Investing can feel overwhelming, especially with so many options out there. If you’re looking for a reliable way to grow your money, you might have heard about SCHD. It’s a popular exchange-traded fund (ETF) that many investors love. But is SCHD a good investment for you?
What Is SCHD?
SCHD stands for Schwab U.S. Dividend Equity ETF. It’s an ETF that tracks the Dow Jones U.S. Dividend 100 Index. This index includes companies known for paying consistent, high-quality dividends.
Think of big, stable names like Coca-Cola, Home Depot, or Verizon. These are companies with a history of sharing profits with shareholders through dividends.
SCHD is managed by Charles Schwab, a well-known investment firm. The fund aims to provide investors with income from dividends while offering the potential for long-term growth.
It’s a favorite among people who want steady income and some growth without taking on too much risk.
Why Consider SCHD for Your Portfolio?
Investing in SCHD can be appealing for several reasons.
Let’s look at why it might catch your eye.
Low Costs Keep More Money in Your Pocket
One big reason investors like SCHD is its low expense ratio. The expense ratio is the annual fee you pay to own the ETF. For SCHD, it’s only 0.06%. That’s super low compared to other funds, which can charge 0.5% or more.
Here’s a quick comparison:
| ETF | Expense Ratio |
|---|---|
| SCHD | 0.06% |
| Average Dividend ETF | 0.38% |
| Average Mutual Fund | 0.93% |
A lower expense ratio means more of your money stays invested and grows over time.
Consistent Dividend Income
SCHD focuses on companies that pay reliable dividends. Dividends are payments companies make to shareholders, usually every quarter. SCHD’s dividend yield is around 3.4% as of early 2025, which is higher than many other ETFs. This means if you invest $10,000, you could earn about $340 a year in dividends, paid out quarterly.
Diversification Without the Hassle
SCHD holds over 100 stocks across different sectors like consumer goods, healthcare, and technology. This diversification reduces risk. If one company struggles, others can help balance things out. You get exposure to many strong companies without needing to buy each stock individually.
Potential for Growth
While SCHD focuses on dividends, it also offers growth potential. The companies in the fund are chosen for their financial health and ability to grow dividends over time. Since its launch in 2011, SCHD has delivered solid returns, often matching or beating broader market indices like the S&P 500.
Who Should Invest in SCHD?
SCHD isn’t for everyone, but it suits certain types of investors.
Here’s who might find it a great fit:
- Income-Focused Investors: If you want regular cash flow, SCHD’s dividends can provide that.
- Long-Term Investors: If you’re saving for retirement or a goal years away, SCHD’s growth potential is a plus.
- Risk-Averse Investors: If you want less volatility than individual stocks, SCHD’s diversification helps.
- Beginners: If you’re new to investing, SCHD is simple and doesn’t require picking individual stocks.
What Are the Risks of Investing in SCHD?
No investment is risk-free, and SCHD is no exception.
Here are some risks to keep in mind.
Market Risk
SCHD invests in stocks, so it’s affected by market ups and downs. If the stock market drops, SCHD’s value could fall too. However, its focus on stable, dividend-paying companies can reduce this risk compared to growth-focused ETFs.
Interest Rate Sensitivity
Dividend ETFs like SCHD can be sensitive to interest rates. When rates rise, dividend stocks may become less attractive compared to bonds. This could cause SCHD’s price to dip temporarily.
Sector Concentration
While SCHD is diversified, it has more exposure to certain sectors like financials and consumer staples. If these sectors struggle, SCHD could underperform.
Dividend Cuts
Though rare, some companies in SCHD might cut dividends during tough economic times. This could lower the ETF’s yield and income.
How Does SCHD Compare to Other ETFs?
To decide if SCHD is a good investment, let’s compare it to similar ETFs. Here’s a quick look at SCHD versus two popular dividend ETFs:
| ETF | Expense Ratio | Dividend Yield | Number of Holdings |
|---|---|---|---|
| SCHD | 0.06% | 3.4% | 100+ |
| VYM (Vanguard High Dividend Yield ETF) | 0.06% | 2.9% | 500+ |
| DGRO (iShares Core Dividend Growth ETF) | 0.08% | 2.3% | 400+ |
SCHD offers a higher yield than VYM and DGRO, with a similar low cost. However, it holds fewer stocks, which means less diversification than VYM or DGRO. Still, SCHD’s focus on quality companies makes it a strong contender.
Benefits of Investing in SCHD
Let’s sum up why SCHD might be a smart choice:
- High Dividend Yield: Around 3.4%, providing solid income.
- Low Costs: 0.06% expense ratio keeps more money in your pocket.
- Quality Companies: Invests in stable, well-known firms.
- Diversification: Spreads risk across 100+ stocks.
- Growth Potential: Balances income with long-term growth.
How to Invest in SCHD
Ready to invest in SCHD? Here’s a simple guide:
- Open a Brokerage Account: Use platforms like Charles Schwab, Fidelity, or Robinhood.
- Research SCHD: Check its performance, holdings, and dividend history.
- Decide Your Investment Amount: Start small if you’re new, like $100 or $500.
- Buy Shares: Search for SCHD’s ticker (SCHD) and place a buy order.
- Reinvest Dividends: Set up automatic reinvestment to grow your investment faster.
- Monitor Your Investment: Check performance periodically, but don’t obsess over daily changes.
Tax Considerations for SCHD
Dividends from SCHD are taxable, so keep this in mind. Most dividends are “qualified,” meaning they’re taxed at a lower rate (0% to 20%, depending on your income).
If you hold SCHD in a tax-advantaged account like an IRA, you can avoid taxes on dividends until withdrawal. Talk to a tax professional to understand how SCHD fits into your tax plan.
Is SCHD Right for Your Goals?
Whether SCHD is a good investment depends on your goals. If you want steady income and moderate growth with low risk, SCHD could be a great fit.
It’s not ideal if you’re chasing high-growth stocks or need quick cash, as ETFs are best for long-term investing. Consider your risk tolerance, investment timeline, and income needs before deciding.
FAQS about Is SCHD a Good Investment
Q. What is the average return of SCHD?
A. SCHD has delivered an average annual return of about 10% to 12% since its inception in 2011, including dividends. Past performance doesn’t guarantee future results, but SCHD has been consistent.
Q. Can I lose money investing in SCHD?
A. Yes, like any stock-based investment, SCHD’s value can go down if the market drops. However, its focus on stable companies reduces this risk compared to individual stocks.
Q. How often does SCHD pay dividends?
A. SCHD pays dividends quarterly, typically in March, June, September, and December. You can reinvest these dividends or take them as cash.
Conclusion
SCHD can be a fantastic investment for those seeking steady income, low costs, and moderate growth. Its focus on quality dividend-paying companies makes it a reliable choice for long-term investors.
However, it comes with risks like market volatility and interest rate sensitivity. By understanding your goals and weighing the pros and cons, you can decide if SCHD fits your portfolio.
If you’re unsure, consider talking to a financial advisor to see how SCHD aligns with your plans.
Disclaimer: Investing involves risks, including the potential loss of principal. This blog is for informational purposes only and not financial advice. Consult a financial advisor before making investment decisions.
