Simple Fund Comparison – SCHD VS VIG

   

simple money man SCHD vs VIG

Lately I’ve become more and more interested in low cost ETFs while less and less interested in stocks and mutual funds. ETFs provide one-click diversification, super-low fees while still paying investors dividends. I don’t think I’ve come across any literature that mentions great disadvantages or risks concerning low cost ETFs. As a matter of fact, John C. Bogle’s The Little Book of Common Sense Investing goes into great detail, yet in simple manner of the advantages of ETFs and index investing over stocks and high priced mutual funds. With that, two of the leading low cost ETF and index fund providers are Charles Schwab and Vanguard.

 

Many personal financial websites and bloggers I have read recommend or have funds with one or the other….or from both of these companies. So if you’re like me, you may be tossed up between the two and don’t know which one to go with. Apart from the low cost, there are other factors to look at when investing in a fund right? This includes the funds history, performance, dividends, and underlying holdings. Well that’s where this comes post comes into play. I was researching the funds anyway, so I thought I may as well document my research and post the results. For this exercise, I’ve narrowed it down to two funds: Schwab U.S. Dividend Equity ETF™ – SCHD AND the Vanguard Dividend Appreciation ETF – VIG. As always, I’m not an expert at picking stocks or funds so please don’t blame me if you select one of these funds based on my short-hand analysis and a year later it has dropped by 20%. I’ll at least try to not blame myself either 🙂

 

Fund Objective

 

SCHD – this fund’s inception date is 10/20/11. The investment seeks to track as closely as possible, before fees and expenses, the total return of the Dow Jones U.S. Dividend 100™ Index.

 

VIG – this fund’s inception date is 04/21/06. The fund employs an indexing investment approach designed to track the performance of the NASDAQ US Dividend Achievers Select Index, which consists of common stocks of companies that have a record of increasing dividends over time.

 

 

Funds Data – Table View @ August 14 2017

 

This time around, I decided to capture key information in a table because it’s easier to read and compare side by side. For these metrics, I selected some basic ones, and I found that the ETF database has useful information in terms of what metrics to look for ETF buying decisions.

 

Metric SCHD VIG
Index Components 100 180
Price $46.01 $93.56
Dividend Yield 2.84% 2.05%
Expense Ratio 0.07% 0.08%
Net Assets 5.71B 30.82B
Trade Volume/Liquidity 280,181 374,609
Performance 5-Year 13.25% 12.49%
Standard Deviation 5yr

Category Average

9.11

10.81

9.29

11.38

 

The actual figures themselves were obtained from Yahoo Finance.

 

 

Chart Time – SCHD VS VIG

 

 

5 – year period: as you can see below per Google Finance, both funds are performing at a very similar level. This is one close marathon.

 

schd vs vig

 

 

 

In other data, over the past year, VIG has performed a bit better with a return of 13.77% as compared with SCHD with 12.07%. However for the past three years the return is almost the same with VIG at 8.29% and SCHD at 8.75%:

 

 

vig simple money man

 

 

 

My Two Cents

 

In a nutshell, both of these funds are great investments for the long-term. Both of them are established, have low expense ratios, well diversified, and similar underlying assets. In terms of performance, they are both very similar at 8-9% in a 3-year period and 12-13% at a 5-year period. The argument can be made that SCHD is in a better position for growth. It has over 20% of its assets in the technology sector. The top 10 holdings include three tech companies: Microsoft, Intel, and Verizon. This compared to VIG whose technology weighting is at almost 11%.

 

Conversely, VIG has per Seeking Alpha almost 30% of its holdings in consumer goods such as Johnson & Johnson (JNJ) and 3M (MMM). Seeking Alpha believes and I agree that as the economy continues to improve so will the propensity of consumers continuing to spend on basic goods within this sector and thus continue to improve the dividend paying ability of the underlying holdings of VIG. Also SCHD has about 109 holdings in the portfolio, while VIG has 188. Kiplinger argues that in order to do better with returns, you may be at an advantage of having a slimmer portfolio: “if you want to beat the market, you’ll need to accept some risk, and the smartest way to do that is by slimming down your portfolio”. This may be evidenced by SCHD, where in the chart above, it has performed just slightly better than VIG – by about 5 percentage points. The article goes on to mention smaller funds – ones holding less than 25 stocks which have “beaten the S&P 500 handily over the past ten years.”

 

You can split a purchase half and half, or 60/40 between these two funds if you’re still not sure. And this is the option I may consider as well as it super diversifies my portfolio.  If you’re worried about commissions, try Robinhood. You can trade for free on you smart phone with their app. I’ve had an account with them for months and have not had any issues whatsoever. Reinvestment is not a problem either because that’s free as well. You just have to manually reinvest your dividends as there isn’t an automatic program within the free version of Robin Hood.

 

Finally, after viewing it myself, I felt compelled to share this short video clip from John C. Bogle, whose book I mentioned earlier. Here, he says to simply buy and hold broad based ETFs and this is the right way to use them:

 

 

 

Do you all have any thoughts on these ETFs (pros and/or cons and/or risks)? Is there anything I missed that may be of value in assessing these?

 

 

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I use Personal Capital because (1) it’s free, (2) it tracks all of my accounts and overall net worth, (3) my account balances automatically update, (4) it shows how my investments are diversified and allocated in various sectors, and (5) can use built-in tools like “Investment Checkup” to get….wait for it…free personalized advice!

 

 

 

 

 

Simple Money Man (SMM)

4 Comments

  1. Nice post! I agree that low cost, dividend paying ETF’s are a great way to invest. While I haven’t pulled the trigger and invested in one yet, you gave me two really good ETFs to start my research with. I really like the fact that they both pay dividends with the possibility for future growth. Thanks for sharing and providing me a starting point for some additional ETF research.

    • Glad to help!I’m currently listening to the Little Book on Common Sense Investing which also supports index funds and ETFs bigtime. There are so many to choose from that it’s kind of hard to go wrong unless you’re looking for a specific industry or sector 🙂

  2. It is interesting that the two funds have performed so closely but yet, have such different holdings. Having a large weight in tech versus consumer goods makes a huge difference in the overall make-up of the funds. With that being said, both appear to be great low cost options for individuals that are looking to focus on diversified holdings versus individual stocks. Great analysis! What’s also nuts is that there are so many others to chose from as well.

    Take care,
    Bert

    • Thanks! Yes the possibilities of ETFs and Index Funds seems to be endless. Both of these pay a good dividend and at the same time it doesn’t hurt to allocate your purchase – unless you’re working with a broker that charges a lot of commission 🙂

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