By Scott Tindle, CFA, director of wealth management at TindleWealth
Equities – private and public – and gold are the clear winners from our recently concluded study of 20 years of private client returns.
Inflation probably has something to do with this. As fiat currency, especially the pound, has declined in value and inflation has increased, gold’s rise has been substantial. The eurozone debt crises and Covid – both events which diminished the value of fiat currency – were particularly helpful for the gold price. The higher inflation coming out of Covid has seemingly supercharged gold’s return.
Equities, as an asset class, are also inherently boosted by inflation as a commiserate increase in costs and revenues leads to an equally commiserate rise in profit. There are plenty of losing companies in a higher inflation environment but the quality companies – those with pricing power and relatively low debt – structurally benefit.
In the case of both gold and equities, inflation is not the sole reason for their outperformance. Some companies develop superior products (Apple’s iPhone) or win the scale game (Google’s search) or create outsized profit growth in other ways.
Similarly, gold has structural drivers beyond inflation including, recently, the desire of central banks to diversify their holdings from fiat currency and actors to insulate themselves from the widened regulatory net of the US (the so-called ‘weaponisation of the dollar’).
So, which asset classes were the losers? Mainly UK property and government bonds. Inflation is like kryptonite for fixed income assets and so it very likely played a role here too. For bonds this is obvious, but property has traditionally been considered a reasonable inflation hedge.
It probably still is over the very long term, but from a starting point of relatively high valuations in 2006 and with the London-centric issues since 2014, it is reminder that the price paid for an asset is at least as important as its theoretical value drivers.
The takeaway for private clients is to seek diversification. Not long ago, a portfolio of buy-to-lets was the surest way to grow wealth and a flat in London only went up in value. We may look back on 2026 as the heyday of equities, riding high on an AI boom, and while gold will likely always be an inflation-hedge, the price paid for it right now may just be too high when viewed from 2046.
Suitable diversification avoids overexposure to an underperforming asset class, which is often more important than trying to identify a winning one in advance.
