Chapter 1: Investment Dilemma

As we approach the end of 2023, a critical decision looms for investors: Should we secure a reliable 5% return while interest rates remain elevated, or take the plunge into a dividend fund like SCHD, especially since it has recently dipped approximately 10% from our previous purchase price?

Photo by the author

As of October 2023, options such as T-bills or the Vanguard money market fund VMFXX offer returns of 5.3%, while numerous high-yield savings accounts yield around 4.5%. In contrast, SCHD, a dividend fund, currently provides a yield of 3.8%. This fund is known for its stability and minimal risk, with expectations of both price appreciation and dividend growth over time.

The pivotal question is this: Should we hold onto the guaranteed returns (like VMFXX and T-bills) or risk investing in SCHD, potentially missing out on the 1.5% yield gap that could compound annually?

While SCHD is generally considered a safe investment, there's a possibility it could continue to decline or remain stagnant for the next five years, which would result in no gains from the stock price. Additionally, if dividends were to decrease instead of increase, we might not even achieve the 3.8% yield, which is crucial in outpacing inflation.

This dilemma is a familiar one for income-focused investors, contributing to SCHD's price drop to around $69 from approximately $75, making it an even more appealing buy.

After considerable reflection without a definitive conclusion, I decided to invest $5,000 in the discounted SCHD. My choice was influenced by the need for diversification, as this ETF's assets do not significantly overlap with the rest of my portfolio.

Currently, I have about $28,000 sitting in a Vanguard brokerage account, accruing VMFXX rates, designated for 2024 expenses. If all goes as planned, we will only require a maximum of $24,000, leaving a $4,000 buffer.

To make use of this buffer, I acquired 75 shares of SCHD. If necessary, I can liquidate a T-bill to ensure our financial needs are met. This way, I can enjoy the benefits of dividend income alongside my existing SCHD shares and other dividend sources. Although the addition of 75 shares will contribute just under $200 annually, every bit helps, and we appreciate the extra income. That $200 could fund two delightful day trips to Isla Mujeres or about 20 visits to local coffee shops in Cancun.

Photo by the author, October 2023

Photo by the author at Picus restaurant, Isla Mujeres, October 2023

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