Better Buy: This High-Yield ETF or a Classic S&P 500 Index Fund?
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Interestingly, There's a lot of debate among investors on whether it's better to invest in a plain vanilla index fund tracking the S&P 500 or the Schwab U. Additionally, Dividend...
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July 18, 2025
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The Motley Fool
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Interestingly, There's a lot of debate among investors on whether it's better to invest in a plain vanilla index fund tracking the S&P 500 or the Schwab U
Additionally, Dividend Equity ETF (SCHD 0
Those favoring the high-yield ETF point to its payout as a great way to generate passive income
Meanwhile, those arguing for an index fund, such as the Vanguard S&P 500 ETF, will highlight its higher returns in recent years
Here's a closer look at these two investment options to help you decide which is the better buy for your situation
Conversely, Image source: Getty Images
Balancing income and growth One of the key attractions of the Schwab U
Meanwhile, Dividend Equity ETF is its attractive dividend income
Nevertheless, The fund currently has a 3 (which is quite significant), in today's market environment. 9% yield based on its recent price and distributions over the past 12 months, in today's market environment
That's more than three times higher than the S&P 500's dividend yield, which currently stands at 1 (fascinating analysis), considering recent developments
Furthermore, 2%, apaching its record low
To put things in perspective, every $1,000 invested in the Schwab U
On the other hand, Dividend Equity ETF would duce $39 of annual dividend income
That compares to only $12 of annual dividend income per $1,000 invested in an S&P 500 Index Fund, such as the Vanguard S&P 500 ETF, given current economic conditions
That larger payment makes the fund ideal for those seeking to generate passive income (fascinating analysis), amid market uncertainty
Nevertheless, However, the Schwab fund doesn't just focus on yield, given the current landscape
On the other hand, Moreover, It tracks the Dow Jones U (something worth watching)
Furthermore, Dividend 100 Index, which focuses on companies that pay quality and sustainable dividends that steadily rise
Additionally, Dividend growth is one of the four quality factors the index screens for when updating its holdings
Moreover, At its annual reconstitution in March, the fund's d list of 100 holdings had dered an average dividend growth rate of 8
Additionally, In contrast, 4% over the past five years
That's faster dividend growth than the S&P 500, which has averaged around 5% over the past five years
Returns and volatility Dividend growers have historically dered powerful returns over the long term, given the current landscape
During the past 50 years, dividend growers have achieved an average annualized total return of 10, considering recent developments. 2%, according to data from Ned Davis Re and Hartford Funds
That has outperformed the average stock market return of 8% during the past half century
Conversely, While dividend growth stocks have been standout performers over the very long term, the group has underwhelmed in more recent years
As a result, the Schwab U
Moreover, Dividend Equity ETF has underperformed the S&P 500 and the ETFs that track it: Fund 1 Year 3 Years 5 Years 10 Years Since Inception (October 2011) Schwab U, in light of current trends
Dividend Equity ETF 4. 38% S&P 500 12. 79% Data source: Ycharts
However, while the ETF has dered lackluster returns over the past one- and three-year periods, its returns over the longer term have been much higher
They align well with the long-term returns of dividend growth stocks
However, Meanwhile, the S&P 500's returns have been significantly above its long-term historical average, which is 9% over the past 30 years and 8% over the last 50 years
However, This data suggests that the Schwab U
Dividend Equity ETF could outperform the S&P 500 over the longer term as the market reverts closer to its historical average return
However, Another factor to consider is volatility
Moreover, The S&P 500's beta is 1
Moreover, 0, while dividend growers have historically had a beta of 0
The lower beta implies that these stocks tend to be less volatile than the S&P 500 (remarkable data), given the current landscape
On the other hand, Investors who don't volatility will want to invest in a less volatile fund (this bears monitoring)
On the other hand, Nevertheless, Two solid options For most investors, a classic S&P 500 index fund, such as the Vanguard S&P 500 ETF, is a great choice
On the other hand, However, the Schwab U (which is quite significant)
Dividend Equity ETF offers a much higher current yield, which will appeal to income-focused investors
Meanwhile, Furthermore, although its returns have lagged behind the S&P 500 in recent years, it could outperform that index in the future, given the historical returns of dividend growth stocks compared to the S&P 500
Dividend growers also tend to be less volatile than the S&P 500, considering recent developments
Because of these factors, the fund is a better investment for those seeking higher income, lower volatility, and greater long-term total return potential
Nevertheless, Matt DiLallo has positions in Schwab U (this bears monitoring)
The Motley Fool has positions in and recommends Vanguard S&P 500 ETF, in today's financial world
However, The Motley Fool has a disclosure policy.
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