Adding SCHP beside IEF modestly improved returns and drawdowns in two historical portfolio comparisons. It did not create a large, independent source of diversification in this sample: the two bond funds’ monthly return correlation was about 0.78.
This diagnostic uses the same frozen June 26, 2018–September 28, 2026 data as the five-fund comparison. All four variants below rebalance annually at the first session’s close, with a 10-basis-point cost per unit of one-way turnover. These are total returns before investor taxes.
The matched allocation comparisons
The first pair holds VT at 25%, GLDM at 10% and PDBC at 10%. Only the remaining 55% bond sleeve changes. The second pair holds VT at 55%, GLDM at 20% and bitcoin at 5%, changing only its 20% bond sleeve.
| Bond allocation | Portfolio CAGR | Annual volatility | Maximum drawdown | 2022 return |
|---|---|---|---|---|
| First pair: 35% IEF / 20% SCHP | 6.79% | 7.10% | −15.21% | −10.26% |
| First pair: 55% IEF | 6.47% | 7.05% | −15.82% | −10.88% |
| Second pair: 10% IEF / 10% SCHP | 13.84% | 12.77% | −24.60% | −15.78% |
| Second pair: 20% IEF | 13.67% | 12.67% | −24.99% | −16.08% |
The full diagnostic results include the individual funds, annual returns and correlations. Daily return correlation was also about 0.78. The first pair’s annual rebalancing differs from the quarterly bands used for the headline five-fund portfolio, so its return is different for an explicit reason.
What this says about inflation protection
TIPS retain inflation-linked cash flows while their prices respond to changes in real yields. A fund can provide inflation linkage and still lose money over a period when real yields rise. In this sample, both versions of the first pair lost roughly 10% in 2022.
Replacing IEF with SCHP changes more than inflation linkage. These are actual ETFs with different durations, yield exposure and fees. The study is not duration-matched, so the small return advantage cannot be attributed solely to an inflation premium.
It also has no spending withdrawals, inflation-linked liabilities or reserve requirement. A nominal return comparison therefore leaves out reasons an investor might choose TIPS for a particular future expense.
SCHP is not VTIP
This diagnostic holds SCHP, not short-term VTIP. Its results cannot be inserted as VTIP’s volatility, expected return or optimal weight in Merton. The VTIP and purchasing-power study separately examines rolling short-TIPS exposure and the distinction between nominal wealth and real spending.
The historical improvement here was modest and sample-dependent. The useful result is a measured comparison of the two bond allocations, with duration and spending needs left as explicit unresolved questions.