Investing wisely begins with establishing a habit of regular contributions to investment accounts. Building a diversified portfolio forms a strong foundation, offering support during tough market periods and allowing participation in broad market rallies. This article explores two notable ETFs, Vanguard S&P 500 ETF (VOO) and Schwab U.S. Dividend Equity ETF (SCHD), providing a detailed comparison including top holdings, past performances, and hypothetical investment outcomes.
Both VOO and SCHD offer distinct advantages and drawbacks. While VOO mirrors the S&P 500 Index with a low expense ratio of 0.03% and substantial assets under management, SCHD focuses on dividend-paying stocks with a slightly higher expense ratio of 0.06%. The performance of these ETFs has varied, with VOO showing higher returns in 2024, but SCHD demonstrating solid performance in the past three years despite recent challenges. Additionally, sector exposure and top holdings reveal substantial differences between the two, with VOO being significantly more technology-focused and SCHD presenting a broader diversification.
Key Takeaways
- Regular investment and diversification are crucial for a robust portfolio.
- VOO and SCHD have distinct sector exposures and top holdings.
- Performance varies, with recent fluctuations in returns for both ETFs.
The Role of Investment Practices and Portfolio Variety
Building a habit of regular investing is essential for securing long-term financial goals. Consistent contributions to investment accounts can accumulate substantial wealth over time. Establishing a strong foundation through diversified investments is a key strategy. A diversified portfolio provides stability during market downturns and enables participation in broad market rallies.
For instance, comparing two popular exchange-traded funds (ETFs), VOO and SCHD, illustrates the benefits of diversification. VOO, the Vanguard S&P 500 ETF, mirrors the S&P 500 Index, offering a low expense ratio of 0.03% and managing over $325 billion in assets. In contrast, SCHD, the Schwab U.S. Dividend Equity ETF, focuses on companies with consistent dividend payments, with an expense ratio of 0.06% and nearly $50 billion in assets under management.
Examining sector breakdowns highlights differences in exposure. VOO's leading sectors include technology (30%), healthcare (13%), and financials (12%), whereas SCHD's top sectors are industrials (18%), healthcare (16%), and financials (15%). The variation in sectors shows how diversification can impact performance under different market conditions.
The top holdings of these ETFs further distinguish their strategies. VOO's largest positions include tech giants like Apple and Microsoft, which dominate its portfolio. SCHD, however, features Amgen and other diversified companies such as Home Depot and Coca-Cola, reflecting a focus on dividend stability.
Regarding dividends, SCHD provides a quarterly dividend of $0.66 per share, equating to an annual yield of approximately 3.6%, with a five-year growth rate of nearly 14%. VOO, while also offering dividends, has a lower forward yield of 1.6%.
VOO vs. SCHD ETFs: A Thorough Comparison
Historical Performance Over the Past Decade
In the past decade, VOO, representing the Vanguard S&P 500 ETF, has achieved a return of 220%. On the other hand, SCHD, the Schwab U.S. Dividend Equity ETF, reported a slightly lower return of just over 200%. Both ETFs have provided substantial growth over a long-term period.
Performance in the Last Three Years
Over the previous three years, SCHD has showcased its resilience and has actually outpaced VOO, despite underperforming in 2023. This period highlights the competitive nature of SCHD in comparison to its counterpart.
2024 Year-to-Date Results
The year 2024 has shown mixed results between these ETFs. As of now, VOO has ascended by 15%, reflecting a strong performance within this year. Meanwhile, SCHD remains approximately flat, showcasing a more conservative movement in stark contrast to VOO’s growth trajectory.
Metrics Comparison:
- 10-Year Return:
- VOO: 220%
- SCHD: ~200%
- 3-Year Performance:
- VOO: Underperformed SCHD
- SCHD: Outperformed VOO
- 2024 Year-to-Date:
- VOO: Up 15%
- SCHD: Flat
In-Depth Analysis of VOO and SCHD
VOO: Vanguard S&P 500 ETF Breakdown
The Vanguard S&P 500 ETF, known as VOO, replicates the S&P 500 Index. This highly passive ETF features a minimal expense ratio of 0.03%, providing cost-effective investment opportunities. VOO holds over $325 billion in assets, making it the third-largest ETF on the market.
Top Holdings:
- Apple: 7.5%
- Microsoft: 6.5%
- Amazon, Nvidia, Alphabet (Google), Tesla, Meta Platforms, Berkshire Hathaway, and UnitedHealth
These top 10 holdings accumulate to 30% of the entire portfolio. VOO includes 509 positions, slightly more than 500 due to multiple classes of stocks for certain companies such as Alphabet and Berkshire Hathaway.
Sector Breakdown:
- Technology: 30%
- Health Care: 13%
- Financial: 12%
- Consumer Cyclical: 11%
- Communication: 9%
SCHD: Schwab U.S. Dividend Equity ETF Overview
The Schwab U.S. Dividend Equity ETF, or SCHD, targets companies known for their consistent dividend payments. It mirrors the Dow Jones U.S. Dividend 100 Index with 90% accuracy, providing fund managers some flexibility with the remaining 10% of net assets. SCHD offers a low expense ratio of 0.06% and manages assets approximately totaling $50 billion. This makes SCHD the third-largest dividend-focused ETF.
Top Holdings:
- Amgen: 4.5%
- Cisco Systems, AbbVie, Home Depot, Broadcom, Coca-Cola Company, Merck, Chevron, UPS, and PepsiCo
The top 10 holdings account for 41% of the total fund. SCHD has 104 positions, making it smaller in comparison to VOO.
Sector Breakdown:
- Industrials: 18%
- Health Care: 16%
- Financial: 15%
- Consumer Discretionary: 12.6%
- Technology: 12%
Dividends:
- SCHD's quarterly dividend: $0.66 per share, annualized to $2.64
- Forward dividend yield: ~3.6%
- Five-year dividend growth rate: ~14%
- VOO's forward dividend: $6.32 per share, yield at 1.6%
Top Holdings and Portfolio Composition
VOO Holdings:
- Apple Inc.: 7.5%
- Microsoft Corp.: 6.5%
- Amazon.com Inc.
- NVIDIA Corp.
- Alphabet Inc. (Google)
- Tesla Inc.
- Meta Platforms Inc.
- Berkshire Hathaway Inc.
- UnitedHealth Group Inc.
VOO includes 509 positions, with technology being the most significant sector at nearly 30%. These top 10 positions account for approximately 30% of the portfolio.
SCHD Holdings:
- Amgen Inc.: 4.5%
- Cisco Systems Inc.
- AbbVie Inc.
- Home Depot Inc.
- Broadcom Inc.
- Coca-Cola Co.
- Merck & Co. Inc.
- Chevron Corp.
- United Parcel Service Inc.
- PepsiCo Inc.
SCHD has 104 positions, with the top 10 holdings making up 41% of the total portfolio.
Dividend Analysis
SCHD Dividend Focus
The Schwab U.S. Dividend Equity ETF (SCHD) concentrates on investing in companies with a history of paying consistent dividends. The latest quarterly dividend for SCHD was $0.66 per share, leading to an annualized dividend of $2.64 per share. This equates to a forward dividend yield of approximately 3.6%. Over the past five years, SCHD has seen a substantial dividend growth rate of nearly 14% annually. Moreover, the fund has maintained this growth for 11 consecutive years, marking it as a strong choice for dividend-focused investors.
VOO Dividend Yield Comparison
The Vanguard S&P 500 ETF (VOO), while not focused exclusively on dividends, still provides a notable comparison. VOO offers a forward dividend of $6.32 per share, which translates to a more modest dividend yield of around 1.6%. The fund has also shown a stable growth rate in its dividends, with an average increase over the past five years. This highlights the differing approaches and benefits of SCHD and VOO for investors prioritizing dividend income.