Want Decades of Passive Income? Buy This Index Fund and Hold It Forever

Core Insights - Dividend stocks provide a predictable income stream for investors, making them an attractive option for retail investors seeking reliable passive income [1] - Diversifying investment portfolios is recommended to mitigate risks and enhance returns [1] Investment Strategies - Investors can consider index funds or ETFs that focus on dividend-paying stocks, which allows them to benefit from expert stock selection and lower fees due to technological advancements [2] - The Schwab U.S. Dividend Equity ETF (SCHD) is highlighted as a passively managed fund with a low expense ratio of 0.06%, making it cost-effective for investors [5] Fund Composition - SCHD primarily invests in stocks from the Dow Jones U.S. Dividend 100 Index, which excludes certain types of investments and requires stocks to have a minimum market cap of $500 million and a history of paying dividends for at least a decade [6] - The fund evaluates stocks based on metrics such as cash flow to debt, return on equity, dividend yield, and five-year dividend growth rate [7] Top Holdings - The top holdings in SCHD include well-known companies such as AbbVie (4.22%), ConocoPhillips (4.10%), and Coca-Cola (3.91%), which have long histories of paying and increasing dividends [7][8] - The diverse sectors represented in the fund, including pharmaceuticals, oil, and home improvement, provide a buffer against economic fluctuations [9] Performance Metrics - As of September 23, SCHD had a trailing 12-month dividend yield of 3.82%, indicating strong performance among dividend stocks [10] - The fund has consistently increased its dividends since its launch in 2011, although dividend payments may not be linear due to annual reconstitution of the index [11] Price Appreciation - SCHD has experienced nearly 50% price appreciation over the last five years, although this is less than the S&P 500's performance during the same period [13] - While SCHD may not outperform the broader market in a bull market, its reliable dividends provide strong passive income throughout various economic cycles [14]