I'm Buying SCHD ETF For The Dividend!

For all you dividend lovers out there, I've got some exciting news. I’m putting about 25% of my net worth into SCHD (a dividend-paying ETF). If you've been following our channel, you might recall a previous video we did discussing SCHD. Since then, I’ve made some changes in how I handle my money. Let me walk you through my thought process and why I’m making this move.

Reinvesting and Living Off Dividends

As many of you know, I have multiple businesses, own around 1,000 apartments, and am heavily invested in growing the Everything Money community, YouTube, and software platform. Recently, I decided to shift my approach. I’ve always focused on reinvesting every dollar back into my businesses, but now, I’m starting to prioritize living under certain budgets and constraints.

Here’s the plan: I’ll set aside a portion of my money and live purely off the interest, dividends, and options income I receive. I went to Dalton, our in-house analyst, and told him about my idea. He suggested SCHD, and after some thought, I realized it was a solid choice. Why? Well, I wanted to avoid as much volatility as possible while generating a stable income.

Why SCHD?

Looking at SCHD’s performance since its inception compared to the S&P 500, there’s a notable difference. The large gap really started in late 2021, when tech stocks began to skyrocket, and everyone was hyped about EV stocks and FANG. But I’m not chasing growth right now—I’m more interested in generating dividend income. SCHD offers a 3.41% dividend yield, and on top of that, I love selling covered calls, which could bring in an additional 1-3% per year. That means I can potentially generate a 4.5% to 6.5% annual return on cash at today's levels.

However, I’m being patient. I believe the market is a little overpriced, and I can get a 5% return from 98-day Treasuries. So, if I wait for a pullback, I could potentially get a 5.5% to 7.5% cash return. That’s a solid way to live.

Who Is This Strategy For?

This approach is ideal for people who are older, have a significant amount of money set aside, and are nearing retirement. If you’re young, I still recommend investing more aggressively, but SCHD could be a great option for a 401(k) or IRA where you don’t pay taxes on the income every year. It's a fantastic way to generate cash flow for your retirement accounts.

But let me be clear: I’m not in love with dividends like everyone else. Dividends often represent a double taxation—you pay taxes on the company’s profit, and then you pay taxes on the dividend payout. In many cases, if a company has strong growth potential, I’d prefer they reinvest that money back into the business rather than pay a dividend. That said, SCHD focuses on good dividend-paying companies, so let me show you what that looks like.

SCHD’s Top Holdings

Here are SCHD’s top 25 holdings: Ford, Lockheed Martin, AbbVie, Coca-Cola, BlackRock, Home Depot, Bristol-Myers, Amgen—these are all well-known, solid companies. And what’s great is none of them are hyped tech stocks. This gives me confidence that I’m investing in quality businesses that are more stable and less likely to experience wild volatility.

Living Off 25% of My Net Worth

I’m setting aside 25% of my net worth in this strategy. I’m letting my real estate and businesses continue to grow, but I’m using this 25% to generate cash flow for living expenses. As my companies pay out distributions, I can funnel that money into this account and continue growing my income stream.

I’m a big spender—I like nice trips and living a comfortable life—so I want to make sure this 25% lasts. The idea is that over time, my other 75% of assets (real estate and businesses) will grow, and eventually, that 75% will become 95% of my net worth. I’m focused on longevity here.

But again, this strategy isn’t for everyone. I don’t believe an 18- or 19-year-old should take this approach. If you’re young, focus on growth-oriented investments, especially in tax-advantaged accounts like a 401(k) or IRA. But if you’re nearing retirement, this could be a great way to ensure you have a steady stream of income.

Beating the Market Isn't Always the Goal

One last thing: I’m okay trailing the market for a portion of my portfolio. My goal here is to generate cash to live off, not to beat the market. The real key is knowing your goals and investing accordingly.

If you’re using the Everything Money software, make sure you regularly use the retirement calculator. It’s a powerful tool to help you map out your financial future. Until recently, I was the top user of our software, and it helped me realize that hitting my financial goals is more important than chasing the highest returns. I encourage you to adopt a similar mindset—focus on your goals, be conservative in your assumptions, and make sure you’re on track to meet your future needs.

Final Thoughts

At the end of the day, the 25% I’m allocating to SCHD needs to generate a 9-11% return for me to live off of it for the rest of my life. That’s not difficult, but the real challenge is managing the volatility. During market downturns, it will dip along with the broader market, but I’ve accounted for that by being conservative with my assumptions.

I did the math, and even with conservative estimates, the money should last me 14 years, assuming I never add to it and pay all taxes on dividends and options along the way. In reality, I’ll likely be adding to the account regularly, and my spending won’t increase by 6% every year, so I expect this money to last much longer.

Whether you’re young or old, I urge you to know where you stand financially and to use our retirement calculator.

Thanks for reading, and I hope this helps you on your financial journey!

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