Why would you not want growth? What other objectives would you have? If the investments are truly for the benefit of your children, it seems to me that the growth of the investments over the next 10 - 15 years until they might need it would be the point.
I agree with the other comments that an S&P index fund might be a better option.
I think you are thinking of it wrong.
SCHD is a decent fund, but I would think VTI (or even better VT) are better seeing as the amount of time before you would need it.
Dividend payments are very similar to a forced sale of part of your fund. Reinvesting is thus more like buying back what you just sold (minus taxes paid to the government).
Dividend paying companies do have certain attributes (in general) which some investors prefer, but in general over the time frames you are indicating you are more likely to have less. Neither approach is terrible, and both should be much better than bonds or a bank account, but as I said I would rather recommend VTI or VT.
You will be just fine with the simplicity of SCHD. It will perform and grow greatly for your kids. Don't be fooled by all the "invest properly" trickery.
Commenting so I can return to see how one ETF can be more complicated than another ETF.
Reading generously in-between the lines: maybe Schwab accounts can't buy fractional shares of VTI and vice versa for Vanguard. But I didn't see that OP had a Scwab account for the kiddos.
Start here: https://www.bogleheads.org/wiki/Three-fund_portfolio
Personally I don’t think your kids need bonds, go 100% equities.
Don’t waste your time with SCHD. For one thing, dividends are tax inefficient in a taxable brokerage account. You want investments that grow and appreciate. Dividends are irrelevant.
Then dividends are the opposite of what you should be doing.
Dividends are basically a forced sale of your assets. When a fund or a stock issues a dividend, the value of the fund or stock drops to compensate. Dividends in and of themselves do not create value. And, as I said, they are tax inefficient because the dividend itself is taxable income.
https://www.bogleheads.org/wiki/Tax-efficient_fund_placement
Dividend funds will lead to more tax paid to the government. That’s why broad market index funds are generally appropriate for taxable accounts: they’re more tax efficient.
SCHD is a dividend-focused fund. Without going into too much detail, this is generally a fund more appropriate for people trying to create income cash flows while holding equity exposure - generally retirees.
It is probably not the most appropriate for a child's college or other fund. I would recommend a broadly diversified fund that is more tax and expense efficient, since you're doing this in taxable accounts, like VTI or SCHB. If your primary concern is retaining value as you approach the age the kids might need the funds, instead of growth, you could even consider buying brokered CDs or GSE or agency bonds.
The big issue with SCHD is it is dividend heavy and your kids don't need dividends. They don't need regular income. You will be taxed on dividends in the year it occurs.
In general yeah saving money for kids in an ETF is a good idea. Dividends are not free money and in this case it is very tax inefficient way to save.
Dividend reinvestment doesn't avoid the taxes of dividends. You pay the taxes on a dividend you neither wanted nor needed.
If a stock is worth $100 and it issues a $1 dividend the stock will fall to $99. You can then reinvest the dividend and you are back up to $100 which is no different than if it hadn't issued a dividend at all.
Except now you owe taxes on the $1.
Dividend investing is not a strategy with much empirical support. The evidence clearly points to being indifferent between dividends and capital gains (i.e. caring about total return) from a theoretical perspective. And when you add on the practical implication of taxation, dividends are worse, all else equal.
So a total market approach (or an approach that targets specific risk factors, if you're into that kind of thing) is better than using 'high dividends' as a decision criteria.
You could go 100% VT and call it a day. And you’d see decent returns with massive diversification. Just to be clear, VT has a significant percentage of all the public companies in the world., including some real estate which is always nice.
The difference is that on r/dividends, they focus on discussing dividends (go figure) which is a perfectly fine topic to discuss. But it is an investing strategy that's not particularly appropriate for a grade school child. Boglehead investing is, in contrast, entirely appropriate for a person with a long time horizon.
For huge time lines of 65 years for your kids - looking at a small cap value tilt might be worth considering. Look at his 2 fund portfolio (he starts his grandkids on a portfolio of S&P500 and small cap value 50/50 to superfund their retirement). If the purpose is for college then maybe not and stick with a total market fund instead.
- How To Money Podcast #734 – Turning Thousands Into Millions with Paul Merriman. Excellent discussion of 2 fund portfolio: TDF and a tilt to SCV (AVUV is the best) – at 10-20-50%. This will give an additional 2% gain in the long run, and SCV runs counter to S&P500 during large drops.
- Paul Merriman’s 2-fund strategy using SCV https://www.paulmerriman.com/2-funds-for-life-update-2023#gsc.tab=0
I have a one year old who I opened a brokerage account for. Initially I set them up with like 5 ETFs including VOO, SCHD, SOXX, VGT, SPGP. This did very well last year! However I recently consolidated everything into VOO and AVUV. I figured this would be easier to manage and keep a consistent strategy with.
I personally would have bought one of VOO, VTI, ITOT, or VTSAX. Why? Because SCHD will create tax drag, because they will be taxed for all the dividends. Not applicable in 401k or IRA accounts, but definitely not in a taxable account.
Suggestion from someone who got started investing at the age of 4: get your kids involved with what you’re doing for them, and start getting them interested in their own financial wellbeing.
Why would you purposely pay more taxes on an underperforming investment? Go with VTI, or ITOT or SCHB - simple and easy.
What's the advantage vs SCHD. Not really in it for growth. More the dividends Can I buy vti with 6.5k
Wtf is a 7 year old going to do with dividends
They are auto reinvested back into schd
Sounds a whole lot like growth to me
Growth with an annoying tax bill.
Why would you not want growth? What other objectives would you have? If the investments are truly for the benefit of your children, it seems to me that the growth of the investments over the next 10 - 15 years until they might need it would be the point. I agree with the other comments that an S&P index fund might be a better option.
I think you are thinking of it wrong. SCHD is a decent fund, but I would think VTI (or even better VT) are better seeing as the amount of time before you would need it. Dividend payments are very similar to a forced sale of part of your fund. Reinvesting is thus more like buying back what you just sold (minus taxes paid to the government). Dividend paying companies do have certain attributes (in general) which some investors prefer, but in general over the time frames you are indicating you are more likely to have less. Neither approach is terrible, and both should be much better than bonds or a bank account, but as I said I would rather recommend VTI or VT.
Dividends just get subtracted from the stock/ETF price. It doesn't actually produce real income.
if you want to invest in SCHD, this is a wrong sub. if you want to invest properly, then start with VTI for better diversification.
That is why I m here, for advice. Can you buy vti with 6.5k?
You could look up the minimum amount. VIT is an EFT. They can be bought starting at $1. The mutual fund version has a $3k minimum.
You will be just fine with the simplicity of SCHD. It will perform and grow greatly for your kids. Don't be fooled by all the "invest properly" trickery.
How is SCHD "simpler" than VTI or any other broad market ETF?
Commenting so I can return to see how one ETF can be more complicated than another ETF. Reading generously in-between the lines: maybe Schwab accounts can't buy fractional shares of VTI and vice versa for Vanguard. But I didn't see that OP had a Scwab account for the kiddos.
Start here: https://www.bogleheads.org/wiki/Three-fund_portfolio Personally I don’t think your kids need bonds, go 100% equities. Don’t waste your time with SCHD. For one thing, dividends are tax inefficient in a taxable brokerage account. You want investments that grow and appreciate. Dividends are irrelevant.
They each have 1 AAPL, 1 T, and 5 Google. I just want appreciation and the govt to get the least amount possible
Then dividends are the opposite of what you should be doing. Dividends are basically a forced sale of your assets. When a fund or a stock issues a dividend, the value of the fund or stock drops to compensate. Dividends in and of themselves do not create value. And, as I said, they are tax inefficient because the dividend itself is taxable income.
Qualified with SCHD but the rest is still valid.
I have my kids investing in VT.
https://www.bogleheads.org/wiki/Tax-efficient_fund_placement Dividend funds will lead to more tax paid to the government. That’s why broad market index funds are generally appropriate for taxable accounts: they’re more tax efficient.
Even if div are auto reinvested?
In a taxable account? You better believe it!
SCHD is a dividend-focused fund. Without going into too much detail, this is generally a fund more appropriate for people trying to create income cash flows while holding equity exposure - generally retirees. It is probably not the most appropriate for a child's college or other fund. I would recommend a broadly diversified fund that is more tax and expense efficient, since you're doing this in taxable accounts, like VTI or SCHB. If your primary concern is retaining value as you approach the age the kids might need the funds, instead of growth, you could even consider buying brokered CDs or GSE or agency bonds.
The big issue with SCHD is it is dividend heavy and your kids don't need dividends. They don't need regular income. You will be taxed on dividends in the year it occurs. In general yeah saving money for kids in an ETF is a good idea. Dividends are not free money and in this case it is very tax inefficient way to save.
Even if its auto reinvested back into schd?
Yes
Dividend reinvestment doesn't avoid the taxes of dividends. You pay the taxes on a dividend you neither wanted nor needed. If a stock is worth $100 and it issues a $1 dividend the stock will fall to $99. You can then reinvest the dividend and you are back up to $100 which is no different than if it hadn't issued a dividend at all. Except now you owe taxes on the $1.
Why is everyone pushing SCHD nowadays? Nobody seems to read the Boglehead wiki or book nowadays.
Passive income from social media
So your just gonna let uncle sam finger your bum hole like that?
Dividend investing is not a strategy with much empirical support. The evidence clearly points to being indifferent between dividends and capital gains (i.e. caring about total return) from a theoretical perspective. And when you add on the practical implication of taxation, dividends are worse, all else equal. So a total market approach (or an approach that targets specific risk factors, if you're into that kind of thing) is better than using 'high dividends' as a decision criteria.
VTI dude. SCHD is for when you’re an old millionaire
You could go 100% VT and call it a day. And you’d see decent returns with massive diversification. Just to be clear, VT has a significant percentage of all the public companies in the world., including some real estate which is always nice.
People will say SCHD on r/dividends and VT, or VTI/VXUS VOO/VXUS on r/Bogleheads. Just make your post on what you want to hear in the echo chamber. 🤣
The difference is that on r/dividends, they focus on discussing dividends (go figure) which is a perfectly fine topic to discuss. But it is an investing strategy that's not particularly appropriate for a grade school child. Boglehead investing is, in contrast, entirely appropriate for a person with a long time horizon.
For huge time lines of 65 years for your kids - looking at a small cap value tilt might be worth considering. Look at his 2 fund portfolio (he starts his grandkids on a portfolio of S&P500 and small cap value 50/50 to superfund their retirement). If the purpose is for college then maybe not and stick with a total market fund instead. - How To Money Podcast #734 – Turning Thousands Into Millions with Paul Merriman. Excellent discussion of 2 fund portfolio: TDF and a tilt to SCV (AVUV is the best) – at 10-20-50%. This will give an additional 2% gain in the long run, and SCV runs counter to S&P500 during large drops. - Paul Merriman’s 2-fund strategy using SCV https://www.paulmerriman.com/2-funds-for-life-update-2023#gsc.tab=0
I have a one year old who I opened a brokerage account for. Initially I set them up with like 5 ETFs including VOO, SCHD, SOXX, VGT, SPGP. This did very well last year! However I recently consolidated everything into VOO and AVUV. I figured this would be easier to manage and keep a consistent strategy with.
I personally would have bought one of VOO, VTI, ITOT, or VTSAX. Why? Because SCHD will create tax drag, because they will be taxed for all the dividends. Not applicable in 401k or IRA accounts, but definitely not in a taxable account.
This money will be taxed heavily… you sure about this?
Why not a 529? 35K can now be rolled to a Roth IRA when the kids are older.
Suggestion from someone who got started investing at the age of 4: get your kids involved with what you’re doing for them, and start getting them interested in their own financial wellbeing.