Analyze how using leverage affects your SCHD investment returns and risks
SCHD's 10-year average annual return is 11.44%
SCHD's historical standard deviation is approximately 16.13%
$27,141
Without Leverage
$33,202
With Leverage
+171.4%
Without Leverage
+232.0%
With Leverage
-20.2%
Without Leverage
-30.2%
With Leverage
Using 1.5x leverage increases potential returns by 35.4%, but also increases your maximum drawdown by 50.0%. Consider your risk tolerance carefully.
With a 1.5x leverage ratio and SCHD's historical maximum drawdown of 21.54%, you would be approaching but still above margin call thresholds.
Leverage can significantly amplify your returns when investing in SCHD, but it also comes with increased risks. With SCHD's relatively low volatility (beta of 0.79) compared to the broader market, it may be a more suitable candidate for leveraged strategies than more volatile ETFs.
Leverage allows investors to increase their exposure to SCHD beyond their initial capital. For every $1 of your own money, you can control more than $1 worth of SCHD, potentially amplifying returns.
SCHD has several characteristics that make it relatively better suited for leveraged strategies compared to other investments:
| Characteristic | SCHD Value | Relevance to Leverage |
|---|---|---|
| Beta | 0.79 | Lower than market average, indicating lower volatility |
| Standard Deviation | 16.13% | Moderate volatility compared to growth stocks |
| Maximum Historical Drawdown | 21.54% | Smaller drawdowns help avoid margin calls |
| Dividend Yield | 3.91% | Dividend income can help offset leverage costs |
| Quality Focus | High | Quality stocks tend to be less volatile in downturns |
Despite these favorable characteristics, leverage always introduces additional risk. Our calculator helps quantify both the potential rewards and risks of applying leverage to your SCHD investment strategy.
Understanding how leverage would have affected SCHD's returns during different market conditions helps inform your decision about whether and how much leverage to use.
| Market Period | SCHD Return | 1.5x Leveraged | 2x Leveraged | Max Drawdown (Unleveraged) | Max Drawdown (2x) |
|---|---|---|---|---|---|
| 2020 COVID-19 Crash | -31.2% | -46.8% | -62.4% | -33.4% | -66.8% |
| 2022 Bear Market | -16.8% | -25.2% | -33.6% | -21.5% | -43.0% |
| 2019 Bull Year | +29.0% | +43.5% | +58.0% | -7.2% | -14.4% |
| 2021 Bull Year | +29.4% | +44.1% | +58.8% | -5.6% | -11.2% |
| 10-Year Period (2015-2024) | +196.5% | +294.8% | +393.0% | -33.4% | -66.8% |
The table above shows approximate estimated returns and does not account for interest costs, fees, or volatility drag, which would reduce leveraged returns. It illustrates that while leverage can significantly enhance returns during bull markets, it can also lead to catastrophic losses during sharp downturns.
If you decide to use leverage with SCHD, implementing proper risk management strategies is crucial to protect your capital during market downturns.
Limit your leveraged exposure to a manageable portion of your portfolio. Consider the following guidelines:
Implementing stop losses can help limit drawdowns when using leverage:
Maintain a significant buffer above minimum margin requirements:
Consider implementing hedges when using leverage:
SCHD is a relatively less volatile ETF with a beta of 0.79, making it a better candidate for leverage than many higher-volatility ETFs. Its focus on quality dividend stocks provides some downside protection during market corrections. However, even with SCHD's relative stability, leverage always increases risk significantly.
For most long-term investors, conservative leverage ratios of 1.2x to 1.5x are more sustainable with SCHD. Based on historical drawdowns, leverage ratios above 2x significantly increase the risk of margin calls during severe market corrections. Your personal risk tolerance, investment timeline, and financial situation should determine your appropriate leverage level.
When using margin to leverage SCHD, you receive dividends on all shares you own (including those purchased with borrowed funds). These dividends can help offset margin interest costs. At current dividend yields (around 3.91%) and margin rates (varying by broker from ~5.75% to 12%), dividends can cover a significant portion of borrowing costs, especially with brokers offering lower margin rates.
If your account equity falls below your broker's maintenance margin requirement (typically 25-30%), you'll receive a margin call. You must then either deposit additional funds/securities or sell some holdings to increase your equity percentage. If you don't meet the call, your broker will typically sell securities in your account (often at unfavorable prices) to satisfy the requirement.
For longer-term investors, using margin directly with SCHD is typically more efficient than leveraged ETFs due to volatility drag in leveraged products. However, margin introduces the risk of margin calls and potentially unlimited losses. The choice depends on your investment timeline, risk management approach, and how actively you want to manage your position.
Calculate the power of compounding through dividend reinvestment with SCHD.
Use CalculatorAnalyze SCHD's returns in relation to its risk profile using various metrics.
Use CalculatorExamine how different portfolio allocations to SCHD affect potential drawdowns.
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