Simon Doyle on choosing the best assets for protecting portfolios from inflation

Inflation has a habit of sneaking up on investors. It doesn’t appear as a line item on a portfolio statement, but over time it quietly erodes purchasing power and undermines long-term plans. 

When Livewire surveyed nearly 5,000 investors late last year, inflation topped the list of concerns, ahead of market crashes or missing the next big winner.

That concern frames the first Rules of Investing podcast for 2026. James Marlay is joined by market veteran Simon Doyle, the outgoing CEO and CIO of Schroders Australia, to discuss why inflation has been so hard to bring under control, the tension between fiscal and monetary policy and the asset classes he believes are most reliable for preserving real returns.

Doyle also reflects on his long career in markets, the evolution of objective-based investing, the most meaningful innovations he has seen and what comes next as he steps away from day-to-day portfolio management.

Click on the player to listen to the full conversation or read a summary of the key themes from the discussion below.

Why inflation has been so hard to tame

Doyle’s central view is that inflation will moderate back towards the RBA’s target range over time. But he is clear that investors should not expect a return to the ultra-low inflation environment of the past decade.

“We became very complacent,” he said, referring to how accustomed markets had become to inflation sitting near the bottom of the target band.

A major reason inflation has proven difficult to contain is the tension between fiscal and monetary policy. Governments continue to stimulate demand, while central banks are expected to offset that stimulus through higher interest rates.

“If fiscal policy is fuelling demand and monetary policy is being expected to offset that, it makes the job much harder,” Doyle explained.

Australia also faces structural challenges that are keeping demand elevated. Housing supply constraints, rising construction costs and large infrastructure programs are all contributing to inflationary pressure. The result is more work for central banks and fewer easy solutions.

Rates, in Doyle’s view, may simply need to be higher than investors have become used to. Not high by historical standards, but high enough to slow demand and reset expectations.

Inflation and the real cost to investors

One of the difficulties with inflation is that it often feels abstract until it shows up in everyday expenses. Doyle framed it simply. If wages rise by 3 per cent but inflation runs at 3.5 per cent, people are going backwards in real terms.

From an investment perspective, the implications are clear. The purpose of investing is to preserve and grow spending power over time. If returns fail to keep pace with inflation, future consumption falls.

“If inflation is running ahead of the return you’re making on your investments, you can buy less in the future,” Doyle said.

That view sits behind Doyle's long-standing focus on real returns. Cash, even when interest rates rise, is rarely a long-term solution. At best, it allows investors to tread water. It does not improve living standards over time.

The best assets for fighting inflation

When it comes to protecting portfolios, Doyle is clear that timing matters.

In the early stages of an inflation shock, when markets are repricing risk, cash can play a short-term defensive role. But once inflation becomes more persistent, different assets tend to perform more reliably.

For periods of sustained inflation, Doyle consistently comes back to three asset classes.

The first is inflation-linked bonds. When real yields are attractive and investors have sufficient time horizons, they offer direct protection against rising prices.

The second is commodities, which provide exposure to real assets and inflationary pressures. Renewed interest in precious metals highlights how quickly inflation concerns can influence investor behaviour.

The third is equities, with an important caveat.

“I think equities are the other one. To the extent that companies have the ability to manage their margins, then that can protect as well.”

Equities are not a simple hedge. Higher inflation can pressure valuations and increase uncertainty. But businesses with pricing power and strong balance sheets can still preserve real returns over time.

The common thread across all three is that inflation protection is not about a single trade. It is about building portfolios that can adapt as conditions change.

You can't eat relative returns!

Doyle’s work on objective-based investing emerged directly from client frustration in the years leading up to the global financial crisis. Investors were increasingly uncomfortable with benchmark-driven portfolios that could still lose money even when managers were positioned defensively.

“You can’t eat relative returns,” Doyle recalled.

The response was to move away from rigid strategic asset allocations and focus instead on portfolios designed to deliver positive real returns over practical timeframes. That meant fewer constraints, forward-looking assumptions and a stronger focus on managing drawdowns.

The approach has not always been easy. In long bull markets, particularly when valuations stretch and markets continue to rise, flexible strategies can lag equity-heavy portfolios. But over full cycles, Doyle believes consistency matters more than short-term relative performance.

Over the past three years, Schroders’ objective-based portfolios have delivered similar returns to traditional balanced portfolios, but with roughly half the volatility. That outcome speaks directly to the original problem the strategy was designed to solve.

Reflections from an exceptional career

After nearly four decades in markets, Doyle is cautious about overstating innovation. Asset classes remain fundamentally the same, debt and equity expressed through different vehicles.

What has changed is access. Investors today can reach a broader range of markets, often through superannuation and ETFs. Doyle sees this as broadly positive, provided risks are understood and managed.

ETFs, in his view, are a vehicle rather than an asset class. They have expanded access, particularly for younger investors, but they do not remove the need for judgment or active risk allocation.

“There’s definitely a role for active management,” Doyle said, particularly when markets become complacent and valuations disconnect from fundamentals.

If he could remove one thing from markets, it would be the belief that central banks will always underwrite risk. That mindset has encouraged complacency and can leave investors exposed when conditions change.

Looking back, Doyle points to two achievements that stand out. The first is building Australia’s objective-based investing capability from scratch and seeing it endure through multiple market cycles. The second is refocusing Schroders Australia during his time as CEO, doing less, but doing it better.

"Last year we probably had our best year in terms of net new business since 2013. I'm not sure how much I've had to do with that, but certainly to be part of it, I think has been a real privilege."