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Equity dividend ETF + CASH better than intermed bonds
Old 06-11-2013, 10:57 PM   #1
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Equity dividend ETF + CASH better than intermed bonds

In October, our portfolio looked like this: 60/30/10 (stocks/bonds/cash).

With our 30% in SCHZ (intermed bonds) yielding so little, we decided to trade 30% of SCHZ for 5% SCHD (equity dividends) + 25% CASH (5yrCD ladder).

The bet turned out to be a good one. SCHD has increased by 21% since we did the exchange.

So our SCHD+CASH has increased 4.6% since October vs a 0.7% loss for SCHZ.
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Old 06-12-2013, 04:26 AM   #2
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How did this change affect your investment in risk long-term?
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Old 06-12-2013, 04:12 PM   #3
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In our case, since we are US-NRAs (US-non-resident aliens) who invest via the USA, we pay a 30% upfront tax on all interest and dividend income with the exception of FDIC-insured bank accounts and US Treasury instruments held directly. We pay 0% capital gains taxes.

In October, the net yield on our SCHZ was (70% of 1.41%) 0.99%. Net yield on SCHD was (70% of 4.2) 2.94%. A brokered 5yrCD had a net yield of 1.25%.

It really was a no-brainer swap for a total-return guy like me. The interest rate risk of SCHZ was is its 5 year duration. The purpose of our cash and bonds is portfolio ballast.

At time, the only thing with a better SEC yield (and a reasonable cost) would have been an offshore bond fund (PTTAX). I did not like the leverage or the options used in that fund so I eliminated it for consideration.

Since then, PTTAX has de-leveraged considerably.
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