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The One Thing SCHD Investors Miss...
Published about 5 hours ago • 7 min read
Here's your weekly helping of interesting investing information and insights.
Food For Thought
I've seen this comment so many times about SCHD: "Why buy SCHD at 3.27% when a 2-year Treasury pays 4.09% — risk-free?"
A higher yield with zero risk? Who'd say no to that?
Calling a Treasury 'risk-free' just means you're guaranteed to get your interest and your principal back from the government.
But what's often left out is that getting your dollars back doesn't mean those dollars will be worth as much because of the hidden risk... inflation. It nibbles away at your money a little at a time, every single year.
Purchasing Power Erosion Table. Mauldin Economics.
John Mauldin said it best in his most recent newsletter that I highly recommend reading. That $100 bill you carried into the store back in January 2020? It buys about $77.82 worth of stuff today. Prices are up more than 28% in just a few years. Groceries alone are up nearly 38%. And if you go all the way back to 1913, the dollar has lost about 97% of its value. Nobody voted for that. It just happened, quietly, while we weren't looking.
The Federal Reserve aims for 2% inflation a year — and lately it's run hotter than that. Take that "safe" bond paying 4.09% and knock off the Fed's 2%. You're really pocketing just over 2% a year in true buying power. And that's the good version—a best-case scenario right now.
But what really bugs me is that when the bond ends, you get your money back — but that cash never grew. It just sat there. And the whole time it sat there, inflation kept eating at it because a bond never gives you a raise. EVER!
However, SCHD isn't a pile of cash sitting still — it's a basket of big, profitable companies that pay dividends. Coca-Cola (KO). Procter & Gamble (PG). Home Depot (HD). Chevron (CVX).
SCHD Top Ten Holdings. 6/19/2026
And these companies do something a bond never will: they grow. They earn more over time, they raise prices to keep up with inflation, and a lot of them bump up their dividend year after year. That right there is the whole point. A bond's payment is frozen solid, but SCHD's dividend has spent years climbing — and climbing faster than inflation.
But is any of that guaranteed? Nope. In a bad recession, some dividends slow down, a few get cut, and share prices drop. But that's just investing — no guarantees, only tradeoffs.
A bond trades away growth for certainty. SCHD trades certainty for a real shot at growing. Neither one is free. They just cost you in different ways.
And there's one cost almost nobody in the comments brings up: taxes. Bond interest gets taxed just like your paycheck — ordinary income, which for some of us is 22%, 24%, or higher. But SCHD pays qualified dividends, and those get a nicer rate — often 15%, sometimes 0% if your income is lower.
For those newer to the investing game: qualified means taxed less, non-qualified means taxed like your paycheck. So in a regular taxable account, that 4.09% bond and SCHD's 3.27% end up a lot closer than they look once Uncle Sam takes his cut. (That's also why SCHD skips REITs, in case you've wondered — their dividends are non-qualified, and the fund wants to keep your income in that lower-tax bucket. On purpose.)
But check this out. Say you look up SCHD, see the top holdings, and figure that's what you own. Not exactly. With any index ETF, what you're really buying is the rulebook, or to use a $50 word, its methodology — the system that decides what gets in and what gets shown the door.
SCHD follows the Dow Jones U.S. Dividend 100 Index. The rules go hunting for quality companies with strong, growing dividends, and the holdings shuffle around as those rules do their thing.
It's quite interesting that its top two holdings right now are both chipmakers — Texas Instruments (TXN) and Qualcomm (QCOM) — and tech sits around 18% of the fund. Regardless of the top ten holdings a few years ago, you never bought a snapshot. You bought a rules based system that keeps quietly working for you in the background.
Which brings up the knock I hear most: "But SCHD hasn't kept up with VOO or QQQ!" You're right — and it was never trying to. The real reason isn't "no tech," but for better or worse what SCHD leaves out. It passes on the giant growth names — your Apples, your Nvidias, the handful of stocks that did most of the market's heavy lifting. Those names pay tiny dividends or none at all, so the rulebook just doesn't let them in.
That's the deal you're making. SCHD is basically a large-cap value fund — meaning steady dividend payers, not high-flyers. Knocking it for trailing QQQ is like blaming your pickup truck for losing a drag race to a Ferrari.
Picture your portfolio as a football team, and SCHD is your defense. Will it score a touchdown now and then? Sure. But that's not its job. Its job is to hold the line so you don't lose the game. You don't bench your quarterback and ask your safety to start chucking 50-yard bombs. And because it plays defense, SCHD probably shouldn't be a giant chunk of your money if you're young. With 20, 30, or 40 years ahead of you, you've got time to let your offense run. I think SCHD can absolutely have a spot—just not the starring role.
I am passionate about passive income, but you can never forget that a dividend is a net worth neutral event on the day it lands in your account because when a company pays you, its stock drops by that exact amount.
The money isn't magic — it just moved from the company's balance sheet to yours. One dollar leaves the stock, one dollar shows up in your account. So please don't buy SCHD just for that yield. The real magic isn't the check itself — it's that good companies keep earning more over the years and grow that check for you.
SCHD yield on cost. SeekingAlpha.com
And that's where being patient really pays off. There's a number called Yield on Cost, and it just means the dividend you're earning compared to what you paid back when you bought in — not today's price. Take a look at that chart above. If you'd bought SCHD at its launch in 2011 and simply held on, your yield on cost today would be 12.37%. Read that again. A "boring" little dividend fund quietly turned into a 12.37% yield on your original money — all because that dividend kept growing.
I don't know a single bond on this planet that does that. And while the payments wiggle around quarter to quarter, zoom out — the trend that matters is that it's up and to the right.
So which is it, bond or SCHD? It depends. They just do different jobs.
A bond's great for money you'll need soon, or if the swings keep you up at night — just go in knowing the trade: no growth, and inflation nibbling the whole time. SCHD's your friend for the long-haul money, the stuff you won't touch for years, where outrunning inflation matters more than a smooth ride.
So the next time you might see "Why buy SCHD when bonds are risk-free?" — you'll have a little bit better informed opinion.
Nothing's risk-free. There are only tradeoffs. The bond hides its risk down inside inflation, where you can't see it. SCHD wears its risk right out in the open — and hands you a real shot at beating that inflation over time.
Pick the tool that fits the job. Just don't pick it because somebody told you it was "safe."
Let me know if you agree with this by hitting reply.
The infamous permabear Jeremy Grantham was on DOAC and suggested selling stocks and buying gold among other hard assets. He might be right, but what we shouldn't forget is that nobody knows the future... I still enjoyed this chat, it gave me much to think about diversification and you'll probably like it too.
Tracey Ryniec on the Zacks Value Investor Podcast covered five beaten down stocks (three of which pay a dividend) and reveals which one isn't a value trap. Stocks mentioned: WHR, NKE, WEN, TSCO and ADBE.
Disclaimer: This is not investment advice. Do your own research before making any investment decisions.
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Each week you'll learn how to be a better dividend investor and follow the journey of a welder with a passion for passive income to $1,000,000 and beyond.
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