Fixed Income in the Real World: What Inflation Actually Feels Like

On January 23rd I sent my weekly note sharing data on bonds and inflation. This week, I wanted to follow on with something from the real world.

The Morning Coffee

The first thing I do every morning is make myself a good coffee. It’s the only one I have all day. I don’t enjoy coffee at any other time, but this one matters to me. In fact, I can’t really do anything else until I’ve had it.

When I turned 50, we bought this Rancilio machine you can see below, and Tahnee insisted we also get a decent grinder. Since then we’ve been buying the same beans, which just land on our Ocado drop each week.

I actually had another weekly insight to share today, but I’ve pushed that to next week because just this week Tahnee said something that really struck me as being directly linked to what I’ve been talking about over the last few weeks.

She said, “You’ll never guess how much the coffee’s gone up to”

I said, “Go on”

She said, “£8”

I asked how much it was a year or so ago and she said, “About a fiver.”

What Inflation Actually Feels Like

That’s what inflation actually feels like. Not the number that gets published, but the quiet rise in everyday things that sit right at the heart of our routines.

And it’s rarely just one item. Coffee, meals out, taking the kids out for dinner — you see it everywhere once you start noticing it.

To be fair, ours are also on margaritas now and they want wine with their steaks, but you get the point.

Back to the Bonds

Which brings me back to the point I’ve been making over the last few weeks while sharing my take on fixed income.

If a portfolio is over-exposed to fixed income bonds and gilts that are delivering returns below inflation — like I showed on January 23rd — you have to ask a simple question…

Is this really going to keep pace with the cost of living I actually experience day to day?

That’s why the bond data matters. Not in theory, but in practice. Because over time, small gaps compound.

I still hold a bond sleeve in all the portfolios we run. But if the Investment Association data is right — and I’m sure it is — there’s nearly £3 trillion exposed.

If you’ve got a bond heavy pension or investment portfolio, it does need a bond sleeve for stability, yes. But it also needs to be built for endurance.

If it isn’t ticking both boxes, it can end up a bit like a candle with a weak, dithering wick — still burning, but the wax slowly disappearing to the bottom of the glass it once sat proudly in.

A Passage Worth Reading Twice

And just to finish, in one of my earlier mails I showed you a picture of Nick Murray’s book The Two of Us. You might remember it.

I referenced pages 154 – 161, and below is a short extract that I think captures the point…

“The tragedy, of course, is in this generation’s perception of risk. Having first of all no clear idea of just how very long they’re going to live (and need an income), and having all their lives defined ‘risk’ and ‘safety’ solely in terms of principal, they will commit too much, if not all, of their retirement savings to fixed-income debt securities.

They will, in brief, go into three decades of rising living costs within an essentially fixed-income portfolio. And as the path of their inflating cost of living soars above that of their income, they will go into a financial death spiral.

They have vastly overestimated the risk of principal loss, and suicidally underestimated the risk — more accurately, the reality — of the erosion of purchasing power.”

If you’d like to know more about the context of that passage, and the four things Murray highlights as absolutely crucial off the back of it, please make contact and I’ll send them over.

Originally Penned on 6 February 2026