Should I keep SCHD

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Shimmy
Posts: 5
Joined: Thu Apr 22, 2021 7:39 pm

Should I keep SCHD

Post by Shimmy »

Hello,

In my early 30s. I got 15% going into my work retirement. I started dividend investing in an outside account last year. I had roughly 15 individual stocks and 4 ETFs in my portfolio. I have been slowly selling off my positions to become a index fund investor. As of today my portfolio holds VTI, VXUS, and SCHD. I had a little into bonds, but decided not to keep it. After last years market, I found that I can stomach volatility pretty well.
My question is if I should keep SCHD around. I like the idea of having a dividend ETF and getting dividend payments and the growth of SCHD has been decent. Would I be better off selling SCHD and putting them into VTI and VXUS? What are your opinions? I know its not financial advice, just wanted some opinions to help me make my decision.
Rough composition right now is 70% in VTI, 15% in VXUS and 15% in SCHD.
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anon_investor
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Re: Should I keep SCHD

Post by anon_investor »

Shimmy wrote: Thu Jun 10, 2021 10:05 am Hello,

In my early 30s. I got 15% going into my work retirement. I started dividend investing in an outside account last year. I had roughly 15 individual stocks and 4 ETFs in my portfolio. I have been slowly selling off my positions to become a index fund investor. As of today my portfolio holds VTI, VXUS, and SCHD. I had a little into bonds, but decided not to keep it. After last years market, I found that I can stomach volatility pretty well.
My question is if I should keep SCHD around. I like the idea of having a dividend ETF and getting dividend payments and the growth of SCHD has been decent. Would I be better off selling SCHD and putting them into VTI and VXUS? What are your opinions? I know its not financial advice, just wanted some opinions to help me make my decision.
Rough composition right now is 70% in VTI, 15% in VXUS and 15% in SCHD.
I would not hold SCHD in a taxable account. SCHD will have some tax drag since it's dividend yield is around 3%, which is more than double that of VTI. It means you will be losing some of those dividends to taxes.
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Taylor Larimore
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Re: Should I keep SCHD

Post by Taylor Larimore »

Shimmy:

I have no idea what "SCHD" is.

You will get more replies if you will add fund names to your ticker symbols. Few of us, have memorized all the ticker symbols. Use the edit box in the upper right corner of your post.

Thank you and best wishes.
Taylor
Jack Bogle's Words of Wisdom: "The winning formula for success in investing is owning the entire stock market through an index fund, and then doing nothing. Just stay the course.”
"Simplicity is the master key to financial success." -- Jack Bogle
Da5id
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Joined: Fri Feb 26, 2016 8:20 am

Re: Should I keep SCHD

Post by Da5id »

anon_investor wrote: Thu Jun 10, 2021 10:09 am
Shimmy wrote: Thu Jun 10, 2021 10:05 am Hello,

In my early 30s. I got 15% going into my work retirement. I started dividend investing in an outside account last year. I had roughly 15 individual stocks and 4 ETFs in my portfolio. I have been slowly selling off my positions to become a index fund investor. As of today my portfolio holds VTI, VXUS, and SCHD. I had a little into bonds, but decided not to keep it. After last years market, I found that I can stomach volatility pretty well.
My question is if I should keep SCHD around. I like the idea of having a dividend ETF and getting dividend payments and the growth of SCHD has been decent. Would I be better off selling SCHD and putting them into VTI and VXUS? What are your opinions? I know its not financial advice, just wanted some opinions to help me make my decision.
Rough composition right now is 70% in VTI, 15% in VXUS and 15% in SCHD.
I would not hold SCHD in a taxable account. SCHD will have some tax drag since it's dividend yield is around 3%, which is more than double that of VTI. It means you will be losing some of those dividends to taxes.
I'm not a fan of dividend focused funds so I'd simplify and remove it. That said SCHD at least has reasonable costs, so I don't think it is a bad choice. Depending on OPs income his tax on qualified dividends could be 0. However SCHD may be better in non taxable anyway as his income might rise and switching out of taxable SCHD could cause capital gains taxes in that case.
Last edited by Da5id on Thu Jun 10, 2021 10:30 am, edited 2 times in total.
MishkaWorries
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Joined: Wed Aug 14, 2019 4:39 pm

Re: Should I keep SCHD

Post by MishkaWorries »

Are you using the dividends to live off of? If not, then I don't see an advantage to a dividend portfolio. If I were in my early 30s I'd be concentrating on total return and not worrying about dividends. I'd stick with VTI/VXUS or just VT.
We plan. G-d laughs.
dbr
Posts: 35933
Joined: Sun Mar 04, 2007 9:50 am

Re: Should I keep SCHD

Post by dbr »

Shimmy wrote: Thu Jun 10, 2021 10:05 am I like . . . getting dividend payments
That is not a good reason to pick a particular fund unless you have some special reason to actually take dividends, and most people don't. I think it can happen in a trust that the trustee is confined to distributing income only as it appears as dividends and interest on investments, but aside from something like that . . .

As to keeping the fund, it would be a good idea to liquidate it before you accumulate large gains that would be taxed if you want to change your selection and before taxation of the dividends becomes undesirably large.
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dratkinson
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Location: Centennial CO

Re: Should I keep SCHD

Post by dratkinson »

You can answer this question for yourself. How?

Since you bought SCHD last year in a taxable account, this means you have a 1099DIV on it.
--Box 1a lists total dividends (ordinary+QDI+STCG from internal fund operation).
--Box 1b lists QDI dividends.
--Box 2a list LTCG (from internal fund operation).
--Box 5 lists section 199A business income (part of this is not taxed)---I depend upon tax s/w to handle it.
--Box 7 lists FTC (Foreign Tax Credit, found in TISM and reduces tax owed).
--Box 11 lists tax-exempt dividends (found in muni bond funds).


SCHD does not seem to be a muni bond fund, so you are interested in the amount of QDI and LTCG paid, both of which are tax efficient.
--You can control your receipt of QDI, by choosing funds that pay a high percentage of QDI.
--You can control CGs recognized when you initiate an external sell; sell LT shares to benefit from LTCG.
--You can't control CGs recognized from internal fund operations, but lower turnover funds should generate less.

For SCHD, compute QDI percentage as : 1099 box 1b / 1099 box 1a = QDI percentage.

As a baseline...
--TSM's QDI percentage = >90%.
--TISM's QDI percentage = >70%. Return also benefits from ~10% FTC.


If you find SCHD has a much lower QDI percentage than TSM and TISM, it means more of SCHD's annual dividends are being taxed as ordinary income---your highest tax rate applies.

Meaning you'd be money ahead---less tax paid---by selling SCHD and buying TSM, as it's more tax efficient. ("When one discovers they are riding a dead horse, the best strategy is to dismount.")


"Buta, buta, buta, ...SCHD pays higher dividends to support annual spending!"

If you need more income for annual spending, then accept TSM's higher QDI percentage, and sell some TSM LT shares to increase your annual income. The sold LT shares will received LTCG tax benefit.

Bottom line. Select taxable equity investments for tax efficiency (high QDI percentage, low turnover); and if additional income is needed, then sell LT shares to harvest LTCG.


If interested, go into the forum's theory section, and read some of the topics dealing with "income from tax-inefficient dividends vs income from tax-efficient selling." Tax-efficiency is reported to win over tax-inefficiency.
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.
hudson
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Joined: Fri Apr 06, 2007 9:15 am

Re: Should I keep SCHD

Post by hudson »

Shimmy wrote: Thu Jun 10, 2021 10:05 am Hello,

In my early 30s. I got 15% going into my work retirement. I started dividend investing in an outside account last year. I had roughly 15 individual stocks and 4 ETFs in my portfolio. I have been slowly selling off my positions to become a index fund investor. As of today my portfolio holds VTI, VXUS, and SCHD. I had a little into bonds, but decided not to keep it. After last years market, I found that I can stomach volatility pretty well.
My question is if I should keep SCHD around. I like the idea of having a dividend ETF and getting dividend payments and the growth of SCHD has been decent. Would I be better off selling SCHD and putting them into VTI and VXUS? What are your opinions? I know its not financial advice, just wanted some opinions to help me make my decision.
Rough composition right now is 70% in VTI, 15% in VXUS and 15% in SCHD.
I vote that you are OK as far as stocks are concerned. All three are low expense ETFs.
If I owned stocks, which I don't, I would go all VTI or the equivalent.
I would also have a few years of income in safe fixed income...Vanguard Risk Potential 1 or 2.
Consider reading Boglehead books: viewtopic.php?p=5372762#p5372762

I once thought that I could stomach volatility pretty well, until 2008.
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