SPY vs. SCHD: A Detailed Comparison
Key Characteristics of SPY and SCHD
SCHD pays a much higher dividend yield than SPY
SPY has a higher expense ratio than SCHD
SCHD only holds 100 companies, while SPY holds 500
SPY is one of the oldest ETFs on the market, having been available to investors since 1993. It aims to track the performance of the S&P 500 and gives investors broad exposure to large-cap US companies.
SCHD, on the other hand, entered the market in 2011. Its focus is on US companies with a history of consistent dividend payments.
Performance Comparison
SPY will outperform in a bullish market when large-cap and growth companies are leading the stock market.
SCHD, which leans toward dividend-heavy sectors like consumer staples and industrials, might have an edge in choppy or bearish markets. SCHD invests in sectors that are traditionally considered defensive and tend to perform well in such conditions.
Dividend Comparison
SPY - 1.41%
SCHD - 3.70%
When it comes to dividends, SCHD clearly comes out on top. While SPY also distributes dividends, its yield will be lower than SCHD.
Given its specific focus on companies with reliable and attractive dividends, SCHD naturally positions investors for potentially better income than from SPY.
Expense Ratio Comparison
SCHD - 0.06%
SPY - 0.09%
The expense ratio is a critical factor for long-term investors, and here we find a small advantage for SCHD.
These differences may appear nominal, but over the years, they could significantly impact the net returns, especially considering the compounding effect.
However, both SCHD and SPY have extremely low expense ratios when compared to the average.
Risk-Adjusted Performance Comparison
Risk-adjusted returns are crucial as they take both the return and volatility into account. While SPY might post higher returns during a robust upward market, it could also experience a more significant downturn along with the general market due to its broad exposure.
SCHD, on the other hand, with its emphasis on steady dividend-paying companies, could provide more protection in down markets and potentially deliver superior risk-adjusted returns.
SCHD vs. SPY - Bottom Line
SPY provides broad market coverage, aligning well with investors looking for substantial, indiscriminate market exposure.
For more conservative investors seeking income and lower volatility, SCHD could be the more appealing choice.
You can also opt to invest in both funds to give you the most diversity possible.
As always, carefully consider your risk tolerance and financial goals before investing in these or other ETFs.
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