Thanks for watching! I appreciate the feedback and the consistent support! I hope to keep adding value to investors for many years to come. I have a ton to learn myself as well, so this has been a great time.
Much appreciated! I'm not quite as entertaining as the short form stuff these days, but hopefully the viewers can learn a little more here compared to that content (:
I've been gravitating to the longer form content. I can watch while I work, and the content is much more applicable and actually valuable. The short stuff just pops in but then it's gone and rarely teaches me much.
I started my 401k when I turned 21 and that's been going for a little over 20 years now with Empower Retirement. Recently I started a separate Schwab portfolio. My main 3 ETF's are currently SCHD/DGRW/SPYI. I had started a small position in O but after your explanation of the tax implications on non-qualified and qualified dividends I believe I'm now going to roll that into SCHD as well. Thanks for the video.
Thanks for the comment Leonard. Very nice mix you have going. O is solid in a tax advantaged account, but I much prefer SCHD in a taxable brokerage. Truth is, I prefer it in all types of accounts, but I understand there are different strokes for different folks.
Great video Jeff! I'm a big SCHD and VGT guy. It has worked very well for me. I still have 6 years or so until retirement and I sleep well at night. Thanks for all your videos!
Thank you so much for this, it shows everyone is different and can adjust according to their own portfolio and what that scenario does. But more importantly, it shows how one can retire with the right gameplan with the desired future dividends. I'm sure this can come in handy for retirees and even more for young folks feeling anxious about their retirement even though it could be decades away but need an idea how to build their portfolio now. Best breakdown I've come across so far. Keep em coming!!
Thank you for watching and for dropping the positive feedback. I appreciate it. My goal is to help as many as possible to financial freedom. I'll be here for years to come!
Thanks for the kind words Brandon. Ari is the man, I'm glad he took the time to interview me. I'm here to let people know that *anyone* can do this stuff. Full stop.
It is a huge one. So many retired people (or working people for that matter) will pay 0% on qualified dividends for life. The cap of *taxable* income is higher than people realize. The special tax table is a life hack in investing (:
That's right. But SCHD (and other qualified dividend payers) are just fine in a Roth or traditional IRA as well. But you can't make the gains 0% that way. When you take them out, they will be 12% or higher (based on your tax brackets) for 99% of people. The 0% for qualified dividends lines up with the 12% tax bracket for 'ordinary' income. They both move to the next level up (15% for qualified, 22% for ordinary) once you hit 94k of taxable income + qualified dividends. Basically, you will win 100% of the time with qualified dividends. Sometimes it's 0%, sometimes 15%, but it's lower than the federal tax tables per dollar earned at any level.
Thank you for once again showing how it all works long term. I bought a lot of O in my Roth IRA just because it was cheaper. I have a long way to go to retirement, so I probably will hold on to it for now, but just keep buying SCHD (along with a growth and foundational ETF) for the foreseeable future.
Same here, I bought O in my Roth because now its price (not much though just 150 shares and gear up to 200 and that’s it) Since Roth has a limited contribution, so I think it’s a good idea to have cash come in monthly and reinvest.
Thank you for watching and for the comment. O is a very nice holding in a Roth IRA. Those unfavorable taxes will never hurt you there, and it will keep on paying and growing dividends (at least with inflation most likely) over the next many decades.
Very nice! I love buying it low in a Roth. Best way to invest in something like O (or anything with non-qualified dividends). You're right, that thing will keep cash flowing for many years to come!
Thanks for watching and for the feedback. I'm glad it provided some timely information. I will say REITs, and O, are not 'bad' at all (like I tried to portray in the video). The yield can be a little deceiving and juicy to want to chase. But the dividend growth and long-term outlook aren't *great* beyond the portfolio stabilization (for incoming crashes of stocks). When the crash comes, that's when we should buy more... stocks (or ETFs). So while not bad, not for me in 20+ years from now (:
I have O, MAIN, and VICI. Combined they are 5% of my portfolio. To me they are another diversification. I like what you said about making enough to live on for now and building.
Hey Craig and Mandy. I think most people have some real estate exposure in their portfolio. Definitely not a bad thing. They aren't for me, but this is with my, maybe a bit extreme, *looooong-term* mindset. REITs are great for market fluctuations and stable income. No doubt about it. Most smart people suggest having some exposure.
I just sold O lololol. I’m bullish on SCHD, JEPI,JEPQ & VOO just to name a few… Funny, my SS forecast also gave me the same numbers. I thought the same thing-take it @62 & invest that money. Thanks for the info on the tax info on dividends! I was sticking with these dividend ETFs in a Roth, but this new info changes things!
Thank you for watching & for dropping a comment. It sounds like you have a great battleplan for the future. It's all about building a solid system and staying the course for many decades.
Interesting thoughts. Not retired yet, and since I still have W-2 income, I won’t take Social Security at 62. The clawback will really hurt you if you take Social Security while having employment income. I have a total portfolio yield of ~3%, so I lean more to your side of the dividend growth portfolio rather than high yield.
Thanks for sharing that Michael. You bring up a great point about taking social security early. I should have specified the scenario was for someone retiring early and relying on the social security to bridge the gap to get by (without W-2 income). You're right in that it goes both ways, and there is no one size fits all solution for it.
This made me rethink my portfolio for sure, since I have about 20% in REITs currently. I'm getting ready to retire early and trying to map out the best portfolio to live on dividends. The O and SCHD walkthrough at the end made me think about MO. It currently offers about 9.5% APY and is a Dividend King. With that high APY compared to O's 5.8%ish, you could get a 4.5% rate by holding 20% MO & 80% SCHD... compared to 50/50 SCHD/O
Hey Jonathan. That is a great thought experiment. I think it's important to stay open-minded and always consider multiple points of view. I know I will very likely continue to make tweaks to my portfolio over the years based on what I learn. One thing about MO, and I'm not trying to say you shouldn't do it, but it is something to consider, is that its total returns sits at 99.73% over the past 10 years (dividends included, assumed reinvested). SCHD is at 196.7%. VOO at 243%, and QQQ is at 469%, just for some context (other dividend, cornerstone, and growth ETFs). Total returns matter, as well as yield on cost. Stuff you buy (and hold) today will be drastically different in 10 years (regardless of the 'current yield' in ten years). Total return matters more than most retirees like to think. Don't get me wrong, yield and dividend info is king at that point for sure, but the growth and balance still matters. Also, MO is a single company without the built in diversity methodology of the passively managed ETFs. Companies come and go all the time, and SCHD will automatically adapt as MO could fall completely. I would do JEPQ, O, and VNQ before MO personally (not that you asked me, lol).
This was an outstanding video. Probably the most clearly explained benefit of qualified dividends that I've seen on UA-cam. Wondering what your opinion is on investing in an MLP. Would love for you to do a video on that topic. I am 5 years from retirement. Considering investing in EPD or MPLX . Both are very popular Master Limited Partnerships & issue a K-1. Would love your thoughts on these types of investments. I currently stay away from Reits and BDCs..
Hey Logan. I appreciate the kind words about the video. Thanks for taking the time to watch it and for leaving this comment. I personally am not a fan at all of MLPs. I think the tax advantages and steady growth are peanuts compared to qualified dividends (mostly tax free in retirement, or low tax at worst) from things like SCHD that grow *way* faster and appreciate by multiples higher (over time in all markets) by comparison. I don't mean to sound negative here, but favorable taxes (which are technically the same as qualified dividends in most cases for retired people depending on marginal tax rate) will never make up for being only a quarter of the total return to other safe ETFs like DGRO and SCHD over the past decade+. Just my two cents on it. I approach every investment from a hold forever point of view. There will be a lot of opinions out there about MLPs.
Great video . The issue i have with all of this analysis is that it relies on historical data. Counting on 10% growth is unsustainable long term and all these models go out the window if we end up with returns closer to 3-4% which is not unreasonable. With the S&P trading at 21x earnings, it would seem like a decade of low returns is more likely.
Thank you for watching and taking the time to drop a comment. I appreciate the feedback. Past is tough to gauge, which is why I always zoom out as far as possible. I will say that many predicted the same for the last decade because of similar reasons. There will be reversion to the mean, there is no doubt. We just don't know when and how. I would take 100 years over any short-term predictions.
My wife and I are about 4-5 years away from retirement(age 61 and 59), have saved in retirement accts early on and will 🤞hopefully have around 3 - 3.5 million at retirement. I love the dividends approach (SCHD), with some growth sprinkled in (VOO, QQQM), thinking of 1/2-2/3 in SCHD at retirement giving good amount of dividends 🙏🏻 to receive consistently to sleep well at night and weather out those corrections
I love the methodology of SCHD for long-term dividend investors. It will never WOW us, and sometimes it trails the market and other tech oriented dividend ETFs on returns. But the 100 quality companies will produce stable results for years to come.
Hey Carlos. You are in a great spot! It is never too late to get this thing rolling. Great job sharpening your skills now and keep it going man. We've all made dumb mistakes, and we can all learn together as we go!
Hey Billy, thank you for watching! Both amazing holdings. O really is great, and there is a good reason so many people load up on it. The diversification is nice for a portfolio depending on the ultimate goals. It's not for me, but that doesn't mean it isn't for the masses.
Jeff. You are fast becoming one of my favorite online investment content creators. Keep it up. I love schd. Do you think it's pointless having both schd and dgro in a portfolio?
Hey Stephen. Thank you for the feedback & great question. I don't think it is pointless to hold both within your 'dividend ETF' section in a portfolio. It will depend on your other ETFs of course. For example, 100% SCHD would get me zero exposure to Apple, Microsoft, and Broadcom. DGRO would help get tech based companies like that added. *However* I hold VGT which is loaded with holdings like that. It is 100% tech. For me, I like how SCHD counterbalances VGT so I'm not too heavy in tech. Short answer: It's not bad, but it depends (:
Hey Bruce, thank you for dropping a comment! Also, I appreciate you being a member. It is situational, as others have explained (with great points). Most people that want to retire early (62 or younger) will find better math by taking it early. This is not a one size fits all solution, to be clear, but let's say someone has $1,000,000 and puts it in SCHD and retires early. That's only going to produce ~30,000 to 38,000 per year. Instead of waiting to take social security until 67 years old, you could live on the dividends and sell a few shares for the rest. *OR* You can take social security early, supplement the qualified dividends, AND (most likely) invest some of the money to own more shares of SCHD. But the kicker, and the real advantage, especially with people living longer and longer, is that you will have lower taxable income from 67 years old to 90+ (remember, qualified dividends are separate from your federal taxes, so only SS will count). As your snowball produces more qualified dividends each year, you'll get to use the 0% tax rate on a bigger chunk (because your taxable income is lower forever). Additionally, you will have more wiggle room to convert any traditional IRA funds to a Roth IRA each year. This process will increase your taxable income. There is no right or wrong answer for everyone, but a lot of people think surviving until 67 (depleting assets to get there) is the way to go because you are set up for the future. The math strongly disagrees in 'most' cases. Compound is a crazy thing. However, if you work into 60's, it 'can' be better to wait as others have stated. Get the chunk conversions done more quickly in the first few years of retirement. Worrying about RMDs, though, is a bit counter-intuitive in that case.
Good stuff! I think many retirees may have a lot in 401k or IRA at 62 which may change the SOC strategy. Every withdrawal from 401k will be taxable income qualified dividend or not. Many delay SOC to do Roth conversions which then become untaxed for life. Another problem can be RMDs, but depending on how much in 401k. Another consideration is that SOC provides another stream of income that is not stock market based having it higher may provide some diversification safety. I’m personally planning take SOC at 67-70.
Hey Phil. Thanks for the detailed feedback. It sounds like you have a detailed plan for your financial future. I bet you would be surprised if you paralleled the scenarios for your long-term tax outlook. Your points are correct, btw, not arguing with any of that. But we are living longer and longer. The numbers get wild (conversions and withdraws included) the longer we extrapolate them out. Remember, SS is taxed as ordinary income forever. I do love how you bring up conversions and RMDs though! Planning is important. I would have to see your specific information to build a parallel model (obviously not asking for that) to compare the scenarios.
@@JeffTeeples Totally agree could become real complex discussion. If I could tell my younger self one thing it would have been to put more it Roth vs 401k sooner in life. And I did covert a little ReIT to buy more SCHD today in my taxable. Thanks for the content!
Another consideration is getting your larger Roth conversions completed before turning 63 years old. The IRMAA taxes begin at 65, but have a 2 year lookback. I've been converting from a rollover IRA to Roth in small amounts ($10k to 20K) for many years. Now, I have a larger Roth paying dividends to help avoid the IRMAA taxes and taxes on SS.
@@JeffTeeples I do think tax strategy needs to be front and center in the retirement plan and should guide one in how they invest up to retirement. One of many possible traps in retirement is the RMDs. Taking the mandatory amounts each year along with social security income can easily bump you up into the next tax bracket requiring you to pay more of the income that you diligently planned for and worked to gain to Uncle Sam. Healthcare/Medicare tax is another minefield to be aware of. I like the philosophy of having as much control of how much to pull from accounts in retirement as possible. The Roth is key to this as well as the wonderful triple tax advantaged HSA. Done right, it's a powerful vehicle for wealth building and controlling income up to, and into retirement. Just as important as building the wealth is keeping it in retirement. Filling up the 4 buckets correctly is key. Great video as always, sir.
Great video, Jeff. Thinking about putting a lump sum IRA rollover into JEPQ or SCHD for about a year and allowing dividends to reinvest until drawing dividends for income at 59 1/2. Would it make sense to put initially into JEPQ then move into SCHD after a year to maximize returns and growth? Also understanding there are tax considerations for qualified vs. non-qualified dividends. Your videos speak to me and I have learned a ton...thank you!
Hey Auria! Thanks for the question. Also, thanks for being a member, I see the bling next to your name (: I appreciate it. A good thing about a rollover IRA is that the types of dividends will not matter. JEPQ pays non-qualified and SCHD pays qualified dividends, but neither one is taxed in an IRA when it is paid. It will only be taxed when you pull the money out of the IRA. JEPQ will not 'hurt you' in this type of account. I would still recommend a mix of the two holdings. SCHD really will 'grow' the dividends per share over time. JEPQ will give a nice juicy dividend yield now that can be reinvested in more JEPQ or SCHD. The combination is great. The price appreciate should be solid for both, as well, long-term. If it is in a taxable brokerage account the dividends *will* matter when paid. In that case, I would focus heavily on SCHD between to the two. That is when the qualified dividends mean everything (and will likely be taxed at 0% in retirement).
Jeff.. This was excellent! The information regarding how qualified dividends are treated in the tax code.. specifically, the fact that these dividends have their own tax table was illuminating. Thanks..
Thank you for the kind words Paul. I appreciate it. I'm not sure what is wrong with me, but for some reason I found taxes to be the most interesting part of my education. I'm not perfectly up to date with every change anymore, but understanding the basic tax treatments will go a long way in investing.
Thank you for the comment. I understand people wanting to mix them in as well. But I think we will be just fine (in fact, likely better off) without them with a long-term mindset.
Thank you for the comment. I will keep an eye on CGDV. It is relatively new, and I usually like at least 3 years of history before I dive in. A rare exception had been JEPQ because I like the strategy and index for that one a lot.
Hi Jeff, I read that the projection for Schd is 6 % from EPS and 4% by dividen and 6 % CAGR going forward and growth has slowed down with the reconstitution. What are your thoughts on this projection by factsheet?
I have been reading about similar figures. I think 4% yield and 6% price for a total of 10% total return is amazing for my floor stabilizer. Add 6% dividend growth and I will be a happily retired person that is smashing inflation and leaving my kids a nice goodbye gift (:
Looks like it will take 12 years for SCHDs dividend to equalize JEPQ and then surpass it. I guess in theory if you went only with JEPQ you could shuttle some of the excess dividends and invest that in something else over the 12 years to give you more gains.
That is a great point. JEPQ can produce enough dividends to reinvest the difference. This helps the 'growth' quite a bit over time. Still not as impactful as dividend growth compounding, but a difference maker for sure.
For some context - I'm working on building my "Hold Forever" portfolio. Right now it's 90% SCHD, 5% MAIN and 5% O. I'm considering adding in 5% ARCC and 5% VICI and lowering SCHD to 80%. I have a separate growth portfolio and I DCA into both weekly. My plan is to sell the majority of the growth holdings in about 12-15 years and put it all into the hold forever portfolio that will yield around 4%. So my theory is that I can essentially do the 4% rule without ever selling the principle and increase purchasing power each year.
Hey Jake, I love that approach. That is going to be a cash flowing machine in retirement. I'll be honest, I don't know MAIN and ARCC well enough to have a strong opinion. I do follow them casually like many other stocks and ETFs, but they have never been on my *watchlist* that I educate myself on. I've been following O and VNQ closer for longer. They both have been performing extremely well, and they pay consistent dividends as well. Seems to have the 'just beats inflation problem' compared to the best dividend growth ETFs, however, the high yield makes them nice to mix in with the growers to get to your 4% yield target.
Thanks for the questions. This stuff can be difficult to understand. The easiest way to look at it is in two steps. You have your regular income (from your job, social security, pension pay). This is 'ordinary income' that is added up to calculate your 'taxable income'. To be taxed at your federal tax tables rates. These brackets are 10%, 12%, 22%, 24%, 32%, 35% and 37%. These are the taxes we all file every year that EVERYONE pays and complains about at the work place. Non-qualified dividends and short term capital gains add to this (are treated no differently than your ordinary income from your job). So if you are at the very top of the 24% tax bracket with your work income, and you receive $20,000 of non-qualified dividends, they will be taxed at 24% until you hit the next bracket, then you will jump to 32% taxes. It's as if you work paid you 20k more throughout the year. Qualified dividends (and long-term capital gains) will NOT be taxed at 24% and 32%. They will be taxed at 15% in this situation. They also will not push any more of your income into a new tax bracket (aka the 20k of qualified dividends are not added to your regular income). But the starting point for the qualified dividends is where you ordinary income ended. For example, if you had 80k of taxable income, and you receive 20k of qualified dividends, then 14k will be taxed at 0%, and once you're over 94k (ordinary income + qualified dividends) it pushes you up in the special tax table to 15% for the last 6k of dividends. But even if you had 256k of qualified dividends, it is all taxed at 15% (after the 14k at 0%), and your 80k is taxed the exact same as if you had 0 dollar of qualified dividends. It is still in the 12% tax bracket as if the qualified dividends didn't exist (because they don't according to the federal tax table taxes). Your marginal tax rate is 12% in both scenarios.
@@JeffTeeples Thanks for the explanation Jeff. BTW, I took an early retirement at the end of ‘21 so I no longer have w2 income (and no longer have to listen to co-workers complain about tax brackets and state income taxes because I moved to one of the states that have no state income tax). I just finished my 1040 and all my 1099-DIV’s were uploaded into TurboTax-so no manual entry. It’s just when I looked at line 3b and line 7 in my 1040, it seems like the program does include them in the taxable income calculation, which in turn is the catalyst for my head scratching. But then again, I’m not at a point yet where qualified dividends in my brokerage account are a significant portion of my income. It certainly seems like you’re further along in this area than I and have more experience seeing how qualified dividends are treated on your return as they’ve grown. Since I began preparing my tax return last year, the tax tables for qualified dividends and LTCG’s is something I picked up on so it’s definitely something I want to take more advantage of.
Thanks Jeff! All dividend stock CAGRs will eventually reach a point of no or little growth - it's basic math - a company cannot continue to grow dividends (at least reasonable livable ones) indefinitely - so projecting beyond perhaps ten years is not reliable. Also, folks in retirement alter their spend patterns with high spend early, then less over time until they reach the last few years of their lives where healthcare costs take a big chunk - the proverbial retirement spending "Smile". Like your approach but wanted to share some other perspectives for followers to consider... SUB'd due to your clear and concise explanations...
What if they grow dividends in proportion to the price appreciation? Couldn't that theoretically keep going? I'm not a math person so I may have the completely wrong idea
Hey John, I appreciate your feedback. I think different perspectives are great to consider. The basic math assumption is incorrect, technically, but no need to split hairs (: But you're right in that it is difficult for a specific company to continue growing for many years. It will usually be different companies that come and go from the ETFs. This is why we see 20 or so companies each year join and leave the S&P 500. However, earnings growing by 10% per year isn't crazy (as a whole). This is what ultimately trickles down to reinvestment for growth and/or paying dividends.
An example of Jeff's description is SCHD dumping a number of stocks at the recent reconstitution. The stocks increased in value to the point that their dividend no longer fit the algorithm.
Thank you Brianna! I appreciate the amazing support you have provided. I plan to make a ticker (on the bottom of my video) to show thanks for members and donations.
Hi Jeff. I read a CFA textbook for the alternative investments by Wiley written in 2019 that states that REITs outperform the market over the long term. I guess times change.
Hey Richard. Thanks for watching and commenting. That is objectively not true. However, there have been many periods of time (even fairly long stretches) in the past where REITs have outperformed the stock market.
I'm interested in building a dividend income stream, but as a non-US citizen, I'm aware of the 30% withholding tax on dividends. I've been looking at SCHD, which offers both dividend payouts and potential for capital appreciation in the long run. i feel capital growth could potentially offset the withholding tax impact. Any advice or insights?
Thank you for watching and for the question. I will be the first to admit I do not have a detailed understanding of investing outside of the US. But I do think focusing on growth a little more is a good idea because of the extra withholding tax on dividends. Especially if you have a long time horizon of investing, and can continue to dollar cost average into your holdings in all markets. The key for any investor is to make a great system and stay the course. Never panic sell when everything is dropping. That is a surefire way to lose wealth.
Hi Jeff, I love your channel. I plan to keep investing in VGT and SMH. And as I get closer to retirement, move a part of it to $SCHD to get us that dividend income. I ran the numbers from 2013-2022 from an earlier video of yours and that fetched 40% more dividend in 2023. Please let me know your comments. I love VGT and SMH and they provide superior growth in portfolio.
I love the strategy Sairam. The one important aspect is to stay the course when VGT and SMH crash. They will, and that's okay, because if you keep dollar cost averaging in without selling a single share, your wealth will massively grow long-term. People tend to panic sell when things get bad. I'm a huge fan of VGT and SCHD. SMH is very impressive, and back tests extremely well, but I can't talk myself into investing in 25 semiconductor companies. I'm not implying it is a bad move at all, just not something I am willing to do. I have been eyeballing some growth diversity with QQQM lately, though. Haven't pulled the trigger yet (still 100% VGT).
@@JeffTeeples Thanks for the reply. Yes, I plan to stay the course and be invested in $VGT and $SMH. SMH is 24% growth since 2010, some down years but overall is 24% each year. Crazy numbers. I found out about SMH a little bit late, but that is ok. I keep telling my friends, stop chasing stocks. Just invest in VGT and SMH.
Hey David. I like DGRO a lot. I think it will *likely* grow its dividends more than SCHD over the long-term. I think mixing them together within the dividend section of a portfolio is a great idea. It will depend on what growth ETFs you have from an overlap perspective, but 50% SCHD 50% DGRO is a powerful combo.
Now I am rethinking, why is my main SCHD holding in my traditional IRA? I am thinking it might be better to increase my SCHD holding in my taxable account and stay under the 44.6k income limit to collect those growing qualified dividends at zero tax %. Meanwhile, I have O in a taxable, inherited IRA and Roth. Mebe I should at least get it out of the taxable account. I am 63 and haven't started SS, not sure when I will retire and probably should have done some Roth/401k conversions
Thanks for watching and commenting, Karl. I think you have some great ideas. The one I would say should be done for sure is moving O out of the taxable account. Qualified dividend paying ETFs are good in any account type. O is definitely not, as it is adding to your taxable income *and* being taxed at the higher rate.
@@JeffTeeples Agreed. I was however able to deduct $228, from $1,139 in Section 199A dividends, using Form 8995 that provided a qualified business income deduction. The reason that I haven't sold off RITM and O from a taxable brokerage account is that I had already maxed out my loss harvesting for the year with non-dividend stocks. I did not want the added complexity of carrying forward the >3k loss limit for the year.
Thank you for that feedback. I used to do them myself. I'll summarize the results for you: Not good. lol. Now I use Fiverr. If you look at my videos you will notice two distinct styles. The newer ones are from 'Nick N' on there. He's great. Literally have made zero revisions (I have fairly detailed instructions, but he fills in the gaps well).
Thanks for the great video and validating your position with facts. I am a new investor with a pension and weighing the balance of growth vs dividend. I have 6 years till retirement so in my scenario it seems that growth is a better option? Thoughts? Thanks again
Hey Anthony, thanks for the comment and question. I think for 'most' people with a pension and (eventually) social security, dividend growth makes more sense long-term. I'm a fan of getting the yield to the point where you can 'live comfortably now' but no higher than that. If the bills are being paid and you're enjoying life, more dividend growth will help enhance that long-term (instead of chasing more yield to have more today). It's always a balance because we need to get by today to benefit tomorrow.
Hi Jeff, Thank you for this insightful video and your thoughtful responses to the comments! I'd like to share that today I placed my 1st trade in my Roth IRA! 🎉 I'm 44 and following the 3 fund portfolio. Today, I put 25% of 10.5K into SCHD and 25% each into FXAIX & SPLG. I read a comment that said VOO in a brokerage account is more "tax-efficent." However, I went with these 2 bc of the expense ratio, and cost since I'm just starting. I'm still figuring out the growth portion. I've been looking at QQQM, but I need to do more research. My question is about your response. As a teacher who would like to retire (God-willing) @ 55, I, too, would have a pension. I max out my 403b, and I plan on opening up a 457 plan. I intend to use the 457 to supplement my pension since no other $ would be available until 59.5. I don't have a brokerage acct. but wouldn't that also be taxable income too? I plan to do ROTH conversations from my 403b b4 claiming SS at 70 bc those funds would add to my overall taxable income. Ultimately, I'm trying to understand your sentiment from the 2nd sentence to the end. The phrase "dividend growth makes more sense long-term" isn't clear. Does this pertain to a ROTH vs. Brokerage? I'm confused and would like to understand. Thank you!
Very nice, Will. I still roll with a nice chunk of growth ETFs as well (VGT in my case). I know it will be a rollercoaster, but it goes up over long stretches of time. But SCHD is my sleep well at night holding for sure! (:
@@JeffTeeples Sorry, my comment probably didn't make grammatical errors hah! But I'm interest on your take on my portfolio and any recommendations! SCHD - 31% VOO - 37% FNCMX - 11% SWPPX - 13% FXAIX - 8.5% Enjoy the content, Jeff!
Hey Tommy. Great question. It is a 'future value' formula that ultimately shows what the value of the future money would be worth today. It takes into account the number of years that have passed along with the assumed inflation rate (in my example I use 3%). So it takes away 3% of your purchasing power per year (just like inflation does in reality). $100 in 2024 will only be worth ~$97 in 2025. It also accounts for the compound effect of inflation. Ultimately, the PP per month shows 'what the money is worth in 2024 dollars'. The numbers get very big over time, but so does the cost of buying things. Don't want the spreadsheet to 'look better than it really will be' based on the assumptions.
Thanks for the positive feedback. I'm still bracing myself for the O army, lol. It is very popular, which makes sense, because it's a solid investment for its purpose.
Do you still consider SCHD a div growth etf, after reconstitution? It seems to favor solid high div...but I'm not sure (forward looking) div growth so much
This is a great question, and one that is asked most years to be honest. This is because SCHD tends to add value companies with good balance sheets and higher yield and to drop the run up companies that have performed extremely well in price, which ultimately dropped the yield (think AVGO). I have never considered it a dividend growth ETF compared to VIG or DGRO. Because those are literally made ONLY for dividend growth (the screeners really are that simple). SCHD is more balanced between yield, dividend growth, and price appreciation. However, it has ironically out grown the dividends of VIG and DGRO over the past 10 years (at most points in time, DGRO is technically not quite 10 years old, but using what CAGR is there). SCHD has been weaker recently, though, to be fair. I do still consider it a 'dividend growth ETF' in general, compared to other ETFs. But it will not grow (most likely) the dividends as well as DGRO and VIG in the future. So it is sort of a hybrid within dividend ETFs.
Hey Sanjit, I'm a huge fan of that! In fact, when I left my job to start this channel a while back, I took a chunk of my cash and established a position in JEPQ for the cash flow. I love the Nasdaq-100 index (favorite index over the last 40 years), and I think the strategy it uses to create the cash flow is great. The expense ratio is fairly low for an actively managed fund as well. I think QQQM is objectively better to 'DCA into for 20+ years' for total returns (doesn't cap ceiling and is lower cost). However, JEPQ is a great 'cash now while still growing later' ETF.
Jeff, are you saying that earned dividends in my IRA could be possibility tax at the 0% rate when I retire next year at age 65? Would they be qualified dividends. Ty
Hey Nelly. Thanks for the question. Unfortunately, you will owe taxes on the dividends received within a traditional IRA (or 401k) in the year that you withdraw the funds. It doesn't matter if the dividends were qualified or non-qualified. The taxes will be paid at your marginal tax rate (from the federal tax brackets) when you withdraw the money in retirement. Ironically, a 'taxable brokerage account' will often tax qualified dividends at 0% in retirement. There is no avoiding the taxes from a 401k or IRA withdrawal. It will be paid at your ordinary income rate and will add to your taxable income in the year you take it out (regardless if it was capital gains, qualified dividends, ordinary dividends, or interest received).
Thank you for watching and leaving a comment Michael. It seems crazy, but no, it doesn't assume reinvested dividends. Einstein wasn't lying when he said 'compound interest is the eight wonder of the world'. My model doesn't even show the price appreciation either, it is only isolating the cash flow.
@@JeffTeeples Wow that's amazing, yeah the price of a share also increases over time. Your really earning much more than the dividend. I like that a lot for retirement because its much less risky but still earns better than a bond which is tax at short term gains where SCHD isn't as you pointed out.
Hey Jeff. Can you do me a favor? I have an ongoing dispute with a few people about VOO vs VTI. I split them always in any portfolio 50/50. Can you your program which does better over 5, 10, 15 years. 1. VOO 100% 2. VTI 100% 3. VOO & VTI 5O/50. Thanks. I think 50/50 edges either one out over time.
Nothing like a good investing debate from time to time (: Here is the data: Total returns: (VOO didn't have 15 years so I used SPY which is slightly higher ER but similar investment) 5Y: VOO 94.66%, VTI 87.15% 10Y: VOO 243.12%, VTI 223.14% 15Y: SPY 696.19%, VTI 677.02% Doing a 'max' backtest with VOO, VTI, and a 50/50 mix, I had the following results from 1/1/2011 through 3/31/2024: Scenario was starting with $10,000, and DCA in $1,000 per month. Ending balances: VOO: $522,021 VTI: $501,388 MIX: $511,683 The 50/50 mix was the exact middle in every single category. Never the best or worst in a single year in any stat.
Thanks Dru! REITs are not bad at all, but not for me. I felt it important to explain why. Because again, they are not bad at all, and they do add nice diversification for people that think about 'current value' with potential crashes. The irony is that come crash time that's when I REALLY want to be in the stock market (as far as new money going in). So it's a bit of a catch-22. I want to buy more ETFs when they are falling, and I know the passively managed ETFs will eventually get back up, so if no sells, there is nothing lost and the cash keeps coming in.
Hi Jeff, new to the channel. Really liking the videos! I have a question I am 40 with 200k in my 403b at work Just opened a brokerage account. Plan on making VOO my base, what do you think of the rest of the spread? I’d like to retire betweeen 60-67. I was thinking of not investing at all in dividends until much closer to or at retirement VOO 60% AVUG 10% SCHG or VGT 10% IHI 10% for medical equipment FTXR 5% FBTC 5% bitcoin What would you change? Should I get started with SCHD now? That would be my dividend pick
Thanks for watching and leaving a comment Stephen. I think you have a great idea there. VOO is a great cornerstone to put your money into. I like SCHG or VGT as well. FBTC is a top tier spot Bitcoin ETF. I think adding SCHD is a nice idea. Maybe start a bit smaller and slowly build up the position. I have a lot of SCHD, but it is mainly because I also have a lot of VGT. It is the counterbalance to that (low overlap and correlation). With 60% VOO as your core, I think 20 to 30% SCHG and/or VGT, with a touch of SCHD and FBTC make a solid portfolio. When you retire, you'll likely want to move more into SCHD. For now, just keep buying in, never sell when it crashes, and stay the course.
@@JeffTeeples so maybe I’ll do something like: VOO 60 SCHG 10 VGT 10 SCHD 15 FBTC 5 And like you said in one of your earlier videos on what etfs to have at what age period I’ll start to move things over more to SCHD in time
Love that mix. I think you'll be extremely happy with it long-term. Just remember that the FBTC could fall to basically zero, or go to the moon. It is your wild card. So make sure you're 'okay' completely losing 5% in worst case. I do the same thing, and I'm totally okay with my IBIT risk/reward.
In theory that would work. However VOO very rarely returns 8-10% in any given year. It will be +27%, -18%, +14%, etc. The average over 100 years is ~10%. But a lot of it depends on when the bad years fall. If it is the first couple in retirement it completely breaks the projections moving forward.
@@erickSPY777 definitely. But VOO has a higher chance of creating excess returns. I will take the (basically) 100% pass rate of something like SCHD over the min/max advantage of VOO. Well, I will take both, but if I had to choose only 1 in retirement, it would be SCHD. In reality, it will be a mix of VOO, VGT, QQQM, and SCHD (:
My greatest concern is how to recover from all these economic and global troubles and stay afloat especially with the political power tussle going on in the US.
I think a great way to handle all of the bumps (and I agree with you, there will be plenty of bumps) is to dollar cost average into a well built portfolio. You'll buy all of the highs and the lows. In retirement, *most* dividend producing ETFs will be fine regardless of the market & price fluctuations. Either way, I'm on team 'stay the course'. Panic selling & trying to time the market lose people decades of wealth accumulation.
Hey Phil, thank you for the question. Also, thanks for being a channel member. I see that bling next to your name! I appreciate it. I do take a look at the Sharpe ratio, in general, when comparing potential investments. SCHD / VGT, for example, always have a weirdly high Sharpe compared to things like VOO. The higher the better with that one. It isn't one that I put a TON of weight into, personally, but I do consider it as a tie breaker.
hello, I have one million dollars in cash, I want to retire what would be your other picks besides schd, O, and what else u think is good? Also can you please share your spreadsheet :) , do u have any coupons for seeking alpha, i want to register myself there ...
Hey Sunny. I do have a link to the channel membership (spreadsheets) and a Seeking Alpha link (to try premium for free, and to join for 25% off your first year if you like what you see) in the description below each video. Here they are: Join the 'Financial Freedom Friends' today! youtube.com/@JeffTeeples/join 💰Try Seeking Alpha Premium FREE & Save at least 20% on a subscription with the link: www.sahg6dtr.com/37TKQPB/R74QP/ To retire with $1,000,000 will look way different depending on a number of factors. I would use a combination of SCHD (for dividend growth) and JEPQ (to boost yield to an acceptable current level), and a splash of VOO (never hurts to have the market, growth will be important too) if the lower yield works combined with the other holdings.
20:00 You can't compare like that. Are you ok living on less income with SCHD in the first 8 years? Then with O, you could've reinvested the extra money, and the picture would be different.
Thank you for watching and for the comment. This is true to a certain extent, and I get a lot of this feedback with JEPI and JEPQ over SCHD and DGRO. However, long-term, the dividend growth will exponentially put more money into your pockets with how the math of compound works. But yes, reinvesting dividends definitely helps as well!
If we are not reinvesting dividends, couldn't we invest in O until the dividend yield of SCHD surpasses the yield of O? At that time, we could just move our money over to SCHD. Or are you also including potential share price appreciation into the mix?
@@nutria12247 The idea is that if you buy into SCHD, the price you paid stays unchanged but the dividend will continue to grow so the yield becomes a higher percentage of that lower prices. I own both but from everything I've seen O's dividend will not grow as fast as SCHD's based off past dividend growth, plus SCHD pays a qualified dividend vs non-qualified for O. Over time SCHD will offer a higher yield and will apppreciate faster.
Dear Sir: 1) Your taxation of Qual. Div's explanation INCORRECTLY suggests that the tax brackets for such are independent of general taxable income. Almost as if the brackets and income in your example only pertain to the Qual. Div amounts. In reality, all taxable income (excluding Qual. Div's) determines the Qual-Div tax rate. Item#2: How does purchasing power decline if growth CAGR's exceed the inflation rate in your examples of retirement income? Something seems wrong with your numbers.
Hey Scott. Please watch my video from yesterday for a full (and probably painful lol) explanation of qualified dividend tax implications if you are confused. Sometimes a comment in passing won’t tell the full story. If your dividend CAGR beats inflation then your purchasing power will increase. Yield is irrelevant of course. JEPQ has been crushed by inflation, for example, in its young history. Not sure what part you’re referring to because there are a lot. This stuff will get clearer. I promise. Just takes time to slowly learn the nuances. There is a lot. When it clicks, it will feel like simple magic.
Hey Jahmar. You nailed it. It’s all about having a nice balance between growth and dividend ETFs. VOO will ‘almost always’ outperform SCHD over a long stretch of time. SCHD is a floor protector, not a ceiling raiser. Growth has dominated the past 10 years. VGT / QQQ will smoke VGT / VOO, for example. But the point of SCHD is to have a nice counterbalance to VGT. And that combo has outperformed the market (VOO) ten years in a row. It’s wild bc VOO is very hard to outperform. When things get bad, the mixes with growth ETFs only will suffer.
I think that is the best long-term approach for anyone (JEPQ and SCHD are my favorite, but multiple tickers have the same logic). You'll hear people say go all JEPQ because you can reinvest the dividends instead of taking them all. This is true, but the specific dividend growth rate will 'math out' better dollar for dollar with a dividend grower. Compound growth really is wild.
@@JeffTeeples I am thinking about the etfs that I am investing in and how I can retire on dividends however the VGT VOO QQM and SCHD combination pay about 1.5% a year. That will not be enough for me based on my projection. If I need to liquidate the funds to sell and buy Jepq/schd, I will be taking long term capital gain hit. How would you approach from growth to dividend conversion in taxable brokerage account?
There are a few different variables that come into play. Long-term capital gains get the same special tax table as qualified dividends. In retirement, your tax percentage will often be 0% on them, depending on your income that year. Sometimes it's good to sell LTCG over a few years to stay in that 0% tax range. You can also move stuff around anytime in your tax advantaged accounts at any time without any tax implications. Things like your Roth IRA, 401k, traditional IRA, HSA, etc. So your taxable account should be the last resort for 'moving stuff around'. But even if you have to, as long as it is long-term capital gains you're good to go. It won't be more than 15% taxes (unless you are moving a TON in a year), and you can hope to see it stay mostly at 0% if you do it incrementally over a few years. It is the exact same concept / tax treatment that I explain about the qualified dividends.
REITs are subject to all the volatility of the RE market. At the same time, almost all of the benefits of rental property ownership belong to the company, not you the shareholder. I guess if I was forced to buy a REIT or else, it would be one focused cell towers or data center There is a lot of money to be made in RE if your name is on the title. The 400% depreciation bonus you get by writing off the mortgage is about as good as it gets
Hey Chris. I'm with you on this one. From a long-term perspective, I don't think REITs make sense. I know a lot of people love them, but the zoomed out numbers don't add up (from what I've studied).
Hey Brianna. I know because I see your bling next to your name! (: The 1M means you have been a member for at least a month. You also have access to use the channel emojis when you leave a comment. I am putting more out as I reach each new tier. Thank you for your support!
Thank you for your feedback. I agree, retired people will likely need to focus on yield at first. Depending on the portfolio value of course. But I would argue finding the balance between growth and yield is WAY more for retired people than younger folks. This video was primarily for retired folks. It's all about getting by NOW, while enhancing lifestyle in the future. For younger people, they will 'mostly' want growth ETFs or things like VOO before retirement. I didn't cover that type of investing in this video.
Thanks for the insights, Jeff. I like SCHD a lot but one thing that worries me is we are in high inflation, high rate environment at macro level. This is an untested area for SCHD. I worry SCHD will struggle in such an environment. Any thoughts?
I agree with you. SCHD has been very shaky during these times. It has underperformed by quite a bit over the past year or so. However, I do think it will be stable long-term as everything balances out. As an equal holder of SCHD and VGT, I have seen one stay about flat while the other has shot up 50%. I will continue to keep them balanced (basically only buying SCHD lately) over the years. When the crash comes, and it will, SCHD will be the hero again. I like the steady nature of it, and believe in it long-term. But I definitely think you have a great point!
I wouldn't be surprised to see the dividend CAGR drop below 10% in the coming years. Especially after a rough past year. I think it will remain ~7% or higher, long-term. Time will tell.
While SCHD is 52 week high, I only bought O because its current price to generate monthly cash flow in my Roth tax free account (reinvest). Not a lot though. And I ll sell O when the real estate comes back in business to get the gain to buy more SCHD (the largest holding in my portfolio)
Very nice plan, especially in a Roth. O is great there, and the price will very likely rebound. All investments have an innate reversion to the mean. I think now is a good time to buy things like O. Again, I don't invest in it, but that doesn't make it bad by any stretch. I'm a robot that only considers long-term factors.
Not sure how to take this comment in a vacuum. If you're referring to the market, then yes, SCHD has underperformed on this bull run (vs VOO). But the point of SCHD isn't to outperform VOO, and it has been close (in fact, even ahead in certain 10 year stretches not long ago). But the point is to pay solid dividends, provide stability, and steadily grow those dividends. If it beats VOO over long periods of time it likely means our market has been a bit meh. That is not the case lately. SHHD is a floor protector, not a min/max in good times.
My favorite way to start a Sunday... Cup of tea on the sunny porch and a Teeples video. I always learn something. Thanks
Surprisingly I m doing the same thing 😂
Thanks for watching! I appreciate the feedback and the consistent support! I hope to keep adding value to investors for many years to come. I have a ton to learn myself as well, so this has been a great time.
Much appreciated! I'm not quite as entertaining as the short form stuff these days, but hopefully the viewers can learn a little more here compared to that content (:
I've been gravitating to the longer form content. I can watch while I work, and the content is much more applicable and actually valuable. The short stuff just pops in but then it's gone and rarely teaches me much.
I started my 401k when I turned 21 and that's been going for a little over 20 years now with Empower Retirement. Recently I started a separate Schwab portfolio. My main 3 ETF's are currently SCHD/DGRW/SPYI. I had started a small position in O but after your explanation of the tax implications on non-qualified and qualified dividends I believe I'm now going to roll that into SCHD as well. Thanks for the video.
Thanks for the comment Leonard. Very nice mix you have going. O is solid in a tax advantaged account, but I much prefer SCHD in a taxable brokerage. Truth is, I prefer it in all types of accounts, but I understand there are different strokes for different folks.
Great video Jeff! I'm a big SCHD and VGT guy. It has worked very well for me. I still have 6 years or so until retirement and I sleep well at night. Thanks for all your videos!
Hey Robert! VGT and SCHD are an amazing 1-2 punch. Keep it going!
The most outstanding piece of information of what qualified dividend is a lightbulb moment for me, thank you again !
Anytime! I'm glad you enjoy the videos & get something out of them. My goal is to help as many people as possible with this stuff.
Thank you so much for this, it shows everyone is different and can adjust according to their own portfolio and what that scenario does. But more importantly, it shows how one can retire with the right gameplan with the desired future dividends. I'm sure this can come in handy for retirees and even more for young folks feeling anxious about their retirement even though it could be decades away but need an idea how to build their portfolio now. Best breakdown I've come across so far. Keep em coming!!
Thank you for watching and for dropping the positive feedback. I appreciate it. My goal is to help as many as possible to financial freedom. I'll be here for years to come!
Saw your Podcast with Ari G and man was it informative and good to hear your journey and makes me value the information you give even more!
Thanks for the kind words Brandon. Ari is the man, I'm glad he took the time to interview me. I'm here to let people know that *anyone* can do this stuff. Full stop.
Wow the info about the qualified dividends is soo helpful thank you!
It is a huge one. So many retired people (or working people for that matter) will pay 0% on qualified dividends for life. The cap of *taxable* income is higher than people realize. The special tax table is a life hack in investing (:
So to take advantage of the qualified dividends tax rate, SCHD would need to be in a brokerage account, not a traditional IRA or 401k, correct?
That's right. But SCHD (and other qualified dividend payers) are just fine in a Roth or traditional IRA as well. But you can't make the gains 0% that way. When you take them out, they will be 12% or higher (based on your tax brackets) for 99% of people. The 0% for qualified dividends lines up with the 12% tax bracket for 'ordinary' income. They both move to the next level up (15% for qualified, 22% for ordinary) once you hit 94k of taxable income + qualified dividends.
Basically, you will win 100% of the time with qualified dividends. Sometimes it's 0%, sometimes 15%, but it's lower than the federal tax tables per dollar earned at any level.
I really love your straightforward analytical approach to retirement investing. Keep up the great work!
RSB in NC
Thank you for the kind words, I will keep this thing going as long as I can. I love the process of making videos. I learn a lot along the way, too.
Thank you for once again showing how it all works long term. I bought a lot of O in my Roth IRA just because it was cheaper. I have a long way to go to retirement, so I probably will hold on to it for now, but just keep buying SCHD (along with a growth and foundational ETF) for the foreseeable future.
Same here, I bought O in my Roth because now its price (not much though just 150 shares and gear up to 200 and that’s it) Since Roth has a limited contribution, so I think it’s a good idea to have cash come in monthly and reinvest.
Thank you for watching and for the comment. O is a very nice holding in a Roth IRA. Those unfavorable taxes will never hurt you there, and it will keep on paying and growing dividends (at least with inflation most likely) over the next many decades.
Very nice! I love buying it low in a Roth. Best way to invest in something like O (or anything with non-qualified dividends). You're right, that thing will keep cash flowing for many years to come!
Perfect timing! This was exactly what I was looking for.
Thank you Scott! I'm glad it was helpful.
Damn, this was a great video. The comparison examples and explaining div growth vs yield, I finally get it!
Thank you Bob! I appreciate the feedback and I'm glad it helped!
Thanks for posting....This is right on time for me personally. Appreciate you providing such valuable information.
Thanks for watching and for the feedback. I'm glad it provided some timely information. I will say REITs, and O, are not 'bad' at all (like I tried to portray in the video). The yield can be a little deceiving and juicy to want to chase. But the dividend growth and long-term outlook aren't *great* beyond the portfolio stabilization (for incoming crashes of stocks). When the crash comes, that's when we should buy more... stocks (or ETFs). So while not bad, not for me in 20+ years from now (:
Thank you Jeff. This video reaffirms my thoughts on rolling over old school annuity to IRA account and buy golden SCHD instead!!
Thank you for watching and commenting Kumar! I'm glad the video was useful.
I have O, MAIN, and VICI. Combined they are 5% of my portfolio. To me they are another diversification. I like what you said about making enough to live on for now and building.
Hey Craig and Mandy. I think most people have some real estate exposure in their portfolio. Definitely not a bad thing. They aren't for me, but this is with my, maybe a bit extreme, *looooong-term* mindset.
REITs are great for market fluctuations and stable income. No doubt about it. Most smart people suggest having some exposure.
I like the idea to keep these reits in IRAs and Roths.
I just sold O lololol. I’m bullish on SCHD, JEPI,JEPQ & VOO just to name a few…
Funny, my SS forecast also gave me the same numbers. I thought the same thing-take it @62 & invest that money. Thanks for the info on the tax info on dividends! I was sticking with these dividend ETFs in a Roth, but this new info changes things!
Thank you for watching & for dropping a comment. It sounds like you have a great battleplan for the future. It's all about building a solid system and staying the course for many decades.
Interesting thoughts. Not retired yet, and since I still have W-2 income, I won’t take Social Security at 62. The clawback will really hurt you if you take Social Security while having employment income. I have a total portfolio yield of ~3%, so I lean more to your side of the dividend growth portfolio rather than high yield.
Thanks for sharing that Michael. You bring up a great point about taking social security early. I should have specified the scenario was for someone retiring early and relying on the social security to bridge the gap to get by (without W-2 income). You're right in that it goes both ways, and there is no one size fits all solution for it.
This made me rethink my portfolio for sure, since I have about 20% in REITs currently. I'm getting ready to retire early and trying to map out the best portfolio to live on dividends. The O and SCHD walkthrough at the end made me think about MO. It currently offers about 9.5% APY and is a Dividend King. With that high APY compared to O's 5.8%ish, you could get a 4.5% rate by holding 20% MO & 80% SCHD... compared to 50/50 SCHD/O
Hey Jonathan. That is a great thought experiment. I think it's important to stay open-minded and always consider multiple points of view. I know I will very likely continue to make tweaks to my portfolio over the years based on what I learn.
One thing about MO, and I'm not trying to say you shouldn't do it, but it is something to consider, is that its total returns sits at 99.73% over the past 10 years (dividends included, assumed reinvested). SCHD is at 196.7%. VOO at 243%, and QQQ is at 469%, just for some context (other dividend, cornerstone, and growth ETFs).
Total returns matter, as well as yield on cost. Stuff you buy (and hold) today will be drastically different in 10 years (regardless of the 'current yield' in ten years). Total return matters more than most retirees like to think. Don't get me wrong, yield and dividend info is king at that point for sure, but the growth and balance still matters.
Also, MO is a single company without the built in diversity methodology of the passively managed ETFs. Companies come and go all the time, and SCHD will automatically adapt as MO could fall completely.
I would do JEPQ, O, and VNQ before MO personally (not that you asked me, lol).
keep pumping out those financial informational videos Jeff!!!!
Will do Kevin. Thank you!
Keep the well made and thought out videos. You're going to have a lot more subscribers if you keep up this excellent content.
Thank you for the kind words Nic. This feedback is encouraging!
This was an outstanding video. Probably the most clearly explained benefit of qualified dividends that I've seen on UA-cam. Wondering what your opinion is on investing in an MLP. Would love for you to do a video on that topic. I am 5 years from retirement. Considering investing in EPD or MPLX . Both are very popular Master Limited Partnerships & issue a K-1. Would love your thoughts on these types of investments. I currently stay away from Reits and BDCs..
Hey Logan. I appreciate the kind words about the video. Thanks for taking the time to watch it and for leaving this comment.
I personally am not a fan at all of MLPs. I think the tax advantages and steady growth are peanuts compared to qualified dividends (mostly tax free in retirement, or low tax at worst) from things like SCHD that grow *way* faster and appreciate by multiples higher (over time in all markets) by comparison.
I don't mean to sound negative here, but favorable taxes (which are technically the same as qualified dividends in most cases for retired people depending on marginal tax rate) will never make up for being only a quarter of the total return to other safe ETFs like DGRO and SCHD over the past decade+. Just my two cents on it. I approach every investment from a hold forever point of view. There will be a lot of opinions out there about MLPs.
@@JeffTeeples Thanks for replying so quickly. Greatly appreciated 👍.
Great video about how qualified and non-qualified dividends impact the different retirement accounts.
I appreciate the positive feedback Seginald. I know taxes aren't the most exciting (for most), but it's important we understand this stuff.
Great video . The issue i have with all of this analysis is that it relies on historical data. Counting on 10% growth is unsustainable long term and all these models go out the window if we end up with returns closer to 3-4% which is not unreasonable. With the S&P trading at 21x earnings, it would seem like a decade of low returns is more likely.
Thank you for watching and taking the time to drop a comment. I appreciate the feedback. Past is tough to gauge, which is why I always zoom out as far as possible. I will say that many predicted the same for the last decade because of similar reasons. There will be reversion to the mean, there is no doubt. We just don't know when and how. I would take 100 years over any short-term predictions.
My wife and I are about 4-5 years away from retirement(age 61 and 59), have saved in retirement accts early on and will 🤞hopefully have around 3 - 3.5 million at retirement. I love the dividends approach (SCHD), with some growth sprinkled in (VOO, QQQM), thinking of 1/2-2/3 in SCHD at retirement giving good amount of dividends 🙏🏻 to receive consistently to sleep well at night and weather out those corrections
Love it Carl. Great work by you and your wife! I wish you a happy retirement (and with your investing approach you should be good to go).
If I miss it in the morning with a coffee, I catch it in the evening with a single malt
Thank you for the support Vic! It's awesome to have you here each week!
I’m all in on SCHD for my retirement also!
I love the methodology of SCHD for long-term dividend investors. It will never WOW us, and sometimes it trails the market and other tech oriented dividend ETFs on returns. But the 100 quality companies will produce stable results for years to come.
@@JeffTeeples exactly spot on!
Love your channel and advice. What's sad is that i'm 63, with only 200k saved. I made dumb mistakes, but still better than some.😐😔
Hey Carlos. You are in a great spot! It is never too late to get this thing rolling. Great job sharpening your skills now and keep it going man. We've all made dumb mistakes, and we can all learn together as we go!
Thanks for the positive.👍@@JeffTeeples
You've made it past the $100,000 mark to $200,000. Let compound interest do its thing! ✅️
@@WNKeithaSN Thanks.👍
I learned something today. Thanks. I own SCHD and O
Hey Billy, thank you for watching! Both amazing holdings. O really is great, and there is a good reason so many people load up on it. The diversification is nice for a portfolio depending on the ultimate goals. It's not for me, but that doesn't mean it isn't for the masses.
Jeff. You are fast becoming one of my favorite online investment content creators. Keep it up. I love schd. Do you think it's pointless having both schd and dgro in a portfolio?
Hey Stephen. Thank you for the feedback & great question. I don't think it is pointless to hold both within your 'dividend ETF' section in a portfolio. It will depend on your other ETFs of course. For example, 100% SCHD would get me zero exposure to Apple, Microsoft, and Broadcom. DGRO would help get tech based companies like that added.
*However*
I hold VGT which is loaded with holdings like that. It is 100% tech. For me, I like how SCHD counterbalances VGT so I'm not too heavy in tech.
Short answer: It's not bad, but it depends (:
This video is so incredibly helpful! Thank you!
I appreciate this positive feedback. Thank you for your support!
Jeff - This is an outstanding video! Would you please explain in more detail why it is beneficial to take social security sooner than later?
Hey Bruce, thank you for dropping a comment! Also, I appreciate you being a member.
It is situational, as others have explained (with great points). Most people that want to retire early (62 or younger) will find better math by taking it early. This is not a one size fits all solution, to be clear, but let's say someone has $1,000,000 and puts it in SCHD and retires early. That's only going to produce ~30,000 to 38,000 per year.
Instead of waiting to take social security until 67 years old, you could live on the dividends and sell a few shares for the rest.
*OR*
You can take social security early, supplement the qualified dividends, AND (most likely) invest some of the money to own more shares of SCHD.
But the kicker, and the real advantage, especially with people living longer and longer, is that you will have lower taxable income from 67 years old to 90+ (remember, qualified dividends are separate from your federal taxes, so only SS will count). As your snowball produces more qualified dividends each year, you'll get to use the 0% tax rate on a bigger chunk (because your taxable income is lower forever).
Additionally, you will have more wiggle room to convert any traditional IRA funds to a Roth IRA each year. This process will increase your taxable income.
There is no right or wrong answer for everyone, but a lot of people think surviving until 67 (depleting assets to get there) is the way to go because you are set up for the future. The math strongly disagrees in 'most' cases. Compound is a crazy thing.
However, if you work into 60's, it 'can' be better to wait as others have stated. Get the chunk conversions done more quickly in the first few years of retirement. Worrying about RMDs, though, is a bit counter-intuitive in that case.
Good stuff! I think many retirees may have a lot in 401k or IRA at 62 which may change the SOC strategy. Every withdrawal from 401k will be taxable income qualified dividend or not. Many delay SOC to do Roth conversions which then become untaxed for life. Another problem can be RMDs, but depending on how much in 401k. Another consideration is that SOC provides another stream of income that is not stock market based having it higher may provide some diversification safety. I’m personally planning take SOC at 67-70.
Hey Phil. Thanks for the detailed feedback. It sounds like you have a detailed plan for your financial future. I bet you would be surprised if you paralleled the scenarios for your long-term tax outlook. Your points are correct, btw, not arguing with any of that. But we are living longer and longer. The numbers get wild (conversions and withdraws included) the longer we extrapolate them out. Remember, SS is taxed as ordinary income forever. I do love how you bring up conversions and RMDs though! Planning is important. I would have to see your specific information to build a parallel model (obviously not asking for that) to compare the scenarios.
@@JeffTeeples Totally agree could become real complex discussion. If I could tell my younger self one thing it would have been to put more it Roth vs 401k sooner in life. And I did covert a little ReIT to buy more SCHD today in my taxable. Thanks for the content!
Another consideration is getting your larger Roth conversions completed before turning 63 years old. The IRMAA taxes begin at 65, but have a 2 year lookback.
I've been converting from a rollover IRA to Roth in small amounts ($10k to 20K) for many years. Now, I have a larger Roth paying dividends to help avoid the IRMAA taxes and taxes on SS.
@@JeffTeeples I do think tax strategy needs to be front and center in the retirement plan and should guide one in how they invest up to retirement. One of many possible traps in retirement is the RMDs. Taking the mandatory amounts each year along with social security income can easily bump you up into the next tax bracket requiring you to pay more of the income that you diligently planned for and worked to gain to Uncle Sam. Healthcare/Medicare tax is another minefield to be aware of. I like the philosophy of having as much control of how much to pull from accounts in retirement as possible. The Roth is key to this as well as the wonderful triple tax advantaged HSA. Done right, it's a powerful vehicle for wealth building and controlling income up to, and into retirement. Just as important as building the wealth is keeping it in retirement. Filling up the 4 buckets correctly is key. Great video as always, sir.
Great video, Jeff. Thinking about putting a lump sum IRA rollover into JEPQ or SCHD for about a year and allowing dividends to reinvest until drawing dividends for income at 59 1/2. Would it make sense to put initially into JEPQ then move into SCHD after a year to maximize returns and growth? Also understanding there are tax considerations for qualified vs. non-qualified dividends.
Your videos speak to me and I have learned a ton...thank you!
Hey Auria! Thanks for the question. Also, thanks for being a member, I see the bling next to your name (: I appreciate it.
A good thing about a rollover IRA is that the types of dividends will not matter. JEPQ pays non-qualified and SCHD pays qualified dividends, but neither one is taxed in an IRA when it is paid. It will only be taxed when you pull the money out of the IRA. JEPQ will not 'hurt you' in this type of account.
I would still recommend a mix of the two holdings. SCHD really will 'grow' the dividends per share over time. JEPQ will give a nice juicy dividend yield now that can be reinvested in more JEPQ or SCHD. The combination is great. The price appreciate should be solid for both, as well, long-term.
If it is in a taxable brokerage account the dividends *will* matter when paid. In that case, I would focus heavily on SCHD between to the two. That is when the qualified dividends mean everything (and will likely be taxed at 0% in retirement).
@@JeffTeeples Thanks so much for the feedback, Jeff. I am interested to see how this goes...will keep you posted.
Jeff.. This was excellent! The information regarding how qualified dividends are treated in the tax code.. specifically, the fact that these dividends have their own tax table was illuminating. Thanks..
Thank you for the kind words Paul. I appreciate it. I'm not sure what is wrong with me, but for some reason I found taxes to be the most interesting part of my education. I'm not perfectly up to date with every change anymore, but understanding the basic tax treatments will go a long way in investing.
I love this video. It validates my understanding of the financial tools.
Thanks Joey. I appreciate you watching and dropping a comment.
@@JeffTeeples as a fellow millionaire, you are pretty smart.😂
Completely agree here as usual! REITs & Bonds are most likely not in our future retirement holdings.
Thank you for the comment. I understand people wanting to mix them in as well. But I think we will be just fine (in fact, likely better off) without them with a long-term mindset.
Nice Jeff... can you please do a comparison/evaluation with CGDV.
Thank you for the comment. I will keep an eye on CGDV. It is relatively new, and I usually like at least 3 years of history before I dive in. A rare exception had been JEPQ because I like the strategy and index for that one a lot.
Hi Jeff,
I read that the projection for Schd is 6 % from EPS and 4% by dividen and 6 % CAGR going forward and growth has slowed down with the reconstitution. What are your thoughts on this projection by factsheet?
I have been reading about similar figures. I think 4% yield and 6% price for a total of 10% total return is amazing for my floor stabilizer. Add 6% dividend growth and I will be a happily retired person that is smashing inflation and leaving my kids a nice goodbye gift (:
I loved this video. Subscribed.
Thank you for the kind words & for subscribing Enid. I appreciate it.
Looks like it will take 12 years for SCHDs dividend to equalize JEPQ and then surpass it. I guess in theory if you went only with JEPQ you could shuttle some of the excess dividends and invest that in something else over the 12 years to give you more gains.
That is a great point. JEPQ can produce enough dividends to reinvest the difference. This helps the 'growth' quite a bit over time. Still not as impactful as dividend growth compounding, but a difference maker for sure.
Nice video Jeff! How do you feel about BDCs like MAIN and ARCC? I’d love to see a video on that from you!
For some context - I'm working on building my "Hold Forever" portfolio. Right now it's 90% SCHD, 5% MAIN and 5% O. I'm considering adding in 5% ARCC and 5% VICI and lowering SCHD to 80%. I have a separate growth portfolio and I DCA into both weekly. My plan is to sell the majority of the growth holdings in about 12-15 years and put it all into the hold forever portfolio that will yield around 4%. So my theory is that I can essentially do the 4% rule without ever selling the principle and increase purchasing power each year.
Hey Jake, I love that approach. That is going to be a cash flowing machine in retirement. I'll be honest, I don't know MAIN and ARCC well enough to have a strong opinion. I do follow them casually like many other stocks and ETFs, but they have never been on my *watchlist* that I educate myself on. I've been following O and VNQ closer for longer.
They both have been performing extremely well, and they pay consistent dividends as well. Seems to have the 'just beats inflation problem' compared to the best dividend growth ETFs, however, the high yield makes them nice to mix in with the growers to get to your 4% yield target.
its the king for a reason
Long live the king!
Great explanation and video!!
“Qualified dividends use a special tax table that is entirely separate from your federal taxes.”
Thanks for the questions. This stuff can be difficult to understand.
The easiest way to look at it is in two steps. You have your regular income (from your job, social security, pension pay). This is 'ordinary income' that is added up to calculate your 'taxable income'. To be taxed at your federal tax tables rates.
These brackets are 10%, 12%, 22%, 24%, 32%, 35% and 37%. These are the taxes we all file every year that EVERYONE pays and complains about at the work place.
Non-qualified dividends and short term capital gains add to this (are treated no differently than your ordinary income from your job).
So if you are at the very top of the 24% tax bracket with your work income, and you receive $20,000 of non-qualified dividends, they will be taxed at 24% until you hit the next bracket, then you will jump to 32% taxes. It's as if you work paid you 20k more throughout the year.
Qualified dividends (and long-term capital gains) will NOT be taxed at 24% and 32%. They will be taxed at 15% in this situation. They also will not push any more of your income into a new tax bracket (aka the 20k of qualified dividends are not added to your regular income).
But the starting point for the qualified dividends is where you ordinary income ended. For example, if you had 80k of taxable income, and you receive 20k of qualified dividends, then 14k will be taxed at 0%, and once you're over 94k (ordinary income + qualified dividends) it pushes you up in the special tax table to 15% for the last 6k of dividends.
But even if you had 256k of qualified dividends, it is all taxed at 15% (after the 14k at 0%), and your 80k is taxed the exact same as if you had 0 dollar of qualified dividends. It is still in the 12% tax bracket as if the qualified dividends didn't exist (because they don't according to the federal tax table taxes). Your marginal tax rate is 12% in both scenarios.
@@JeffTeeples Thanks for the explanation Jeff. BTW, I took an early retirement at the end of ‘21 so I no longer have w2 income (and no longer have to listen to co-workers complain about tax brackets and state income taxes because I moved to one of the states that have no state income tax). I just finished my 1040 and all my 1099-DIV’s were uploaded into TurboTax-so no manual entry. It’s just when I looked at line 3b and line 7 in my 1040, it seems like the program does include them in the taxable income calculation, which in turn is the catalyst for my head scratching. But then again, I’m not at a point yet where qualified dividends in my brokerage account are a significant portion of my income. It certainly seems like you’re further along in this area than I and have more experience seeing how qualified dividends are treated on your return as they’ve grown. Since I began preparing my tax return last year, the tax tables for qualified dividends and LTCG’s is something I picked up on so it’s definitely something I want to take more advantage of.
Thanks Jeff! All dividend stock CAGRs will eventually reach a point of no or little growth - it's basic math - a company cannot continue to grow dividends (at least reasonable livable ones) indefinitely - so projecting beyond perhaps ten years is not reliable. Also, folks in retirement alter their spend patterns with high spend early, then less over time until they reach the last few years of their lives where healthcare costs take a big chunk - the proverbial retirement spending "Smile". Like your approach but wanted to share some other perspectives for followers to consider... SUB'd due to your clear and concise explanations...
What if they grow dividends in proportion to the price appreciation? Couldn't that theoretically keep going? I'm not a math person so I may have the completely wrong idea
Hey John, I appreciate your feedback. I think different perspectives are great to consider. The basic math assumption is incorrect, technically, but no need to split hairs (: But you're right in that it is difficult for a specific company to continue growing for many years. It will usually be different companies that come and go from the ETFs. This is why we see 20 or so companies each year join and leave the S&P 500. However, earnings growing by 10% per year isn't crazy (as a whole). This is what ultimately trickles down to reinvestment for growth and/or paying dividends.
An example of Jeff's description is SCHD dumping a number of stocks at the recent reconstitution. The stocks increased in value to the point that their dividend no longer fit the algorithm.
Thanks!
Thank you Brianna! I appreciate the amazing support you have provided. I plan to make a ticker (on the bottom of my video) to show thanks for members and donations.
Hi Jeff. I read a CFA textbook for the alternative investments by Wiley written in 2019 that states that REITs outperform the market over the long term. I guess times change.
Hey Richard. Thanks for watching and commenting. That is objectively not true. However, there have been many periods of time (even fairly long stretches) in the past where REITs have outperformed the stock market.
@@JeffTeeples Thanks Jeff. I agree with you: I do not own O or Reits, but I have over 400K in SCHD.
I'm interested in building a dividend income stream, but as a non-US citizen, I'm aware of the 30% withholding tax on dividends. I've been looking at SCHD, which offers both dividend payouts and potential for capital appreciation in the long run. i feel capital growth could potentially offset the withholding tax impact. Any advice or insights?
Thank you for watching and for the question. I will be the first to admit I do not have a detailed understanding of investing outside of the US. But I do think focusing on growth a little more is a good idea because of the extra withholding tax on dividends. Especially if you have a long time horizon of investing, and can continue to dollar cost average into your holdings in all markets. The key for any investor is to make a great system and stay the course. Never panic sell when everything is dropping. That is a surefire way to lose wealth.
@@JeffTeeples thanks for the suggestion
Hi Jeff, I love your channel. I plan to keep investing in VGT and SMH. And as I get closer to retirement, move a part of it to $SCHD to get us that dividend income. I ran the numbers from 2013-2022 from an earlier video of yours and that fetched 40% more dividend in 2023. Please let me know your comments. I love VGT and SMH and they provide superior growth in portfolio.
I love the strategy Sairam. The one important aspect is to stay the course when VGT and SMH crash. They will, and that's okay, because if you keep dollar cost averaging in without selling a single share, your wealth will massively grow long-term. People tend to panic sell when things get bad.
I'm a huge fan of VGT and SCHD. SMH is very impressive, and back tests extremely well, but I can't talk myself into investing in 25 semiconductor companies. I'm not implying it is a bad move at all, just not something I am willing to do. I have been eyeballing some growth diversity with QQQM lately, though. Haven't pulled the trigger yet (still 100% VGT).
@@JeffTeeples Thanks for the reply. Yes, I plan to stay the course and be invested in $VGT and $SMH. SMH is 24% growth since 2010, some down years but overall is 24% each year. Crazy numbers. I found out about SMH a little bit late, but that is ok. I keep telling my friends, stop chasing stocks. Just invest in VGT and SMH.
Thanks - Great insight!
Thank you for the kind words Charles. I appreciate it.
I am a new to channel but it is a very nice content ❤
Thanks Russell, I appreciate the positive feedback!
What are your thoughts on DGRO and how does it compare to SCHD? Could they compliment each other?
Hey David. I like DGRO a lot. I think it will *likely* grow its dividends more than SCHD over the long-term. I think mixing them together within the dividend section of a portfolio is a great idea. It will depend on what growth ETFs you have from an overlap perspective, but 50% SCHD 50% DGRO is a powerful combo.
Now I am rethinking, why is my main SCHD holding in my traditional IRA? I am thinking it might be better to increase my SCHD holding in my taxable account and stay under the 44.6k income limit to collect those growing qualified dividends at zero tax %. Meanwhile, I have O in a taxable, inherited IRA and Roth. Mebe I should at least get it out of the taxable account. I am 63 and haven't started SS, not sure when I will retire and probably should have done some Roth/401k conversions
Thanks for watching and commenting, Karl. I think you have some great ideas. The one I would say should be done for sure is moving O out of the taxable account. Qualified dividend paying ETFs are good in any account type. O is definitely not, as it is adding to your taxable income *and* being taxed at the higher rate.
@@JeffTeeples Agreed. I was however able to deduct $228, from $1,139 in Section 199A dividends, using Form 8995 that provided a qualified business income deduction. The reason that I haven't sold off RITM and O from a taxable brokerage account is that I had already maxed out my loss harvesting for the year with non-dividend stocks. I did not want the added complexity of carrying forward the >3k loss limit for the year.
Who does your UA-cam thumbnails? They look good!
Thank you for that feedback. I used to do them myself. I'll summarize the results for you: Not good. lol.
Now I use Fiverr. If you look at my videos you will notice two distinct styles. The newer ones are from 'Nick N' on there. He's great. Literally have made zero revisions (I have fairly detailed instructions, but he fills in the gaps well).
Thanks for the great video and validating your position with facts. I am a new investor with a pension and weighing the balance of growth vs dividend. I have 6 years till retirement so in my scenario it seems that growth is a better option? Thoughts? Thanks again
Hey Anthony, thanks for the comment and question. I think for 'most' people with a pension and (eventually) social security, dividend growth makes more sense long-term. I'm a fan of getting the yield to the point where you can 'live comfortably now' but no higher than that. If the bills are being paid and you're enjoying life, more dividend growth will help enhance that long-term (instead of chasing more yield to have more today). It's always a balance because we need to get by today to benefit tomorrow.
Hi Jeff, Thank you for this insightful video and your thoughtful responses to the comments! I'd like to share that today I placed my 1st trade in my Roth IRA! 🎉 I'm 44 and following the 3 fund portfolio. Today, I put 25% of 10.5K into SCHD and 25% each into FXAIX & SPLG. I read a comment that said VOO in a brokerage account is more "tax-efficent." However, I went with these 2 bc of the expense ratio, and cost since I'm just starting. I'm still figuring out the growth portion. I've been looking at QQQM, but I need to do more research.
My question is about your response. As a teacher who would like to retire (God-willing) @ 55, I, too, would have a pension. I max out my 403b, and I plan on opening up a 457 plan. I intend to use the 457 to supplement my pension since no other $ would be available until 59.5. I don't have a brokerage acct. but wouldn't that also be taxable income too? I plan to do ROTH conversations from my 403b b4 claiming SS at 70 bc those funds would add to my overall taxable income. Ultimately, I'm trying to understand your sentiment from the 2nd sentence to the end. The phrase "dividend growth makes more sense long-term" isn't clear. Does this pertain to a ROTH vs. Brokerage? I'm confused and would like to understand. Thank you!
Im about your age and IRA and 403b is about VOO and half SCHD. Just dumped indexs for SCHD purchases
Very nice, Will. I still roll with a nice chunk of growth ETFs as well (VGT in my case). I know it will be a rollercoaster, but it goes up over long stretches of time. But SCHD is my sleep well at night holding for sure! (:
@@JeffTeeples Sorry, my comment probably didn't make grammatical errors hah! But I'm interest on your take on my portfolio and any recommendations!
SCHD - 31%
VOO - 37%
FNCMX - 11%
SWPPX - 13%
FXAIX - 8.5%
Enjoy the content, Jeff!
Hi Jeff: What is the basis for “purchasing power” on your spreadsheet? Thanks.
Hey Tommy. Great question. It is a 'future value' formula that ultimately shows what the value of the future money would be worth today.
It takes into account the number of years that have passed along with the assumed inflation rate (in my example I use 3%). So it takes away 3% of your purchasing power per year (just like inflation does in reality). $100 in 2024 will only be worth ~$97 in 2025. It also accounts for the compound effect of inflation.
Ultimately, the PP per month shows 'what the money is worth in 2024 dollars'. The numbers get very big over time, but so does the cost of buying things. Don't want the spreadsheet to 'look better than it really will be' based on the assumptions.
Love it. ❤
Thanks for the positive feedback. I'm still bracing myself for the O army, lol. It is very popular, which makes sense, because it's a solid investment for its purpose.
Do you still consider SCHD a div growth etf, after reconstitution? It seems to favor solid high div...but I'm not sure (forward looking) div growth so much
This is a great question, and one that is asked most years to be honest. This is because SCHD tends to add value companies with good balance sheets and higher yield and to drop the run up companies that have performed extremely well in price, which ultimately dropped the yield (think AVGO).
I have never considered it a dividend growth ETF compared to VIG or DGRO. Because those are literally made ONLY for dividend growth (the screeners really are that simple). SCHD is more balanced between yield, dividend growth, and price appreciation. However, it has ironically out grown the dividends of VIG and DGRO over the past 10 years (at most points in time, DGRO is technically not quite 10 years old, but using what CAGR is there). SCHD has been weaker recently, though, to be fair.
I do still consider it a 'dividend growth ETF' in general, compared to other ETFs. But it will not grow (most likely) the dividends as well as DGRO and VIG in the future. So it is sort of a hybrid within dividend ETFs.
What do you think about using jepq or jepi to create more income now to reinvest into other investments like schd, voo, etc.?
Hey Sanjit, I'm a huge fan of that! In fact, when I left my job to start this channel a while back, I took a chunk of my cash and established a position in JEPQ for the cash flow. I love the Nasdaq-100 index (favorite index over the last 40 years), and I think the strategy it uses to create the cash flow is great. The expense ratio is fairly low for an actively managed fund as well.
I think QQQM is objectively better to 'DCA into for 20+ years' for total returns (doesn't cap ceiling and is lower cost). However, JEPQ is a great 'cash now while still growing later' ETF.
Jeff, are you saying that earned dividends in my IRA could be possibility tax at the 0% rate when I retire next year at age 65? Would they be qualified dividends. Ty
Hey Nelly. Thanks for the question. Unfortunately, you will owe taxes on the dividends received within a traditional IRA (or 401k) in the year that you withdraw the funds. It doesn't matter if the dividends were qualified or non-qualified. The taxes will be paid at your marginal tax rate (from the federal tax brackets) when you withdraw the money in retirement.
Ironically, a 'taxable brokerage account' will often tax qualified dividends at 0% in retirement. There is no avoiding the taxes from a 401k or IRA withdrawal. It will be paid at your ordinary income rate and will add to your taxable income in the year you take it out (regardless if it was capital gains, qualified dividends, ordinary dividends, or interest received).
Your chart you show how it grows every year. Does that account for the dividends to be reinvested back into the ETF to grow that much?
Thank you for watching and leaving a comment Michael. It seems crazy, but no, it doesn't assume reinvested dividends. Einstein wasn't lying when he said 'compound interest is the eight wonder of the world'.
My model doesn't even show the price appreciation either, it is only isolating the cash flow.
@@JeffTeeples Wow that's amazing, yeah the price of a share also increases over time. Your really earning much more than the dividend. I like that a lot for retirement because its much less risky but still earns better than a bond which is tax at short term gains where SCHD isn't as you pointed out.
Hey Jeff. Can you do me a favor? I have an ongoing dispute with a few people about VOO vs VTI.
I split them always in any portfolio 50/50. Can you your program which does better over 5, 10, 15 years.
1. VOO 100%
2. VTI 100%
3. VOO & VTI 5O/50.
Thanks. I think 50/50 edges either one out over time.
Nothing like a good investing debate from time to time (:
Here is the data:
Total returns: (VOO didn't have 15 years so I used SPY which is slightly higher ER but similar investment)
5Y: VOO 94.66%, VTI 87.15%
10Y: VOO 243.12%, VTI 223.14%
15Y: SPY 696.19%, VTI 677.02%
Doing a 'max' backtest with VOO, VTI, and a 50/50 mix, I had the following results from 1/1/2011 through 3/31/2024:
Scenario was starting with $10,000, and DCA in $1,000 per month.
Ending balances:
VOO: $522,021
VTI: $501,388
MIX: $511,683
The 50/50 mix was the exact middle in every single category. Never the best or worst in a single year in any stat.
Wow. I’m surprised with the end results. I’m sure the mix would win. VOO pulls it out. Thanks Sir.
Great explanation
Thanks Dru! REITs are not bad at all, but not for me. I felt it important to explain why. Because again, they are not bad at all, and they do add nice diversification for people that think about 'current value' with potential crashes. The irony is that come crash time that's when I REALLY want to be in the stock market (as far as new money going in). So it's a bit of a catch-22. I want to buy more ETFs when they are falling, and I know the passively managed ETFs will eventually get back up, so if no sells, there is nothing lost and the cash keeps coming in.
Hi Jeff, new to the channel. Really liking the videos! I have a question
I am 40 with 200k in my 403b at work
Just opened a brokerage account. Plan on making VOO my base, what do you think of the rest of the spread? I’d like to retire betweeen 60-67. I was thinking of not investing at all in dividends until much closer to or at retirement
VOO 60%
AVUG 10%
SCHG or VGT 10%
IHI 10% for medical equipment
FTXR 5%
FBTC 5% bitcoin
What would you change? Should I get started with SCHD now? That would be my dividend pick
Thanks for watching and leaving a comment Stephen. I think you have a great idea there. VOO is a great cornerstone to put your money into.
I like SCHG or VGT as well. FBTC is a top tier spot Bitcoin ETF.
I think adding SCHD is a nice idea. Maybe start a bit smaller and slowly build up the position. I have a lot of SCHD, but it is mainly because I also have a lot of VGT. It is the counterbalance to that (low overlap and correlation).
With 60% VOO as your core, I think 20 to 30% SCHG and/or VGT, with a touch of SCHD and FBTC make a solid portfolio.
When you retire, you'll likely want to move more into SCHD. For now, just keep buying in, never sell when it crashes, and stay the course.
@@JeffTeeples that looks and sounds like a good plan. I’ll get it all set up tomorrow
@@JeffTeeples so maybe I’ll do something like:
VOO 60
SCHG 10
VGT 10
SCHD 15
FBTC 5
And like you said in one of your earlier videos on what etfs to have at what age period I’ll start to move things over more to SCHD in time
Love that mix. I think you'll be extremely happy with it long-term. Just remember that the FBTC could fall to basically zero, or go to the moon. It is your wild card. So make sure you're 'okay' completely losing 5% in worst case.
I do the same thing, and I'm totally okay with my IBIT risk/reward.
If you buy 1 share of VOO & get the usual 8-10% return over time then employ the 4% rule, will you ever run out of that 1 share of VOO?
In theory that would work. However VOO very rarely returns 8-10% in any given year. It will be +27%, -18%, +14%, etc.
The average over 100 years is ~10%. But a lot of it depends on when the bad years fall. If it is the first couple in retirement it completely breaks the projections moving forward.
@@JeffTeeples so if it’s the first couple years of retirement a dividend etf like SCHD would be better?
@@erickSPY777 definitely. But VOO has a higher chance of creating excess returns.
I will take the (basically) 100% pass rate of something like SCHD over the min/max advantage of VOO.
Well, I will take both, but if I had to choose only 1 in retirement, it would be SCHD.
In reality, it will be a mix of VOO, VGT, QQQM, and SCHD (:
@@JeffTeeples Awesome, thanks!
What do you think about QQQM and SCHD?
I love that combination! QQQM is my favorite multi-sector growth ETF, and SCHD is by far my favorite long-term dividend ETF.
My greatest concern is how to recover from all these economic and global troubles and stay afloat especially with the political power tussle going on in the US.
I think a great way to handle all of the bumps (and I agree with you, there will be plenty of bumps) is to dollar cost average into a well built portfolio. You'll buy all of the highs and the lows.
In retirement, *most* dividend producing ETFs will be fine regardless of the market & price fluctuations.
Either way, I'm on team 'stay the course'. Panic selling & trying to time the market lose people decades of wealth accumulation.
Do you take into account Sharpe Ratios? Why or why not? Just curious :)
Hey Phil, thank you for the question. Also, thanks for being a channel member. I see that bling next to your name! I appreciate it.
I do take a look at the Sharpe ratio, in general, when comparing potential investments. SCHD / VGT, for example, always have a weirdly high Sharpe compared to things like VOO. The higher the better with that one.
It isn't one that I put a TON of weight into, personally, but I do consider it as a tie breaker.
Let's do a mock new investing/roth account?!
What do you have in mind?
hello, I have one million dollars in cash, I want to retire what would be your other picks besides schd, O, and what else u think is good? Also can you please share your spreadsheet :) , do u have any coupons for seeking alpha, i want to register myself there ...
Hey Sunny. I do have a link to the channel membership (spreadsheets) and a Seeking Alpha link (to try premium for free, and to join for 25% off your first year if you like what you see) in the description below each video. Here they are:
Join the 'Financial Freedom Friends' today!
youtube.com/@JeffTeeples/join
💰Try Seeking Alpha Premium FREE & Save at least 20% on a subscription with the link: www.sahg6dtr.com/37TKQPB/R74QP/
To retire with $1,000,000 will look way different depending on a number of factors. I would use a combination of SCHD (for dividend growth) and JEPQ (to boost yield to an acceptable current level), and a splash of VOO (never hurts to have the market, growth will be important too) if the lower yield works combined with the other holdings.
20:00 You can't compare like that. Are you ok living on less income with SCHD in the first 8 years? Then with O, you could've reinvested the extra money, and the picture would be different.
Thank you for watching and for the comment. This is true to a certain extent, and I get a lot of this feedback with JEPI and JEPQ over SCHD and DGRO. However, long-term, the dividend growth will exponentially put more money into your pockets with how the math of compound works. But yes, reinvesting dividends definitely helps as well!
If we are not reinvesting dividends, couldn't we invest in O until the dividend yield of SCHD surpasses the yield of O? At that time, we could just move our money over to SCHD. Or are you also including potential share price appreciation into the mix?
@@nutria12247 The idea is that if you buy into SCHD, the price you paid stays unchanged but the dividend will continue to grow so the yield becomes a higher percentage of that lower prices.
I own both but from everything I've seen O's dividend will not grow as fast as SCHD's based off past dividend growth, plus SCHD pays a qualified dividend vs non-qualified for O. Over time SCHD will offer a higher yield and will apppreciate faster.
Dear Sir: 1) Your taxation of Qual. Div's explanation INCORRECTLY suggests that the tax brackets for such are independent of general taxable income. Almost as if the brackets and income in your example only pertain to the Qual. Div amounts. In reality, all taxable income (excluding Qual. Div's) determines the Qual-Div tax rate. Item#2: How does purchasing power decline if growth CAGR's exceed the inflation rate in your examples of retirement income? Something seems wrong with your numbers.
Hey Scott. Please watch my video from yesterday for a full (and probably painful lol) explanation of qualified dividend tax implications if you are confused. Sometimes a comment in passing won’t tell the full story.
If your dividend CAGR beats inflation then your purchasing power will increase. Yield is irrelevant of course. JEPQ has been crushed by inflation, for example, in its young history. Not sure what part you’re referring to because there are a lot.
This stuff will get clearer. I promise. Just takes time to slowly learn the nuances. There is a lot. When it clicks, it will feel like simple magic.
I did this for VOO / VGT and it actually outperforms VGT / SCHD so is the idea behind SCHD the dividends?
Hey Jahmar. You nailed it. It’s all about having a nice balance between growth and dividend ETFs. VOO will ‘almost always’ outperform SCHD over a long stretch of time. SCHD is a floor protector, not a ceiling raiser.
Growth has dominated the past 10 years. VGT / QQQ will smoke VGT / VOO, for example.
But the point of SCHD is to have a nice counterbalance to VGT. And that combo has outperformed the market (VOO) ten years in a row. It’s wild bc VOO is very hard to outperform.
When things get bad, the mixes with growth ETFs only will suffer.
@@JeffTeeples Makes a lot of sense! Thanks Jeff ✊🏾
So basically, do jepq only until have your spending covered but schd will be more beneficial
I think that is the best long-term approach for anyone (JEPQ and SCHD are my favorite, but multiple tickers have the same logic). You'll hear people say go all JEPQ because you can reinvest the dividends instead of taking them all. This is true, but the specific dividend growth rate will 'math out' better dollar for dollar with a dividend grower. Compound growth really is wild.
@@JeffTeeples Thanks man
@@JeffTeeples I am thinking about the etfs that I am investing in and how I can retire on dividends however the VGT VOO QQM and SCHD combination pay about 1.5% a year. That will not be enough for me based on my projection. If I need to liquidate the funds to sell and buy Jepq/schd, I will be taking long term capital gain hit. How would you approach from growth to dividend conversion in taxable brokerage account?
There are a few different variables that come into play. Long-term capital gains get the same special tax table as qualified dividends. In retirement, your tax percentage will often be 0% on them, depending on your income that year. Sometimes it's good to sell LTCG over a few years to stay in that 0% tax range.
You can also move stuff around anytime in your tax advantaged accounts at any time without any tax implications. Things like your Roth IRA, 401k, traditional IRA, HSA, etc. So your taxable account should be the last resort for 'moving stuff around'. But even if you have to, as long as it is long-term capital gains you're good to go. It won't be more than 15% taxes (unless you are moving a TON in a year), and you can hope to see it stay mostly at 0% if you do it incrementally over a few years.
It is the exact same concept / tax treatment that I explain about the qualified dividends.
REITs are subject to all the volatility of the RE market. At the same time, almost all of the benefits of rental property ownership belong to the company, not you the shareholder.
I guess if I was forced to buy a REIT or else, it would be one focused cell towers or data center
There is a lot of money to be made in RE if your name is on the title. The 400% depreciation bonus you get by writing off the mortgage is about as good as it gets
Hey Chris. I'm with you on this one. From a long-term perspective, I don't think REITs make sense. I know a lot of people love them, but the zoomed out numbers don't add up (from what I've studied).
Pardon my low tech, how do I know if I were a member?
Hey Brianna. I know because I see your bling next to your name! (:
The 1M means you have been a member for at least a month. You also have access to use the channel emojis when you leave a comment. I am putting more out as I reach each new tier. Thank you for your support!
nice analysis. However, it solely benefits the young; those who are retired and in need of money won't be able to use it
Thank you for your feedback. I agree, retired people will likely need to focus on yield at first. Depending on the portfolio value of course. But I would argue finding the balance between growth and yield is WAY more for retired people than younger folks. This video was primarily for retired folks. It's all about getting by NOW, while enhancing lifestyle in the future.
For younger people, they will 'mostly' want growth ETFs or things like VOO before retirement. I didn't cover that type of investing in this video.
Thanks for the insights, Jeff. I like SCHD a lot but one thing that worries me is we are in high inflation, high rate environment at macro level. This is an untested area for SCHD. I worry SCHD will struggle in such an environment. Any thoughts?
I agree with you. SCHD has been very shaky during these times. It has underperformed by quite a bit over the past year or so. However, I do think it will be stable long-term as everything balances out.
As an equal holder of SCHD and VGT, I have seen one stay about flat while the other has shot up 50%. I will continue to keep them balanced (basically only buying SCHD lately) over the years. When the crash comes, and it will, SCHD will be the hero again. I like the steady nature of it, and believe in it long-term. But I definitely think you have a great point!
its ambitious to think SCHD will grow its dividends by 10%, unless you expect the share price to grow at 10%, and that is a lot to assume.
I wouldn't be surprised to see the dividend CAGR drop below 10% in the coming years. Especially after a rough past year. I think it will remain ~7% or higher, long-term. Time will tell.
@@JeffTeeples I think so too
While SCHD is 52 week high, I only bought O because its current price to generate monthly cash flow in my Roth tax free account (reinvest). Not a lot though. And I ll sell O when the real estate comes back in business to get the gain to buy more SCHD (the largest holding in my portfolio)
Very nice plan, especially in a Roth. O is great there, and the price will very likely rebound. All investments have an innate reversion to the mean. I think now is a good time to buy things like O. Again, I don't invest in it, but that doesn't make it bad by any stretch. I'm a robot that only considers long-term factors.
💎 VanEck Oil ETF ( OIH) 💎
Hey Andrew. Not going to lie, I've never heard of that ETF. Will check it out.
My fear of SCHD is I’ve heard SCHD will not alway have CAGR of 10% and more realistically 5%. What do you think?
Thanks for the question. I think it will hang in there at ~7% or higher long-term. It has been a rough past year or so. Time will tell.
SCHD historically was under performing. 🤣
Not sure how to take this comment in a vacuum. If you're referring to the market, then yes, SCHD has underperformed on this bull run (vs VOO).
But the point of SCHD isn't to outperform VOO, and it has been close (in fact, even ahead in certain 10 year stretches not long ago).
But the point is to pay solid dividends, provide stability, and steadily grow those dividends. If it beats VOO over long periods of time it likely means our market has been a bit meh. That is not the case lately. SHHD is a floor protector, not a min/max in good times.
10% 🤣😂
It’s crazy it has been 10.9% over the past decade. I think it will likely come down some as well. Time will tell.
Keep up the great work. I loved the video!!
Thank you for the kind words. Will do!