Don't Be Broke In Your 70s, The Simple Path To Wealth With SCHD

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According to his new memoir, Al Pacino went broke in his 70s due to fraud and overspending.Like others, I am always shocked when I find out another celebrity was duped by a corrupt accountant or fund ...

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Joel Carillet/iStock Unreleased via Getty Images Al Pacino went from $50 million in liquid capital to broke at 70 Making the rounds of social media and business publications are snippets from Al Pacino's new book entitled Sonny Boy A Memoir By Al Pacino. I, like others, am always shocked when I find out another celebrity was duped by a corrupt accountant or fund manager. Like the long list of defrauded celebrities in the Bernie Madoff scandal, this is just another story to show not only do our children need better financial education, but so do our extremely rich celebrities and athletes. An anecdote from Pacino's new autobiography \"Sonny Boy\":  The born-and-bred New Yorker went on to make a fortune starring in movies such as \"Heat\" and \"Donnie Brasco.\" He said he virtually ignored his finances for most of his career, trusting his accountant to manage his cash. Eventually, he looked over his books in 2011, when he'd just returned from an extravagant family getaway in Europe, and was surprised to see he was wealthier than before he'd left. Several other red flags eventually led him to an accountant who told him he believed his current bookkeeper was an \"arrogant crook.\" \"I was broke,\" Pacino wrote. \"I had $50 million, and then I had nothing. I had property, but I didn't have any money.\"  This story actually makes a lot of sense to me now in retrospect. You see, our family is a shameless fan of Adam Sandler movies, and one of our favorites is Jack and Jill, a movie where Adam Sandler plays the male lead and his own sister. Al Pacino, now doing play-acting and taking commercial gigs, is a target for Sandler, who is an advertising executive trying to get Pacino to do a Dunkin' Donuts commercial. He'll only do it on one condition, he hooks Pacino up with his sister [also Adam Sandler] who caught Pacino's eye during one of their meetings. Widely panned by critics and with a ridiculous plot, I often wondered how they got the 70+-year-old Pacino to do such a film, this is The Godfather we're talking about, Scarface, a legend. Now it all makes sense. He said he did it because he needed the money. One of life's question boxes is now checked off for me. An easy way to have the best in the business watching your money, for a fraction of the cost I've mentioned previously that I've sat through registered investment advisor meetings with family members of retirement age. They make the money management game sound oh so difficult. I came to think of it, what is one fund and extremely easy strategy I could pitch to an adult that may have significant wealth but no financial literacy. In my opinion, it would be The Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD). I've covered this fund previously, regarding it as my favorite \"capital gains storage\". Oddly, enough, over the years I have met quite a few individuals at least at the level of wealth of Al Pacino. If they're not from an industry by trade that actually buys and sells stocks, they have no interest in doing it themselves. This includes individuals directly involved in real estate financing I've been acquainted with. They also oftentimes end up with a smaller boutique firms, recommended by a friend of a friend for management purposes. Not that there's anything wrong with that, but it's certainly a more risky matter than working with one of the top investment advisors like Fidelity, Edward Jones or Charles Schwab. It becomes even worse if you have a non-registered broker, like an accountant, managing all of your finances and investments like Pacino did who are most likely without SIPC insurance. 10 year total returns Compared to other dividend growth funds Data by YCharts Quite frankly, most of the dividend growth funds do a great job of getting very close to S&P 500 returns (SPY) with lower volatility. Comparing SCHD with two other popular dividend growth funds, namely Vanguard Dividend Appreciation Index Fund ETF (VIG) and The iShares Core Dividend Growth ETF (DGRO), SCHD has the lowest total return over the past 10 years, but it also has the lowest volatility [Beta] and highest yield: Data by YCharts Yields Data by YCharts Here's the pitch, equity returns with lower volatility Capital appreciation [growth] doesn't always compute when pitching equity ideas to investors who are either new to the market or investing with the goal of living off the asset class. This is where volatility comes in, do you want an equity portfolio with only about 76% of the volatility of the market and more income from dividends to prop up your portfolio in bad times? I feel like the argument about growth versus yield has been had time and time again here on Seeking Alpha, but for at least the part of your portfolio that you want to move around the least because you intend to supplement your life expenses with those funds, volatility is nearly as important as capital appreciation. I personally use SCHD as my \"overflow\" fund of choice, where I put extra funds that I would intend to supplement my cash positions with if needed through share sales. Other funds like JPMorgan's Equity Premium Income ETF (JEPI) are also good candidates, albeit you'll pay more in taxes with option income. I also use SCHD as my capital gains capture vehicle. If I score big on a single stock holding, I like to roll the funds into SCHD if there is no better trade to make. I feel it is the best fund to redeploy winnings and count your blessings. An easy way to interpret the ETF From Schwab: Fund highlights• A straightforward, low-cost fund offering potential tax-efficiency• The Fund can serve as part of the core or complement in a diversified portfolio• Tracks an index focused on the quality and sustainability of dividends• Invests in stocks selected for fundamental strength relative to their peers, based on financial ratios. Based on the Dow Dividend 100, this fund has a very low expense ratio for the passive management that goes on based on the complexity of the index. This is not active management, but the index itself watches out for itself better than most index funds you'll find. The stocks in the index needed to have paid dividends for at least 10 years, have a fair market cap of at least $500 million and have an average daily trading volume of at least $2 million. These stocks are then ordered by indicated annual dividend [FWD yield]. The index only takes into account the top half of the stocks that pass the first screen. Then the stocks are ranked by 4 fundamental values:  Free cash flow to total debt. Return on equity. FWD yield. 5 year dividend growth rate.  Stocks are re-weighted quarterly, and no single holding can represent more than 4% of the portfolio. The 4% weighting is interesting as it's similar to money market safety rules where no single issue can exceed 5% of total holdings. That's way more detail and fundamental monitoring than any portfolio manager could give you when privately managing your money. Not only that, but for .06% you get the level of monitoring you would expect from a mutual fund with a 1-1.5% annual fee. I also doubt that most mutual fund managers could execute this level of fundamental analysis if they weren't using a set index like the Dow Dividend 100. How do we explain this in simplicity?  These are the best stocks ranked by a combination of their profitability, dividends, debt profiles, and dividend growth. This fund will not risk more than 4% of your money in any one of these top 100 stocks [although they may grow to more than 4% until re-balanced]. It checks up on your stocks quarterly to make sure they are still meeting the criteria. It has nearly a 10% compounded return over the last 10 years without moving up and down very much. It's essentially the same duty we pay expensive mutual fund managers for. schwabassetmanagement.com The fund currently has a price-to-earnings ratio well below the market at 17.58X. With this mid-cycle market currently favoring financials, the ETF is overweight this sector as its profitability measures grow. Backtest results on volatility Backtest period, January 1st 2015 to current: portfolio visualizer Here I compare SCHD to DGRO and VIG for their volatility. SCHD is nearly the best in terms of worst max drawdown and, clearly, the best in its worst-year performance [these are all portfolios with dividends reinvested-total returns]. All of these dividend growth strategies beat the S&P 500 by a lot in worst-year performance, a great hedge against the dreaded bear. Therein lies my goal and probably the goal of most generationally wealthy individuals like Al Pacino, get adequate growth and get the highest likelihood of not taking a bath when you sell shares to take your next trip to Milan. A warning from Goldman Sachs A bearish report just released by Goldman Sachs predicts 3% nominal annual returns for the next 10 years, after a decade of near 13% returns. Dividend stocks are a good place to pivot to if you expect lower-than-average S&P 500 returns for the next decade, as dividend stocks tend to do better in bearish periods. I'm not in that camp and don't ever intend to sell my shares in S&P 500 index funds, which make up about 50% of my holdings. I'll roll with the punches but have begun to make SCHD a larger and larger part of my portfolio with new money and reinvested capital gains. Dividend growth rates   Seeking Alpha A final note on the fund regarding dividend growth rates. With current high-yield saving account rates [HYSA] at about 4.18%, the absolute guaranteed yield in the market, SCHD should be able to surpass this yield on cost if purchased today 2 years from now. If the fund continues to grow dividends at 11.13% compounded, this should equate to near 4.25% yield on cost for entrants at this time by 2026. Not bad at all, with short-term rates expected to be at 3% or lower 2 years from now. In juxtaposition, this looks pretty good. Keep An Eye On Your Finances, No Matter Your Wealth No matter your wealth, it's always a good idea to at least control a portion of your assets. So many are willing to turn over all of their wealth and expense management to happy helpers, especially once they reach the level of wealth that qualifies for \"family office\" management and certain trust fund setups. I, personally, trust almost no one and couldn't imagine turning over all of my hard work in liquid capital form to someone who is not part of my household. While the community here is all well-informed on the dividend growth fund options, we all have that friend that may be about to make a mistake. They may be about to join that crypto WhatsApp group or try their hand at penny stocks. This is a simple strategy that I would recommend to anybody, regardless of their level of wealth or risk tolerance. In my opinion, this would also be superior to the various mutual funds with high fees that so many retired investors are accustomed to because they want someone watching their stocks and shuffling money.  SCHD combined with a money market account would have been a great idea that even Al Pacino could have executed. Delegating out bill-paying duties is reasonable, but keep an eye on your investments, no matter your wealth. The richer you are, the more people there are that are happy to help. For a vehicle to use for protecting wealth while steadily growing it and having it available for supplementing life expenses, I couldn't think of a better fund than SCHD.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":2,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2477658764"}