One of the main goals to all dividend income investors is to grow your annual dividend income to a point where it covers all your expenses and even surpasses your day job income. At this point as an investor, you're financially free. Today we're diving into the Schwab U.S. Dividend ETF, aka ticker symbol S-C-H-D, and showing you how just a $20 day investment could potentially surpass your income from your day job.
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I love to share helpful information to help you improve your situation. And if you like that, be sure to subscribe so you don't miss out on future content. With that said, let's dive into SCHD and cover what it is and what does it do? Well, it has an impressively low expense ratio at just 0.06%, making it one of the cheapest ETFs to hold long term, which is especially important as investors get more and more invested.
Think of SCHD as your future retirement. that you can use to get peace of mind that gives you a solid foothold in the market and gives you stability, dividend, and growth potential. If you're wondering what an ETF is and how it differs from other types of funds, I made a video all about that and I'll leave a link right there in the corner. This ETF is like a carefully curated playlist of stocks across various sectors offering you a piece of action in everything from financials to healthcare to consumer staples with companies like Pfizer, BlackRock, and even Coca-Cola. Within this ETF is a very diverse portfolio.
Nothing is weighed too heavily on one side or the other. It has 103 different companies within this portfolio. So you're minimizing your risk that if one company does bad, there's 102 other companies that will help carry the load.
What I like most about SEHD is that most funds are heavily weighted to tech stocks. For example, the S&P 500 and many other growth funds, which can lead to higher volatility. So if you add SEHD and insert it.
into that mix that can lower your exposure to tech stocks and just have a more value-oriented portfolio that can survive a recession. During a recession, when stocks generally go down, with SEHD, you're not really relying on the capital appreciation to actually fund your retirement. Instead, you rely on the dividend payments to fund your retirement.
With that in mind, during 2020, during this last huge drawdown that we had in the stock market, SEHD paid record high dividends to investors, which makes me sleep good at night knowing that SEHD is continuing to raise their dividend payments. But here's where it gets interesting. What sets SEHD apart is its focus on dividend growth, meaning it not only picks dividend stocks, but it picks stocks that have the potential to grow its dividend payment over time, all while keeping its costs low while maintaining that low expense ratio. Investing in SEHD is like planting a seed. that grows not through just the value of the ETF itself, but through increasingly larger dividend payment checks without eating into your returns with higher fees.
Now, some important facts when it comes to this investment vehicle. The SEHD creation date or inception date was October 20th, 2011, which means this ETF has been around for a while. And that's important because we have a decent amount of data to go off of.
And although past performance doesn't equal future results all the time. we have a decent amount of data to go off of. SEHD is one of the largest ETFs across the market with over 65 billion in total net assets. How can $20 a day in SEHD surpass your full-time job? $20 might not seem like a large amount, but when invested every day into SEHD, it can grow into a reliable income stream that can replace your full-time salary.
When SEHD first hit the stock market 13 years ago, it was trading at just $8.34 a share. As of Thursday, December 26, it was trading at $27.60 a share. That means that SEHD's share price has grown by 9.5% every single year since it's created because that's what it would need to have happened for it to grow from $8 to $27 in just 13 short years.
Along with that, a dividend yield of about 3% every single year. on top of the 9.5% share price growth. And get this, the dividends aren't just staying the same, they're actually growing by 11% year over year. This compound effect can significantly boost your income, especially if you reinvest those dividends back into SEHD to buy more shares.
Over 10 to 30 years, that $20 a day will grow exponentially due to the power of compounding interest. $20 a day is $600 a month. So let's say...
your $600 investment grows by 12% year over year, 9% from share price growth, and another 3% from reinvesting dividends. By year 20, 20 year 20 a day investment has grown to over five hundred thousand dollars but where the real magic happens is from year 20 to year 30 during that short 10 year span your nest head grows from over 500 000 to over 1.5 million producing enough passive income to cover or surpass many full-time jobs with sehd you're not relying on just the share price to rise you're banking on the steadily growing dividends to grow during the long run. It's designed for those looking to play the long game, looking for steady income and growth, making it a standout option to build your investment portfolio. In essence, SCHD is more than just an ETF.
It's your gateway to financial success, offering a balanced approach to earning from the market's ups and downs, with the added perk of being an incredibly cost effective. while not only paying out a dividend for the past 13 years consecutively, but also increasing that dividend every year. So is right now a good time to get into SEHD? Well, we're looking at the big picture here.
We're looking at a 30-year investment into this ETF. So Thursday's price of $27.60 a share for SEHD doesn't really matter when you're looking at a 30-year time span. And secondly, with the...
Fed starting to lower interest rates, that makes borrowing money cheaper for everyone. For an ETF like SEHD, which holds a bunch of companies that paid out a part of their profits as dividends, this is great news. Lower interest rates means these companies can save money on their loans and make more money because people are spending more and ultimately share more profits with their investors through dividend payments.
Dividend stocks, especially those with reliable and steady profits. payouts become more valuable to investors in a lower interest rate environment because investors are willing to pay more for the perceived safety and income generation of these stocks, which is likely to lead to a higher share price for SEHD. Anyways, that's it for today's video.
I hope you all got some value out of it. You guys have probably noticed dividend stocks have become more and more valuable over the last couple of years. That's because they're more resistance to the up and downs of the market and they pay out a reliable and consistent income which a lot of people value right now this has just been my experience this is just my opinions i'm not a financial advisor so i do recommend you all do your own due diligence before investing in any stocks that's it for the video if you guys enjoyed it and i earned it go ahead and hit that like button and be sure to subscribe for more content if you're interested in investing directly into the dividend stocks themselves instead of an ETF, I made a wonderful video where I dive into those details.
Thank you so much for your time and we'll see you in the next video.