Want to Retire with SCHD Dividends? Think Again.

Summary

In this video, the host critically evaluates the Schwab Dividend Equity ETF (SCD) versus the S&P 500, highlighting the latter's superior performance for average investors seeking retirement income. Despite SCD's impressive dividend growth and yield, the analysis reveals that investing in the S&P 500, particularly with strategies like covered calls, offers greater overall wealth accumulation and income potential. The host encourages viewers to consider their investment strategies carefully, emphasizing the importance of choosing investments that truly align with long-term financial goals.

Takeaways

• 😀 The Schwab Dividend Equity ETF (SCD) is well-known for its high-quality dividend stocks and has a solid track record since its launch in 2011.
• 📈 SCD has a current distribution yield of 3.34% and a 10-year dividend growth rate of 11%, demonstrating strong performance in increasing dividends.
• 💰 Investing in SCD might seem appealing, but the average investor may achieve better returns through the S&P 500 (SPY) over time.
• 📊 Comparing a $250 monthly investment in both SCD and SPY since 2011 shows that SPY significantly outperforms SCD in total portfolio value.
• 🔍 For a $100,000 lump sum investment, SPY again outshines SCD in portfolio growth, emphasizing the potential of broader market investments.
• 📉 Even with a substantial investment in SCD, the generated income may not be sufficient for a comfortable retirement, especially for average investors.
• 🏦 A $1 million investment in SCD could yield around $120,000 in total distributions over 12 years, compared to SPY's $532,000.
• 🛠️ The S&P 500 offers opportunities for additional income through selling covered calls, leveraging its highly liquid options market.
• 💡 The potential income generated from covered call strategies with the S&P 500 can vastly exceed the dividend income from SCD.
• 🚀 Overall, while SCD provides strong dividend growth, the S&P 500 may be a more advantageous choice for long-term wealth accumulation and retirement income.

Q & A

What is the primary focus of the Average Joe Investor Channel?

The channel focuses on various strategies for creating income within an investment portfolio, specifically for average investors.

What is the Schwab Dividend Equity ETF (SCD), and why is it well-regarded?

SCD is a well-known dividend ETF recognized for its low expense ratio and a solid history of investing in high-quality dividend stocks that have consistently raised their dividends over the years.

Why does the speaker suggest selling shares of SCD for the average investor?

The speaker argues that the average investor might achieve better financial outcomes by investing in the S&P 500 instead of SCD due to higher potential returns and income generation over time.

How does the performance of SCD compare to the S&P 500 when starting with $0 and investing $250 a month?

After a specified period, investing $250 a month in SCD would yield 1,087 shares valued at approximately $2,654, while the S&P 500 would yield 182 shares worth around $115,000, demonstrating a significant performance difference.

What happens if an investor starts with a lump sum of $100,000 in SCD versus the S&P 500?

Starting with $100,000, SCD would grow to approximately $823,000, whereas the S&P 500 would grow to about $1,627,000, again showing the S&P 500's superior performance.

What are the implications of dividend income for an investor with a million dollars in SCD?

With a million dollars in SCD, the total annual income generated would be around $120,000, which may not be sufficient for many investors, especially considering their expenses.

What is the significance of covered calls in the context of the S&P 500?

Selling covered calls on S&P 500 shares can provide additional income, leveraging the most liquid options market, which can significantly enhance total returns compared to relying solely on dividend income.

How does the income generated from selling options compare to the dividends from SCD?

The income generated from selling options can far exceed the income from dividends in SCD, especially when using strategies like selling at-the-money options or weekly options, which can yield hundreds of thousands annually.

What are some drawbacks of relying solely on dividend stocks like SCD for income?

Relying solely on dividend stocks like SCD may result in insufficient income for retirement compared to strategies that include more aggressive investment tactics such as options trading.

What future topics will the channel address regarding investment strategies?

The channel will continue to explore the advantages of selling options with the S&P 500 compared to traditional dividend stocks, focusing on strategies that can help investors achieve better income in retirement.