Index Fund Strategy for Long-Term Passive Income

Retail investors seeking reliable passive income over decades may find an elegant solution in dividend-focused index funds or ETFs. The Schwab U.S. Dividend Equity ETF (SCHD) exemplifies this approach, offering exposure to a curated basket of U.S. dividend stocks with a remarkably low 0.06% expense ratio.

SCHD tracks the Dow Jones U.S. Dividend 100 Index, which applies rigorous selection criteria: constituent stocks must boast 10+ years of dividend history, $500M+ market capitalization, and superior fundamentals. The index weights holdings based on four financial metrics including cash flow-to-debt ratios and return on equity—filtering for quality while eliminating REITs and other complex structures.

This passive strategy eliminates stock-picking burdens while leveraging the compounding power of established dividend payers. The fund's technological accessibility and low fee structure democratize what was once institutional-grade portfolio construction.