The Only Asset Guaranteeing Me a Positive Real Return Right Now
A 3.80% savings account provides a -0.72% real return after accounting for a 32% tax rate and 3.3% inflation. The 10-year Treasury Inflation-Protected Security (TIPS) promises a 2.35% return above inflation. However, bond market data suggests inflation will fall further than the current 3.3% core PCE inflation, resulting in TIPS appearing to outperform nominal Treasuries.
The $25,000 allocated to a high-yield savings account is retained due to its liquidity and ready availability, despite the negative real after-tax return. TIPS are favored for long-term holdings due to their ability to maintain purchasing power, even if inflation falls below expectations.
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