Key Points
The Schwab U.S. Dividend Equity ETF (SCHD) is one of the best dividend funds in the industry.
Since inception, the fund has produced an average annual return of nearly 14%.
A $5,000 investment in the fund could grow to returns ranging from $16,000 to $66,000.
The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) is perhaps the most popular dividend fund in the market today. Its consideration of dividend growth, dividend quality, and high yield gives it one of the most comprehensive stock selection strategies in the industry.
It has the track record to prove it. Since its inception in 2011, the fund has generated an average annual return of 13.8%.
Missed AI’s "Act 1"? Act 2 Could Be 15x Bigger. Most investors think they missed the AI boat because they didn't buy Nvidia in 2005. But according to our analysts, we’re only at the end of "Act 1"—the R&D phase. "Act 2" is the global rollout. Continue »
But that's the past. The next 20 years may or may not look similar. But even if the Schwab U.S. Dividend Equity ETF earns well below its past returns, you could still end up with a multiple of your original investment. The outlook is positive as long as you don't panic along the way.
Image source: Getty Images.
Using historical returns as our guide, a $5,000 initial investment earning 13.8% annually turns into roughly $66,300 over 20 years.
But over the long term, the S&P 500 has earned about 10% annually. The 13.8% assumption might be a little too optimistic for the next two decades. So if we take that same $5,000 investment and it compounds at 10% per year for 20 years, the end result is around $33,600.
To be fair, let's also consider a more adverse scenario in which stock returns are lower, and U.S. stocks may have had to endure a bear market or two along the way. Over the next two decades, let's say the average annual return is only 6%. That would turn a $5,000 investment into about $16,000. Not nearly as impressive as the earlier numbers, but still a tripling of your initial investment.
The bad news is that it's impossible to know which of these scenarios, if any, will prove true. The good news is that the Schwab U.S. Dividend Equity ETF has a long history of delivering positive returns for investors, so the long-term odds are in your favor.
Just keep investing and avoid the temptation to try to time the market along the way. Let long-term compounding do the work for you.
David Dierking has positions in Schwab U.S. Dividend Equity ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.