SCHD vs Treasury Bonds

Which has performed better historically - SCHD or Treasury Bonds?

Since SCHD's inception in October 2011, it has generally outperformed Treasury bonds in terms of total return. SCHD has delivered annualized returns of approximately 13.47%, while Treasury bonds have typically returned between 2-5% annually over the same period.

However, performance varies significantly depending on the time period and market conditions:

• During equity bull markets, SCHD substantially outperforms Treasury bonds
• During periods of economic uncertainty or market downturns, Treasury bonds often outperform SCHD
• In rising interest rate environments, both may face challenges, but in different ways

Is SCHD or Treasury Bonds better for retirement income?

Both SCHD and Treasury bonds can be valuable components of a retirement income strategy, but they serve different purposes:

SCHD: Provides growing income over time as dividends increase, potentially outpacing inflation. Offers the possibility of capital appreciation but comes with market risk.

Treasury Bonds: Deliver secure, predictable income with virtually no default risk. Fixed payments can be advantageous for planning purposes but may lose purchasing power to inflation over time.

Many financial advisors recommend a balanced approach that includes both investments: Treasury bonds for stability and guaranteed income, and SCHD for growth potential and inflation protection.

How do SCHD and Treasury Bonds perform during market downturns?

During market downturns, these investments typically behave differently:

Treasury Bonds: Often exhibit "flight to safety" characteristics, with prices rising as investors seek safe havens during market turmoil. This counter-cyclical behavior can provide portfolio protection.

SCHD: Generally declines in value during market corrections, but typically less severely than growth-oriented investments due to its focus on quality dividend-paying companies with strong balance sheets.

For example, during the 2022 market downturn, while the broader market dropped significantly, SCHD fell less than the S&P 500. Meanwhile, Treasury bonds, while also under pressure from rising interest rates, provided more stability.

What's the ideal allocation between SCHD and Treasury Bonds?

The ideal allocation between SCHD and Treasury bonds depends on your investment goals, time horizon, and risk tolerance. Here are some common allocation approaches:

• Conservative Approach: 30% SCHD / 70% Treasury Bonds - Prioritizes capital preservation and stable income
• Balanced Approach: 50% SCHD / 50% Treasury Bonds - Provides moderate growth and income
• Growth-Oriented Approach: 70% SCHD / 30% Treasury Bonds - Emphasizes long-term growth while maintaining some income stability

As you approach retirement, consider gradually shifting more toward Treasury bonds to reduce volatility and secure predictable income. Use the calculator above to model different allocation scenarios and see how they affect both growth and income over your investment timeline.

What are the tax implications of SCHD vs Treasury Bonds?

SCHD and Treasury bonds have different tax treatments:

SCHD: Dividends are typically qualified dividends, taxed at lower capital gains rates (0%, 15%, or 20% depending on your tax bracket). Capital gains are realized only when shares are sold.

Treasury Bonds: Interest is fully taxable at the federal level but exempt from state and local taxes. This can be advantageous for investors in high-tax states.

For tax optimization:

• Consider holding SCHD in taxable accounts to benefit from qualified dividend treatment
• Treasury bonds may be more efficient in tax-advantaged accounts like IRAs or 401(k)s if you're in a low-tax state
• If you're in a high-tax state, the state tax exemption for Treasury bonds can be valuable in taxable accounts