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Building a Strong Investment Foundation with SPY and SCHD

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  //stocks-investing.news-articles.net/content/202 .. ong-investment-foundation-with-spy-and-schd.html
  Published in Stocks and Investing on Tuesday, December 16th 2025 at 7:47 GMT by The Motley Fool

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How to Build a Strong Investment Foundation with SPY and SCHD

Published by The Motley Fool, December 16, 2025

When it comes to crafting a low‑maintenance, diversified portfolio, the two‑step strategy of pairing a broad‑market index ETF with a high‑yield, dividend‑focused ETF has emerged as a favorite among long‑term investors. In this article, The Motley Fool explains why the SPDR S&P 500 ETF Trust (SPY) and the Schwab U.S. Dividend Equity ETF (SCHD) make for a robust core foundation—and how you can use them to capture the best of both worlds.

1. The Core‑ETF Philosophy

The article starts by laying out the core‑satellite concept, a framework that has gained traction in recent years. Your core is the part of your portfolio that remains largely unchanged—usually a low‑cost, broad‑market index. The satellites are tactical, higher‑risk holdings that you rotate in and out to enhance returns.

“Think of the core as the bedrock of your portfolio,” the article notes, “and the satellites as the bricks that add texture.”

The writer cites several resources on the site that explain this approach in more depth, such as the “Core vs. Satellite Investing” page and a guide on “How to Pick Core ETFs.”

2. Why SPY Is the Go‑to Core

Broad Exposure

SPY tracks the S&P 500, which includes 500 of the largest U.S. companies. This gives investors instant exposure to all major sectors—technology, finance, healthcare, consumer staples, and more.

Proven Track Record

The article points out that SPY’s annualized return over the last 20 years has hovered around 8 %, a figure that’s difficult to beat without taking on more risk. A link to the “SPY Historical Performance” page provides a detailed chart showing its steady climb.

Low Expense Ratio

At 0.09 %, SPY’s fee is one of the lowest for a U.S. equity index fund. The article contrasts this with the slightly higher expense ratios of competitors like VOO (0.10 %) and IVV (0.03 %, though that’s a typo—IVV actually is 0.03 %). It emphasizes that over decades, even a fraction of a percent can erode your returns.

3. Why SCHD Adds Value

Dividend Focus

SCHD selects companies that have a long track record of dividend growth. This focus not only yields higher current income (typically 2‑3 % annually) but also provides a cushion during market downturns.

Defensive Quality

Because SCHD concentrates on dividend‑paying firms, it tends to be less volatile than the broader market. The article shows a comparative volatility chart between SPY and SCHD, illustrating SCHD’s steadier path.

Tax Efficiency

Qualified dividends in SCHD are taxed at the lower long‑term capital gains rate in the U.S., making it a tax‑friendly choice for taxable accounts. The writer includes a link to the “Tax Considerations for Dividend ETFs” page for readers who want to dive deeper.

4. Complementing the Core with Satellite ETFs

While SPY and SCHD form the backbone, the article suggests adding a handful of satellites to capture niche opportunities:

The article explains that these satellites should be rotated or rebalanced at least once a year, depending on your risk tolerance and market conditions. A helpful link to the “Rebalancing Your Portfolio” guide offers a step‑by‑step process.

5. Risk Management and Rebalancing

Diversification is a central theme. By combining SPY’s broad exposure with SCHD’s dividend defensiveness, you automatically reduce sector‑specific risk. Adding satellite ETFs further spreads risk across asset classes and geographies.

The article stresses that rebalancing—selling over‑performing holdings and buying under‑performing ones—helps maintain your target allocation and prevents your portfolio from drifting into a single sector or risk profile.

“Rebalancing isn’t just a numbers game; it’s a discipline that keeps your portfolio aligned with your goals,” the writer notes, linking to a detailed “Rebalancing Strategies for Beginners.”

6. Putting It All Together: A Sample Allocation

For a risk‑averse investor, the suggested allocation might look like this:

• SPY – 50 %
• SCHD – 30 %
• IIBB – 10 %
• VWO – 5 %
• EFA – 5 %

For a more aggressive profile, the weight on SCHD could drop to 15 %, with a corresponding increase in QQQ and VTI.

The article offers a downloadable spreadsheet that lets you input your risk tolerance and instantly see an optimized allocation. It also features a link to the “Portfolio Builder Tool” that automatically generates a custom ETF mix based on your answers.

7. Final Takeaway

In essence, the Motley Fool’s article argues that SPY and SCHD together form a “solid, low‑cost foundation” that covers the majority of the U.S. equity market while also providing a steady income stream. The duo’s complementary strengths—broad market exposure and dividend defensiveness—reduce volatility, improve risk‑adjusted returns, and create a flexible base from which to add satellite positions.

“You’re building a house with a great foundation,” the writer concludes, “and you only need to focus on the rooms above.”

Whether you’re a seasoned investor or a new savior, this two‑ETF approach simplifies portfolio construction, keeps costs low, and aligns with proven long‑term investment principles.

Resources for Further Reading

• Core vs. Satellite Investing – Motley Fool
• SPY Historical Performance – Motley Fool
• Tax Considerations for Dividend ETFs – Motley Fool
• Rebalancing Your Portfolio – Motley Fool
• Portfolio Builder Tool – Motley Fool

(All links above are internal Fool resources that expand on the concepts mentioned.)