SCHD vs. QQQ - Which is Best For You?
This article will compare SCHD vs. QQQ to help determine which investment is best for your portfolio!
Key Characteristics of SCHD and QQQ
Schwab US Dividend Equity ETF (SCHD)
SCHD aims to track the total return of the Dow Jones U.S. Dividend 100 Index, which comprises high dividend-yielding U.S. companies. It’s an appealing choice for investors seeking equity income.
Invesco QQQ (QQQ)
QQQ seeks to replicate the performance of the NASDAQ-100 Index, including 100 of the largest domestic and foreign non-financial stocks listed on the Nasdaq Stock Market. Best suited for growth-focused investors, QQQ almost exclusively comprises tech and internet-related stocks.
Holdings Comparison of SCHD vs. QQQ
SCHD and QQQ are interesting ETFs to compare since both funds hold around 100 stocks. However, the investment objectives are much different.
SCHD holds companies with much less volatility, making it ideal for investors who are concerned about income and capital preservation.
QQQ holds 100 companies as well, but it primarily focuses on large-cap tech companies. The QQQ also excludes financial companies and REITs from its holdings.
Performance Comparison
In periods of tech-sector growth, QQQ usually outperforms as its assets are largely tech stocks. Conversely, should we see the tech sector hit hard, QQQ tends to see larger drops.
SCHD, on the other hand, plays the long game. Its primary focus on high-dividend-yielding companies implicates a stable, long-term growth perspective. During market downtrends, SCHD’s diverse sector allocation potentially cushions the blow, potentially offering a safer harbor during market storms.
Dividend Comparison
SCHD - 4.09%
QQQ - 0.55%
A key difference between the SCHD and QQQ is seen in their approach to dividends.
SCHD pursues an indexing strategy concentrated on high-dividend-yielding US stocks, making this ETF attractive for investors seeking dividend income. So if a high dividend yield is your goal, SCHD is much better than QQQ.
On the other hand, QQQ, given its primary focus on growth and technology, doesn’t aim to offer a high dividend yield.
Expense Ratio Comparison
SCHD - 0.06%
QQQ - 0.20%
Taking a magnifying glass to hard numbers again, we notice some critical differences between SCHD and QQQ regarding expense ratios.
SCHD holds an edge with an extremely low expense ratio of 0.06%, ranking among the least expensive ETF options available today.
QQQ, while not exorbitant, chimes in with a higher expense ratio of 0.20%, which is slightly high for passively managed ETFs.
Risk-Adjusted Performance Comparison
Risk-adjusted performance measures an investment’s return based on the degree of risk taken to capture those returns. This measure reflects the reward received relative to the risk taken, a key aspect for investors when contemplating diversification into their portfolio.
Here, SCHD and QQQ are different beasts. By investing mainly in high-dividend-yielding and diverse sector stocks, SCHD might expose investors to lower volatility and less performance fluctuation, offering potentially higher risk-adjusted returns during periods of market uncertainty or tumult.
However, during tech-driven bull markets, QQQ could potentially give higher risk-adjusted returns reflective of the riskier nature of the tech sector.
Overall, you should expect to experience a lot more volatility investing in QQQ than SCHD.
Conclusion
Whether you tilt towards SCHD or QQQ boils down to your investment objectives and risk tolerance. Are you willing to face higher short-term volatility for potential long-term gain, or do you opt for steady income distribution?
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