SCHD Is A Suckers ETF, Buy These Instead

Many dividend investors flock to the Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD | SCHD Price Prediction) for its high yield and low expense ratio. The ETF lives up to those promises with a 3.83% SEC yield and a 0.06% expense ratio.

However, a high yield doesn’t guarantee captivating returns, especially if you compare SCHD to market indices. The fund has only produced an annualized 5.6% return over the past three years, which barely outpaces some corporate bonds. Retirees may want SCHD for its relatively low volatility, but it’s not the best ETF for maximizing their returns. These ETFs are more suitable for people who want high long-term returns.

Invesco QQQ Trust (QQQ)

It’s hard to go wrong with a tech ETF that debuted in 1999 and continues to be a fan favorite. The Invesco QQQ Trust (NASDAQ:QQQ) follows the Nasdaq 100 and has delivered an annualized 29.5% return over the past three years. It also has maintained an average return of 19.3% each year for the past decade. 

The fund places a heavy emphasis on big tech stocks, especially the Magnificent Seven. Tech makes up more than half of the entire ETF, and more than half of its assets are allocated toward its top 10 holdings. 

Almost all of QQQ’s holdings are in large-cap stocks, which results in less volatility. Only 11% of its portfolio is allocated toward mid-cap stocks, and not a single dollar is invested in small-cap stocks. QQQ only has a 0.44% SEC yield, and its 0.20% expense ratio is higher than SCHD’s. However, the Invesco QQQ Trust has historically done a better job of multiplying investors’ money than SCHD.

VanEck Semiconductor ETF (SMH)

The VanEck Semiconductor ETF (NASDAQ:SMH) has a 0.28% SEC yield and a 0.35% expense ratio. While SCHD investors may not like those numbers, they have been left in the dust by this popular tech ETF. 

SMH gives investors exposure to semiconductor stocks that are benefiting from the AI boom. Nvidia (NASDAQ:NVDA) is the largest position and makes up 17% of SMH’s total assets. The fund only has 25 stocks, with the top 10 holdings making up 75% of the portfolio.

It’s not as diversified as other ETFs, but investors aren’t complaining about its 30.4% annualized return over the past decade. SMH also has an annualized 48.9% return over the past three years, comfortably outpacing SCHD. 

Artificial intelligence is still in the early innings. The soaring demand for AI chips can extend SMH’s rally and allow it to beat popular indices, not just SCHD.

Vanguard High Dividend Yield Index Fund ETF (VYM)

If you still want dividends, the Vanguard High Dividend Yield Index Fund ETF (NYSEARCA:VYM) is the fund for you. It has a 2.39% SEC yield and a 0.06% expense ratio. Sure, SCHD has a higher yield, but if you want your money to grow faster, VYM is the better choice. It has an annualized 12.0% return over the past three years and an annualized 11.2% return over the past decade.

VYM is well-diversified with more than 550 stocks, and the financial sector is the only one that makes up more than 20% of the ETF’s total assets. The dividend fund’s top 10 holdings only make up 28% of its total assets. Most of the fund’s capital is in large-cap and value stocks, which makes it less volatile than most stocks and funds. 

You get a lower yield than SCHD but a higher overall return. If you aren’t living off SCHD dividends right now, VYM is the better choice.