Calculator Parameters

$10,000
$1,000 $500,000
50/50
100% SCHD 100% REIT

SCHD Parameters

3.91%
8.0%
6.0%

REIT Parameters

4.82%
3.5%
4.5%
15 years
2.5%
15.0%
25.0%

Results Summary

SCHD Portfolio

Final Value: $13,950.27
Annual Income: $652.80
Yield on Cost: 13.06%
Total Income: $4,784.62
After-Tax: $4,066.93

REIT Portfolio

Final Value: $12,302.44
Annual Income: $724.20
Yield on Cost: 14.48%
Total Income: $5,350.36
After-Tax: $4,012.77

Key Insight:

While REITs offer higher initial yield (4.82% vs 3.91%), SCHD's stronger dividend growth rate (8.0% vs 3.5%) leads to higher total returns over your 15-year time horizon. SCHD's tax advantages also improve after-tax income despite the lower current yield.

Detailed Comparison

Portfolio Growth
Income Growth
Annual Income

Side-by-Side Comparison

Metric SCHD REITs Difference
Total Return 139.5% 123.0% +16.5%
Annual Income (Final Yr) $652.80 $724.20 -$71.40
Yield on Cost 13.06% 14.48% -1.42%
Total Income Generated $4,784.62 $5,350.36 -$565.74
After-Tax Income $4,066.93 $4,012.77 +$54.16
Income Growth Rate 8.00% 3.50% +4.50%

Income Crossover Analysis

Income Crossover Point
Year 9
When SCHD income exceeds REIT income
10-Year Income Advantage
REITs +$126.82
Cumulative after-tax advantage
20-Year Income Advantage
SCHD +$657.45
Cumulative after-tax advantage

Time Horizon Implications:

  • Short-term (1-5 years): REITs typically provide higher immediate income
  • Medium-term (5-15 years): Mixed approach often optimal
  • Long-term (15+ years): SCHD's compounding growth typically prevails

Strategy Recommendation

Based on your 15-year time horizon with the specified parameters, a balanced 50/50 allocation provides good income growth over time. The tax advantage of SCHD's qualified dividends becomes increasingly important in taxable accounts.

For a more aggressive income growth strategy, consider increasing SCHD allocation to 60-70%. For higher immediate income needs, increase REIT allocation to 60-70%.

Understanding SCHD vs REITs

SCHD ETF Overview

The Schwab U.S. Dividend Equity ETF (SCHD) tracks the Dow Jones U.S. Dividend 100 Index, focusing on high-quality, dividend-paying stocks with strong fundamentals and consistent dividend histories.

Current Yield
3.91%
5-Year Div Growth
~11.44%
Expense Ratio
0.06%
Dividend Frequency
Quarterly

Key Selection Criteria:

  • Cash flow to total debt ratio
  • Return on equity
  • Dividend yield
  • 5-year dividend growth rate
  • Minimum 10-year dividend payment history

Top Sectors:

REIT Overview

Real Estate Investment Trusts (REITs) are companies that own, operate, or finance income-producing real estate across various sectors. REITs must distribute at least 90% of their taxable income to shareholders as dividends.

Average Yield
4.5-5.5%
Avg Div Growth
3-4%
Common Expense Ratio
0.25-0.75%
Dividend Frequency
Quarterly/Monthly

Common REIT Types:

  • Residential (apartments, single-family)
  • Commercial (office, retail)
  • Healthcare (hospitals, senior living)
  • Data Centers
  • Industrial/Logistics
  • Mortgage REITs

REIT Sector Breakdown:

Tax Considerations

Feature SCHD REITs Implications
Dividend Type Mostly qualified dividends Mostly ordinary dividends SCHD typically has more favorable tax treatment
Tax Rate (Typical) 0%, 15%, or 20% (LT capital gains rate) Standard income tax rates (up to 37%) Higher tax burden for REITs in taxable accounts
Return of Capital Uncommon Often includes return of capital portion ROC isn't immediately taxable but reduces cost basis
199A Deduction Generally not applicable 20% tax deduction on qualified REIT dividends Partially offsets REIT's tax disadvantage
Optimal Account Type Taxable accounts Tax-advantaged accounts (IRAs, 401k) Account placement can significantly impact after-tax returns

Tax-Optimized Placement Strategy:

To maximize after-tax returns, consider these account placement strategies:

  • Taxable accounts: SCHD and other qualified-dividend ETFs
  • Traditional IRA/401k: REITs, high-yield investments with ordinary income treatment
  • Roth IRA: Investments with highest expected total return (growth + income)

Income Portfolio Strategies

Barbell Strategy

Combine SCHD for dividend growth with high-yield REITs to create a balanced income portfolio with both immediate yield and growth potential.

Implementation:

  • 60-70% SCHD for quality and dividend growth
  • 30-40% selected REITs for higher current income
  • Rebalance annually to maintain target allocation

Tax-Optimized Placement

Maximize after-tax returns by strategically placing investments in the most tax-efficient account types based on their dividend characteristics.

Implementation:

  • SCHD in taxable accounts (qualified dividends)
  • REITs in tax-advantaged accounts (IRAs, 401k)
  • Monitor and adjust as tax laws change

Time-Segmented Approach

Align investment selections with your time horizon, using higher-yield REITs for near-term income needs and SCHD for long-term income growth.

Implementation:

  • Short-term (0-5 yrs): Higher REIT allocation
  • Mid-term (5-15 yrs): Balanced approach
  • Long-term (15+ yrs): Higher SCHD allocation

Frequently Asked Questions

Why are REIT dividends typically taxed at a higher rate than SCHD dividends?
How does interest rate risk differ between SCHD and REITs?
Which provides better inflation protection: SCHD or REITs?
How should I adjust my SCHD/REIT allocation as I approach retirement?

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