Key insights
- The author, a retiree, is evaluating the addition of the mid-cap ETF DON to their portfolio, which currently holds SCHD. Key considerations include DON's higher expense ratio and lower yield compared to SCHD, potential mid-cap volatility impacting sell decisions, and tax efficiency. The author questions the necessity of mid-cap diversification for a retiree and the specific benefits of a 7-10% DON holding, weighing these against the 'drag' on passive income and potential capital loss.
SCHD holds a significant percentage of my portfolio. I’m a retiree and I like the fact that SCHD is steady and boring. I like steady and boring a lot. I’ve been thinking about opening a position of DON, also nicely steady and boring, to add some diversification through mid-caps, but the finances are throwing me off. I look at SCHD with a much lower expense ratio and a higher yield, and I see DON, between expense ratio and yield, with a significant drag. That drag is money I won’t get that I could either spend down or reinvest. As a mid-cap, DON also carries a slight risk in terms of volatility which makes me think that should I have to sell for any reason, with a more volatile mid-cap, the odds are higher than I could be selling at a lower value than I’d like. Probably low odds with that possibility, but still a small factor. Finally, DON is a little less tax efficient than SCHD.
So I’m trying to figure out what DON brings to my portfolio that I’m not seeing. Reasons why I might want to take that drag and sacrifice some passive income and why that mid-cap type of diversification is necessary or important for a retiree. What does a 7%-10% holding in DON do for me?
TL, DR: I’m thinking if I should be DONE with thoughts of DON?