Grow Assets with S&P500 and Create Cash Flow with SCHD… Retirement Asset Management Strategies

For investors in their 50s and older approaching retirement, the biggest topic of discussion is the 'stability of retirement assets.' An analysis has emerged stating that strategies for the stage of growing assets and the stage of using grown assets must differ. According to a video from the YouTube channel 'Finance with Toad Tax Accountant,' a strategy of distinguishing and utilizing S&P500 index-tracking ETFs and the dividend growth ETF SCHD according to investment purposes is effective.

"Average 4x Growth Over 15 Years of Investment"... The Asset Multiplication Effect of S&P500

In the video, investors feeling anxiety after retirement were advised to first consider their possible investment period. It is explained that if additional investment is possible for about 15 years in the future, investing using the S&P500 index can be effective. Assuming the average annual growth rate of the S&P500 is approximately 10%, the assets double every 7 years according to the 'Rule of 7' (the time it takes for assets to double).

The presenter explained, "If a 50-year-old investor invests a large sum in the S&P500, the assets could, on average, be four times larger after 14 years." For example, if 50 million won is invested, it could become approximately 200 million won after 14 years, and assuming 10% of this asset is profit, one can expect an annual profit of 20 million won. The presenter added, "You must decide the investment amount by judging whether this amount is sufficient to maintain your retirement life."

Asset Growth (S&P500) vs. Cash Flow (SCHD)... Separating Portfolios by Purpose

The video clearly distinguished investment purposes into 'investing to increase my money' and 'investing to spend my money.' While the S&P500 is suitable for growing assets due to its high proportion of growth stocks, SCHD is advantageous for creating cash flow because its dividends tend to increase in line with the inflation rate. Rather than the price increase of the asset itself, SCHD shows growth at a level that follows the inflation rate while playing the role of increasing cash flow by paying dividends steadily.

The presenter said, "For office workers with current income, a 'future choice' that increases future asset value may be more valuable than receiving dividends immediately." This is because receiving dividends while having income can fix consumption patterns and lead to unnecessary spending. On the other hand, after retirement when there is no income, dividends play an important role as living expenses, so dividend-centered investments like SCHD demonstrate their value. Therefore, the suggestion is that in the stage of gathering money, one can grow assets through the S&P500, and later at the time of retirement, a stepwise approach is possible by switching to SCHD or adjusting the proportion. Ultimately, a portfolio should be composed by adjusting the proportions of S&P500, SCHD, or Nasdaq according to the required scale of cash flow.

Changes in Nasdaq 100 and Risk Management... Consider XLK for Concentrated Investment in Tech Stocks

Risk management strategies by index due to recent changes in the market environment were also mentioned. The presenter pointed out that the Nasdaq 100 from three years ago and the current Nasdaq 100 have different risk characteristics. While the Nasdaq 100 was an aggressive position in the past, the analysis suggests that the current S&P500 has moved to a position similar to the past Nasdaq 100 as its proportion of growth stocks has increased. This is because, as the market itself has been reorganized around growth stocks, the S&P500 has caught up with the growth stock proportion that the Nasdaq 100 once held.

Accordingly, the presenter warned, "It may not be appropriate for an investor with the past Nasdaq 100 investment tendency (preference for growth stocks) to maintain the current Nasdaq 100 as is." This is because the character of the Nasdaq 100 is changing, moving away from being tech-centered and recently adding Walmart to its constituent stocks. The explanation is that the Nasdaq 100 never defined itself as a collection of tech stocks, but rather its tech stock proportion increased as it followed the market trend. If an investor wants a purely tech-oriented concentrated investment, the XLK ETF, which gathers only the tech sector within the S&P500, could be a higher-purity investment alternative. Among the 11 industry classification ETFs of the S&P500, the tech sector is XLK, healthcare is XLV, consumer goods is XLP, and utilities is XLU, etc.

Finally, the presenter expressed concern about the 'circular investment' and interest rate sensitivity occurring as big tech companies pour massive funds into the AI competition. While big tech companies such as Microsoft, Alphabet, and Amazon initially continued investments with massive financial power, recently, as competition between companies intensifies, they are showing a pattern of borrowing funds to invest. In particular, the financial engineering techniques shown by NVIDIA and Google (such as methods of making companies purchase their own chipsets and providing loans) could become risk factors if profits are not generated. The presenter emphasized that "the structure that was built on solid rock may gradually turn into a sandcastle," and that in a situation with high interest rate influence, it is necessary to have an attitude of flexibly adjusting positions by following the market trend while confirming the profit-generating ability of companies.