I own two Schwab funds. Two thousand four hundred ninety-nine shares of SCHD. One thousand three hundred sixty-nine shares of SCHG.
Right now, one of them pays me about twenty-six hundred dollars a year. Not bad.
The other one pays me about a hundred and eighty. I’ve got some work to do.
And the one most dividend investors would tell me to dump? That’s the one I’m never selling.
If you’re in your forties or fifties and starting to think about income, that probably sounds backward. So let me show you the math that got me here. By the end, you’ll be able to run it on your own funds in about two minutes.
Where I Actually Stand
SCHD lives in my Dividend Growth bucket. SCHG lives in my Growth bucket. Both sit in taxable brokerage accounts. I know, I know, and that matters later. (If you want the backstory on how my accounts ended up this way, I wrote about it in I’m Holding the Right ETFs in the Wrong Accounts.)
Here’s the number that bugged me when I first lined these up. My SCHG position is worth more than half of what my SCHD position is worth. But it pays me about one fourteenth of the income. If yield were the whole story, SCHG would be the worst holding I own.
The same company runs both. Both are dirt cheap when it comes to fees: six hundredths of a percent for SCHD, four hundredths for SCHG. And they barely overlap. Only about one percent of the two funds, by weight, is the same stuff.
So these aren’t two versions of the same investment. I want you to think of them as two completely different jobs.
Two Funds, Two Different Jobs
SCHD holds about a hundred companies that have paid dividends for years and have the cash flow to keep doing it. Think health care, consumer staples, energy. The boring stuff you buy no matter what the economy is doing.
SCHG holds about two hundred large growth companies, and almost half of that fund is technology. Most of those companies pay little or nothing, because they’d rather keep the cash and put it back into the business.
Makes sense, right?
A Dividend Isn’t Extra Money
Here’s the part most dividend investors skip. A dividend isn’t extra money. When SCHD pays me, that cash leaves the fund, and the share price drops by about that amount on the ex-dividend date.
So I didn’t make twenty-six hundred dollars. I moved twenty-six hundred dollars from one pocket to the other.
What actually matters is total return: the price change plus the dividends, added together. Yield is one slice of that. It is not the entire story.
And here’s the flip side. When a company like the ones in SCHG keeps its profits instead of paying them out, that money doesn’t disappear. It gets reinvested in new products, new data centers, and buying back shares. That compounding happens inside the company, before a single dollar hits your account. You just never get a deposit notification for it.
SCHD compounds where you can see it: dividends. SCHG compounds where you can’t: reinvesting in company growth. Both are real.
2023 vs. 2022
Look at 2023. SCHD’s total return that year was about four and a half percent. Yeah, not that great. SCHG’s was about fifty percent that year, with the same fund company. SCHG really did crush it in 2023.
If all you watched was your dividend deposits, you’d swear SCHD had the better year, because it paid you and SCHG basically didn’t.
Now flip it. 2022. SCHG lost almost thirty-two percent. SCHD lost about three percent.
That’s the year that should scare anybody over forty-five. Hold onto it for a second, because it’s the real reason I own both, and I’m coming back to it.
I’m Paying for Both
For me, SCHG is a little over a third of these two positions combined. And my plan sends roughly forty percent of my new money to growth and about half to dividend growth. So I’m not a growth guy or a dividend guy. I’m paying for both.
And I didn’t start out this way. For a lot of those thirty years, I was an active trader, chasing whatever was moving. Buy and hold came later.
When you’re coming up on fifty, like me, with no pension and no inheritance, and your day job is running businesses that already carry plenty of risk, your portfolio stops being a place to swing for the fences. It becomes the thing that has to hold steady when everything else doesn’t. It’s the only way I can get a good night’s sleep.
The $100,000 Test
Let’s run a test. This is hypothetical. A hundred thousand dollars into each fund ten years ago, dividends reinvested, nothing else added.
Both did great. Nobody lost here, and they better not have after one of the greatest bull runs in history. But the SCHG pile ended up about sixty percent bigger than the SCHD pile. That is a major difference.
Now the question that actually matters at our age: income.
The SCHD pile, at its current yield, throws off roughly ten thousand dollars a year. The SCHG pile barely pays anything. So the dividend investor wins, right?
Except, if the SCHG owner simply pulled four percent a year out of that bigger pile, they’d be taking home about double the SCHD income. Double. From the fund that “doesn’t pay dividends.”
And yes, that means selling shares. I know selling feels like the one thing you’re never supposed to do. But remember what we just covered. When SCHD pays you, the fund’s price drops by that amount. The money is leaving the fund either way. The only question is whether it leaves on the fund’s schedule or on yours.
That’s the math dividend investors ignore. You don’t really spend yield. You spend total return. The dividend is just the part that shows up without you clicking sell.
The Honest Caveats
Now, I’m not going to pretend that’s the whole story. Those ten years were one of the best stretches big tech has ever had. Right now, SCHG’s top ten holdings make up about half the fund, and one company, NVIDIA, is around a tenth of it by itself. Pick a different ten years, and that gap shrinks. It could even flip.
And SCHD isn’t perfect either. Its dividend growth has slowed down a lot over the last year compared to what it did for the previous decade. (I dug into that in my post on SCHD hitting an all-time high.)
There’s one more thing almost nobody brings up. Both of my funds sit in taxable accounts. Every SCHD dividend gets taxed the year it lands, whether I spend it or reinvest it. SCHG’s growth mostly just sits there, untaxed, until I sell. And I’m not planning to sell. So the fund that pays me less also costs me less every April, or maybe in the summer, because I usually file a tax extension.
Why I Still Own Almost 2,500 Shares of SCHD
So why do I still own almost twenty-five hundred shares of SCHD?
Go back to 2022. Picture being fifty-eight. You need money that year, and the only thing you own is SCHG. You’re selling shares that are down thirty-two percent just to pay your bills. And those shares are gone. They don’t get to ride the fifty percent year that came next.
That’s called sequence-of-returns risk. It’s not about what your investments earn on average. It’s about when the bad years hit, compared to when you need the money.
SCHD is how I avoid being that guy. Dividends aren’t guaranteed, but the checks keep landing in up years and down years, so I don’t have to sell anything in a bad one. Not that I really need any of the money now anyway, but I am preparing for the future.
SCHG’s job is to grow. SCHD’s job is to make sure I never have to sell SCHG at the wrong time. That’s why I’m never selling SCHG, and it’s why I keep feeding both. (If you’re curious how that 2,499-share position stacks up against smaller ones, I broke it into five levels of SCHD.)
How to Run This on Your Own Funds
But that only works if your income bucket is big enough to get you through the bad year. And that number is different for everybody. So here’s how to find yours.
Pull up your statement. Step one: for every fund you own, write down its total return, not its yield. The fund company lists it right on their website.
Step two: ask yourself one question. If the market dropped thirty percent tomorrow, how much would I need to pull out this year without selling anything? That number is the job of your income bucket. Everything past that is the job of your growth bucket.
Step three: check what you actually own inside those funds. If you’ve got three growth funds and they all hold the same ten tech giants, that’s not three buckets. That’s one bucket, three times. SCHD and SCHG barely overlap, and that’s on purpose.
If you’re over forty-five and all you own is growth, you’re betting you won’t need money in a bad year. If all you own is dividends, you’re probably leaving a lot of total return on the table.
I’m choosing to own both jobs. You choose what works best for you based on your investing DNA as of today.
And if you want to see what SCHD actually did over ten years, including the part that surprised me, I wrote that up in SCHD for 10 Years: The Numbers Aren’t What You Think. For a look at the same two funds from the other end of life, when you’re 25 instead of 45, read SCHG vs. SCHD: Which ETF Should a 25-Year-Old Buy?
Watch the full video above, or on YouTube: https://youtu.be/YiOEyq5ef6M
