Your 7% Bond Gain Isn’t What You Think It Is

Source ChampC

I read an article that bonds are having a “good year” as the AGG index is up 7% year to date (as of Nov. 11, 2025).

That’s great, but the reality is investors lost nearly 50% of that to inflation, according to government statistics (CPI Report). And if you incorporate “real world inflation,” I estimate that investors could have lost significantly more of their total return to inflation. Investors, we have argued for the past 5+ years, should own tangible assets and inflation-fighting securities to keep up with inflation.  Remember, it’s all about after-tax, after-inflation, risk-adjusted returns.

Many may look at a headline performance figure like “the bond market is up 7%” and understandably feel encouraged. On paper, that appears to be a solid result. But nominal returns alone rarely tell the full story. Once we adjust for inflation, taxes, and portfolio risk, the final result can look very different. In reality, that 7% gain in your bond fund may have protected far less of an investor’s real purchasing power than it seems at first glance.

Let’s break this down.

The latest government inflation statistics (CPI) suggest that inflation has been persistent and elevated in recent years. If the bond market is up 7%, and inflation is roughly half of that, then your real return — what you actually retain in purchasing power terms — is meaningfully lower. It's possible that an investor may only be left with roughly half of the headline gain once inflation is accounted for.

Unfortunately, that’s the optimistic version.

The “real world” inflation experience for most households can be even higher than what CPI reports. Everyday essentials, groceries, utilities, healthcare, home maintenance, and childcare have in many cases increased faster than the headline CPI figure. Suppose we use a more practical, consumer-oriented inflation measure rather than official statistics. In that case, it becomes reasonable to argue that an investor’s entire 7% nominal gain may have been consumed by inflation altogether.

This is not just an academic distinction. It affects how people live, spend, and plan for retirement. An investment portfolio that is not keeping pace with real inflation is not preserving wealth. Instead, it is quietly eroding wealth.

This is why Astoria has consistently argued over the past five-plus years that investors should include real assets and inflation-fighting securities in their portfolios. Tangible assets tend to have intrinsic economic value and may benefit when the general price level rises. These include commodities, natural resource equities, infrastructure, gold, and inflation-linked bonds. While no strategy performs well in all environments, these assets are designed to help preserve real purchasing power during inflationary or stagflationary cycles.

The core principle we emphasize is straightforward, and worth repeating: it is all about after-tax, after-inflation, & risk-adjusted returns.

That is the true scorecard.

A bond portfolio that rises 6–8% per year but loses purchasing power is not meeting many investors’ fundamental objectives. Likewise, a strategy that preserves purchasing power during inflationary periods may be more valuable than a strategy that posts higher nominal returns but exposes the investor to erosion and drawdowns.

In today’s environment, investors must think beyond the headline inflation numbers. Inflation is not just a macroeconomic talking point, it affects the real outcomes that matter: retirement planning, spending power, wealth preservation, and long-term financial security.

The takeaway is clear: nominal gains are not enough. Investors need strategies capable of defending against inflation, maintaining purchasing power, and generating real, lasting returns.

Five years ago, Astoria launched our Real Assets SMA Strategy amid our anticipated erosion of purchasing power and the implications for long-term portfolios.  More details can be found on our website.  Real Assets ETF Portfolio_9.30.2025.pdf

Best,

John Davi

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