TIP vs. SCHB: What’s The Difference?

The iShares TIPS Bond ETF (TIP) and the Schwab U.S. Broad Market ETF (SCHB) are both among the Top 100 ETFs. TIP is a iShares Inflation-Protected Bond fund and SCHB is a Schwab ETFs Large Blend fund. So, what’s the difference between TIP and SCHB? And which fund is better?

The expense ratio of TIP is 0.16 percentage points higher than SCHB’s (0.19% vs. 0.03%). TIP is mostly comprised of AAA bonds while SCHB has a high exposure to the technology sector. Overall, TIP has provided lower returns than SCHB over the past ten years.

In this article, we’ll compare TIP vs. SCHB. We’ll look at holdings and fund composition, as well as at their industry exposure and annual returns. Moreover, I’ll also discuss TIP’s and SCHB’s portfolio growth, performance, and risk metrics and examine how these affect their overall returns.

Summary

TIP SCHB
Name iShares TIPS Bond ETF Schwab U.S. Broad Market ETF
Category Inflation-Protected Bond Large Blend
Issuer iShares Schwab ETFs
AUM 28.3B 21.44B
Avg. Return 4.07% 14.43%
Div. Yield 1.87% 1.39%
Expense Ratio 0.19% 0.03%

The iShares TIPS Bond ETF (TIP) is a Inflation-Protected Bond fund that is issued by iShares. It currently has 28.3B total assets under management and has yielded an average annual return of 4.07% over the past 10 years. The fund has a dividend yield of 1.87% with an expense ratio of 0.19%.

The Schwab U.S. Broad Market ETF (SCHB) is a Large Blend fund that is issued by Schwab ETFs. It currently has 21.44B total assets under management and has yielded an average annual return of 14.43% over the past 10 years. The fund has a dividend yield of 1.39% with an expense ratio of 0.03%.

TIP’s dividend yield is 0.48% higher than that of SCHB (1.87% vs. 1.39%). Also, TIP yielded on average 10.36% less per year over the past decade (4.07% vs. 14.43%). The expense ratio of TIP is 0.16 percentage points higher than SCHB’s (0.19% vs. 0.03%).

Fund Composition

Holdings

TIP - Holdings

TIP Bond Sectors Weight
AAA 99.31%
Others 0.69%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

TIP’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.31%, 0.69%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards BBB (0.0%), A (0.0%), and AA (0.0%) rated bonds.

SCHB - Holdings

SCHB Holdings Weight
Apple Inc 4.86%
Microsoft Corp 4.61%
Amazon.com Inc 3.33%
Facebook Inc A 1.88%
Alphabet Inc A 1.66%
Alphabet Inc Class C 1.61%
Berkshire Hathaway Inc Class B 1.19%
Tesla Inc 1.18%
NVIDIA Corp 1.13%
JPMorgan Chase & Co 1.06%

SCHB’s Top Holdings are Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc A, and Alphabet Inc A at 4.86%, 4.61%, 3.33%, 1.88%, and 1.66%.

Alphabet Inc Class C (1.61%), Berkshire Hathaway Inc Class B (1.19%), and Tesla Inc (1.18%) have a slightly smaller but still significant weight. NVIDIA Corp and JPMorgan Chase & Co are also represented in the SCHB’s holdings at 1.13% and 1.06%.

Risk Analysis

TIP SCHB
Mean Return 0.28 1.23
R-squared 66.57 99.33
Std. Deviation 4.33 14.12
Alpha -0.58 -0.58
Beta 1.18 1.04
Sharpe Ratio 0.62 1
Treynor Ratio 2.24 13.58

The iShares TIPS Bond ETF (TIP) has a Mean Return of 0.28 with a R-squared of 66.57 and a Alpha of -0.58. Its Sharpe Ratio is 0.62 while TIP’s Standard Deviation is 4.33. Furthermore, the fund has a Beta of 1.18 and a Treynor Ratio of 2.24.

The Schwab U.S. Broad Market ETF (SCHB) has a Mean Return of 1.23 with a Sharpe Ratio of 1 and a Beta of 1.04. Its Alpha is -0.58 while SCHB’s Standard Deviation is 14.12. Furthermore, the fund has a R-squared of 99.33 and a Treynor Ratio of 13.58.

TIP’s Mean Return is 0.95 points lower than that of SCHB and its R-squared is 32.76 points lower. With a Standard Deviation of 4.33, TIP is slightly less volatile than SCHB. The Alpha and Beta of TIP are 0.00 points lower and 0.14 points higher than SCHB’s Alpha and Beta.

Performance

Annual Returns

TIP vs. SCHB - Annual Returns

Year TIP SCHB
2020 10.91% 20.77%
2019 8.28% 30.94%
2018 -1.43% -5.25%
2017 2.92% 21.18%
2016 4.56% 12.56%
2015 -1.59% 0.45%
2014 3.49% 12.67%
2013 -8.65% 33.37%
2012 6.8% 16.22%
2011 13.4% 1.4%
2010 6.1% 17.1%

TIP had its best year in 2011 with an annual return of 13.4%. TIP’s worst year over the past decade yielded -8.65% and occurred in 2013. In most years the iShares TIPS Bond ETF provided moderate returns such as in 2014, 2016, and 2010 where annual returns amounted to 3.49%, 4.56%, and 6.1% respectively.

The year 2013 was the strongest year for SCHB, returning 33.37% on an annual basis. The poorest year for SCHB in the last ten years was 2018, with a yield of -5.25%. Most years the Schwab U.S. Broad Market ETF has given investors modest returns, such as in 2014, 2012, and 2010, when gains were 12.67%, 16.22%, and 17.1% respectively.

Portfolio Growth

TIP vs. SCHB - Portfolio Growth

Fund Initial Balance Final Balance CAGR
TIP $10,000 $14,353 4.07%
SCHB $10,000 $36,354 14.43%

A $10,000 investment in TIP would have resulted in a final balance of $14,353. This is a profit of $4,353 over 10 years and amounts to a compound annual growth rate (CAGR) of 4.07%.

With a $10,000 investment in SCHB, the end total would have been $36,354. This equates to a $26,354 profit over 10 years and a compound annual growth rate (CAGR) of 14.43%.

TIP’s CAGR is 10.36 percentage points lower than that of SCHB and as a result, would have yielded $22,001 less on a $10,000 investment. Thus, TIP performed worse than SCHB by 10.36% annually.


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