return: -7.76%), measured by the FTSE-All Share, over the year.  

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Becky O’Connor, Head of Pensions and Savings, interactive investor, said: “The ravages of inflation are evident everywhere, right across investment and savings markets, but some assets are holding up better than others. 

This ‘Real Returns Ready Reckoner’, showing the gap between headline figures and returns after inflation, demonstrates how quoted returns can mask reality for savers and investors choosing where to put their cash. It also demonstrates how rapidly real returns can change, according to economic fortunes and the decisions of central banks. 

“Past performance is not a guide to future performance and the outlook for different asset classes over the coming months and years varies. Interest rates on savings can also provide more certainty than returns from stock market investments, nevertheless, the figures show that how well the value of your money holds up depends on the asset class you choose, as well as how well diversified you are.  

“Nominal annual returns were, on the whole, unimpressive across all asset classes in the second quarter of 2022 – except for gold. But when you take inflation off the headline figures and look at what investors are getting after price rises, the returns picture looks even more bleak, with returns after CPI inflation ranging from –14.38% for global corporate bonds to 7.96% for gold.  

“Residential property (capital growth) was the only other asset tracked by our ready reckoner that delivered a positive return after inflation in the year to the end of June, at 1.3%. However, house prices are showing signs of stalling and so we expect that this too could start to turn negative after inflation in the coming months.  

“Global equities and global corporate bonds fared the worst in the second quarter of 2022, with real average annual returns of –11.96% and –14.38% respectively. For global equities, this was in marked contrast to performance over the previous quarter – they held up better than most other asset classes except for gold in the first three months of the year. 

“UK easy-access savings accounts and one-year fixed rate bonds marginally underperform the FTSE All-Share, with real returns of –8.94% and –7.87% respectively, based on the June inflation rate, compared with –7.76% for the FTSE All-Share, despite interest rates having risen to 1.25% in June (followed by a subsequent 0.5% rise in August not reflected in these figures). However, if this trend continues, returns from savings accounts may begin to rival stock market returns in the second half of this year. 

Dzmitry Lipski, Head of Funds Research, interactive investor, said: “While over short time periods various markets and assets classes produce mixed results and, in some instances, negative real returns, historically, global well-diversified portfolios can prove the best solution for investors over the longer term.

“Interactive investor’s Model Portfolios are designed to offer diversification and include property and private equity, for example.”  

Average annual nominal and real returns over 12 months to end of June 2022

Source: interactive investor research, August 2022.

Data sources as follows: 

• *Moneyfacts Treasury report. Rates paid on accounts end of June 2022. 
• **Morningstar Direct 
• ***Nationwide 
• ****Zoopla 
• ii customer account data is from the ii Private Investor Index.