TIPS for emergency fund?

Not ideal \u2014 illiquidity + phantom income tax.

TIPS in retirement accounts?

Yes \u2014 escape phantom income tax.

Deflation risk on TIPS?

Principal can rise but never below face at maturity.

TIPS: marketable, real yield. I-Bonds: locked-in, no market risk.

Best ladder structure?

5-yr ladder typical: 20% each in 1-2-3-4-5 yr maturities.

Treasury Bond vs TIP Ladder

Treasury ladder: nominal yields, inflation risk. TIPS ladder: real yield + CPI adjustment. TIPS wins if inflation > breakeven (5-yr ~2.5%).

Total Investment ($)

Nominal 10-Yr Treasury %

TIPS 10-Yr Real Yield %

Your Inflation Forecast %

Nominal FV

—

TIPS FV

—

Difference

—

Breakeven

—

Winner

—

Investment	—
Nominal yield	—
TIPS real yield	—
Your inflation forecast	—
Breakeven inflation	—
Nominal FV (10yr)	—
TIPS FV (10yr)	—
Difference	—
Winner	—

Nominal Treasury bonds offer fixed coupon at known yield. TIPS (Treasury Inflation-Protected Securities) offer real yield (after inflation) plus CPI adjustment. TIPS wins when actual inflation exceeds the market's 'breakeven inflation rate'.

Breakeven Inflation Calculation

Breakeven inflation = Nominal Treasury yield − TIPS real yield. Currently ~2.5% for 10-year. If you expect inflation HIGHER than breakeven, TIPS wins. Lower, nominal wins. Market consensus is built into the spread.

Tax Treatment Difference

Nominal: interest taxed as ordinary income annually. TIPS: principal adjustment is 'phantom income' — taxable yearly even though not received until maturity. Hold TIPS in tax-deferred accounts (IRA, 401k) to avoid phantom income tax.

Portfolio Allocation Strategy

Conservative inflation protection: 30-50% TIPS / 50-70% nominal Treasury. Inflation hawk: heavier TIPS allocation. Deflation hedge: heavier nominal. Or simply ladder 50/50 — average outcome.

Last updated May 2026. Sources: Treasury TIPS.