SCHD vs. SCHG - Which is Best For You?
Today, we’ll dissect two popular ETFs managed by Charles Schwab - the Schwab U.S. Dividend Equity ETF (SCHD) and the Schwab U.S. Large-Cap Growth ETF (SCHG).
Key Characteristics of SCHD and SCHG
SCHD
The Schwab U.S. Dividend Equity ETF (SCHD) is tailored for income-focused investors. Operating since 2011, SCHD tracks the performance of the Dow Jones U.S. Dividend 100 Index, encompassing high dividend-yielding U.S. companies that have consistently paid dividends for at least a decade.
SCHG
The Schwab U.S. Large-Cap Growth ETF (SCHG), on the other hand, aligns with growth-focused investors. It mirrors the Dow Jones U.S. Large-Cap Growth Total Stock Market Index, with sizable positions in growth-oriented large-cap U.S. stocks that exhibit growth potential, high earnings, and revenue.
Performance Comparison Between SCHD and SCHG
To compare the performance of SCHD and SCHG, we’ll consider how each fund fares in different market conditions.
Bullish Market Conditions
In bullish markets, growth-oriented funds like SCHG are typically seen outperforming, as investors are willing to pay premiums for the shares of companies with strong growth prospects. Contrary to that, SCHD might lag behind as investors might seize the opportunity for capital appreciation over steady dividend income.
Bearish Market Conditions
However, the tables are often turned in unfavorable market conditions. SCHD, with its focus on reliable dividend-paying firms, offers a cushion against drastic market shifts, making it a tendency for better performance during downturns.
Meanwhile, SCHG, due to the high-risk nature of growth stocks, could experience higher volatility and sharper declines.
Fundamentally, past trends demonstrate that SCHD has the potential to maintain stability via consistent dividend payments, and SCHG might offer considerable returns during thriving markets.
Dividend Comparison of SCHD and SCHG
As the names suggest, SCHD and SCHG have differing approaches when it comes to dividends.
SCHD’s Dividend Strategy
SCHD’s approach is income-focused. SCHD pays a dividend of 4.12%. It’s an impressive figure that aligns with their core mission of steady income generation through dividend payments.
SCHG’s Dividend Strategy
In contradiction, SCHG has a different focus, tilting heavily towards capital growth. As a result, its fund managers mainly choose companies that favor capital reinvestment over dividend payment. The dividend yield of SCHG is around 0.53%, significantly lower than that of SCHD.
Expense Ratio Comparison
Expense ratios remain a crucial factor to consider, as they vastly affect the long-term returns of an ETF. The expense ratio is a measure that directly eats into an ETF’s returns.
SCHD’s Expense Ratio
SCHD boasts an extremely competitive expense ratio of 0.06%. This low fee structure makes it an enticing choice for investors seeking to limit costs.
SCHG’s Expense Ratio
Similarly, SCHG offers a compelling expense ratio of 0.04%. This allows investors to retain more of their earnings, effectively enhancing their return potential over the long term.
In terms of cost, SCHG pulls ahead slightly, although both ETFs offer notably low expense ratios compared to the broader ETF market.
Holdings Analysis
Another essential element to analyze when comparing ETFs is their composition or holdings. The ETFs’ holdings highly influence performance, dividends, and even risk.
SCHD holds stocks from inherently less volatile sectors, such as Consumer Discretionary and Consumer Staples, due to its focus on reliable dividend-paying companies. This is reflected in its overall risk profile and potential to provide steady income despite market swings.
SCHG, due to its growth focus, consists of many high-growth tech stocks with increased volatility but phenomenal growth potential. It’s a heavyweight in sectors such as Technology and Healthcare, which can offer substantial growth during favorable market conditions.
SCHD vs. SCHG - Bottom Line
Both SCHD and SCHG represent sound investment options, depending on your individual investment goals, risk tolerance, and market expectations. SCHD may better accommodate investors focused on reliable income via dividends and a less volatile nature.
In contrast, SCHG may be a suitable choice for risk-aggressive investors aiming to capitalize on the growth potential of large-cap U.S. stocks.
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