SCHD Inflation Calculator
Measure how SCHD dividends can protect your investment against inflation over time
The SCHD Inflation Calculator helps you analyze how investments in Schwab U.S. Dividend Equity ETF (SCHD) can potentially offset the effects of inflation. This tool projects your dividend income growth compared to inflation rates to show the real purchasing power of your investment over time.
Investment Details
Dividend & Inflation Settings
Inflation Protection Results
Enter your investment details and click “Calculate Inflation Protection” to see results.
Understanding SCHD as an Inflation Hedge
Why Consider SCHD for Inflation Protection?
SCHD (Schwab U.S. Dividend Equity ETF) tracks the Dow Jones U.S. Dividend 100 Index, which consists of 100 high-dividend yielding stocks with a record of consistently paying dividends. Companies that can consistently grow their dividends often have the pricing power and business stability to weather inflation, making dividend growth stocks a potential hedge against rising prices.
While no investment is guaranteed to always outpace inflation, SCHD’s historical dividend growth rate has exceeded the average inflation rate, providing investors with potentially increasing real income over time.
SCHD’s Historical Performance Against Inflation
Since its inception in 2011, SCHD has demonstrated an impressive track record of dividend growth that has generally outpaced inflation. The ETF’s average annual dividend growth rate has been approximately 9.33%, which significantly exceeds the average U.S. inflation rate of around 2-3% during the same period.
This positive spread between dividend growth and inflation is what potentially makes SCHD an effective tool for maintaining purchasing power over long time horizons. The compounding effect of this differential can be substantial over multi-decade periods.
Benefits of SCHD as an Inflation Hedge
- Growing Income Stream – SCHD’s focus on companies with consistent dividend growth helps investors receive income that has historically increased faster than inflation.
- Quality Companies – The ETF selects companies with strong financial health and competitive advantages, which often have pricing power to pass inflation costs to consumers.
- Diversification – With approximately 100 holdings across various sectors, SCHD provides diversified exposure to inflation-resistant businesses.
- Low Expenses – With a low expense ratio of 0.06%, more of the ETF’s returns stay with investors, maximizing the potential inflation protection benefit.
- Reinvestment Option – Reinvesting dividends can accelerate the compounding effect, potentially providing even stronger inflation protection over time.
Considerations and Limitations
- Market Risk – Even dividend-focused ETFs like SCHD are subject to market volatility and can lose value in market downturns.
- Dividend Growth Variability – While SCHD has historically grown dividends above inflation, future growth rates are not guaranteed and may vary.
- Inflation Spikes – During periods of unusually high inflation, even SCHD’s dividend growth might not keep pace with rapidly rising prices in the short term.
- Time Horizon – SCHD’s inflation protection tends to be more effective over longer time horizons where dividend growth has time to compound.
- Tax Considerations – Dividends are taxable in non-retirement accounts, which can reduce their effectiveness as an inflation hedge depending on your tax situation.
Frequently Asked Questions
SCHD can help protect against inflation through dividend growth that exceeds inflation rates. When the companies in SCHD’s portfolio increase their dividends faster than inflation, your real (inflation-adjusted) income grows over time. This allows your investment income to maintain or even increase purchasing power despite rising prices in the broader economy.
The long-term historical average U.S. inflation rate has been around 3% annually, which serves as a reasonable baseline for long-term projections. However, you might consider using different rates based on current economic conditions or your personal expectations. For conservative planning, using a higher inflation rate (4-5%) can help ensure your strategy remains effective even if inflation exceeds historical averages.
SCHD, TIPS (Treasury Inflation-Protected Securities), and I-Bonds serve different roles in an inflation-protection strategy. TIPS and I-Bonds offer direct inflation protection backed by the government but typically provide lower total returns. SCHD offers potentially higher returns and dividend growth that may exceed inflation, but comes with greater market risk. The optimal choice depends on your time horizon, risk tolerance, and income needs.
Dividend reinvestment can significantly enhance SCHD’s inflation protection capabilities. By reinvesting dividends, you purchase additional shares that generate their own dividends, creating a compounding effect. This compounding typically accelerates your income growth well beyond inflation rates over longer time periods. Without reinvestment, you’ll still receive growing dividend income, but the compounding effect would be reduced.
The calculator provides estimates based on historical data and your input assumptions, but future results may vary significantly from projections. Actual dividend growth rates, inflation rates, and investment returns can differ from historical averages or expectations. The calculator is best used as an educational tool to understand the potential relationship between dividend growth and inflation rather than as a precise prediction of future outcomes.