Investing your hard-earned money can often feel like navigating a maze with numerous options, each vying for your attention and scrutiny. So, when you have $1,000 to invest, the choices can be overwhelming. While the allure of individual stocks is tempting, here it is: consider parking your money in the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD).
Are you after dependable earnings through dividends while also securing sound, peaceful sleep at night? Let’s explore the compelling case for adding this exceptional index fund to your investment portfolio.
Magnifying Portfolio Diversity
As the saying goes, “Don’t put all your eggs in one basket.” Such advice rings especially true in the world of investments. While a diversified portfolio can yield remarkable returns, it also serves as a cushion by spreading risk. Picture this: if you hold only a handful of stocks and something unexpected befalls one, you could be in trouble. However, if your investments are spread across a multitude of stocks, even a significant setback may only dent your overall portfolio.
Image source: Getty Images.
By utilizing an index fund like the Schwab U.S. Dividend Equity ETF, you can diversify your investments without the need to meticulously study and select individual companies. Comprising 104 stocks, this fund provides the diversification of many stocks under a single ticker symbol.
Here’s the clincher: relinquishing control to professionals who manage the fund according to the index it tracks, offers immense peace of mind. For the Schwab U.S. Dividend Equity ETF, it’s the Dow Jones U.S. Dividend 100 Index. This means resting assured that a solitary poor-performing stock won’t torpedo your entire portfolio.
Investing in Resilient Industry Leaders
Companies don’t dole out dividends out of thin air. Dividends constitute a cash outlay for a business and can only increase over time if the company continues to grow its profits. Therefore, a long history of dividend growth is a testament to a company’s resilience and sturdy business model, making such stocks worthy of a long-term hold.
Examining the Schwab U.S. Dividend Equity ETF’s top holdings offers insight into the right mix of industries, growth potential, and risk for your portfolio:
| Company | Weighting in Fund (%) | Consecutive Dividend Increases |
|---|---|---|
| Broadcom | 5.03 | 14 |
| AbbVie | 4.72 | 12 |
| Merck & Co. | 4.67 | 14 |
| Home Depot | 4.32 | 14 |
| Amgen | 4.08 | 13 |
| Verizon Communications | 3.99 | 20 |
| Chevron | 3.93 | 36 |
| Cisco Systems | 3.92 | 13 |
| Texas Instruments | 3.86 | 21 |
| Coca-Cola | 3.82 | 61 |
Data source: Schwab U.S. Dividend Equity ETF prospectus.
The fund’s most significant holdings are established leaders in the technology, pharmaceutical, energy, retail, and telecommunications sectors. Notably, the top ten positions account for 42% of its total holdings.
Embracing Flexibility through Dividends
Currently, the Schwab U.S. Dividend Equity ETF offers a solid 3.9% dividend yield. The allure of dividends lies in the fact that they are tangible cash in your pocket, eliminating the need to liquidate your investment to realize returns. As a long-term investor, consider reinvesting them to acquire more shares.
Reinvesting the dividends to purchase more shares translates to a compounding effect, amplifying dividends from these new shares. Much like a snowball rolling down a hill, compounding grows larger faster the longer it goes. This solidifies the Schwab U.S. Dividend Equity ETF as a prime candidate to commence a dividend snowball today.
Is Investing $1,000 in Schwab U.S. Dividend Equity ETF Right for You?
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron, Cisco Systems, Home Depot, Merck, and Texas Instruments. The Motley Fool recommends Amgen, Broadcom, and Verizon Communications. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
