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Dividend investing is a popular investing approach for those wanting passive income, especially as they approach retirement. However, not all dividend-paying stocks or funds are the same.

Some, like Schwab U.S. Dividend Equity ETF (NYSE:SCHD), offer stability and long-term growth through a diversified portfolio of financially stable companies, while others, such as YieldMax MSTR Option Income Strategy ETF (NYSE:MSTY), promise high yields but come with considerable risks.

For those aiming to achieve financial independence or retire early, striking the right balance between risk and reward is imperative.

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Enter a 48-year-old investor with a clear vision for his future. He and his wife have assiduously contributed to their 401(k) accounts, accumulating nearly $1 million in savings. But the Redditor has bigger dreams: he wants to yield enough dividend income to retire early and chase his passion for video game design.

“I want to put extra money into dividends and maybe set my daughter up for life, or at least give her some flexibility. I have weekly investments into SCHD, but not much while I finish paying off my last credit card. I know SCHD is safe and good for the long term, but I also dream of being able to have enough in dividends monthly to quit and pursue my passion, video game design,” he wrote in a post on Reddit.

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He mentions SCHD's safety and long-term potential but is intrigued by the high monthly payouts offered by MSTY, which promises a $2 per share dividend. He's considering whether to allocate more funds to MSTY or stick with the safer SCHD, so he took to Reddit to seek advice.

Let’s dive into the suggestions in the comments left by the r/Dividends members.

Bet $1 Million on MSTY or Stick with SCHD? Reddit Analyzes the Poster's Strategy

Prioritize Safety and Diversification Over High-Yield Risks

Many Redditors emphasized the importance of sticking with SCHD because of the stability and diversification it offers.

“When you buy a share in SCHD, you're buying a tiny slice of ownership in 100 U.S. companies which have been selected for their financial strength, past and future earnings, and a 10-year history of giving back a piece of those earnings to their owners in the form of dividends. They are not going anywhere any time soon regardless of how much the daily buyers are willing to pay for those businesses,” a comment reads.

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A Reddit user shared his opinion on MSTY, saying that the stock won’t be able to sustain these 100% dividends for long.

“There’s no free lunch and beware of anything that seems too good to be true. MSTY is very unlikely to continue to offer these 100% dividend returns for long,” he said.

One more Redditor advised against buying MSTY shares, but if the investor still wants to do it, he suggested pairing it with another ETF to hedge.

“SCHD. Forget about MSTY unless you pair it with [T-REX 2X Inverse MSTR Daily Target ETF (NYSE: MSTZ)] to hedge,” he wrote.

“Instead of MSTY, better [JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ: JEPQ)],” another comment reads.

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Focus on Paying Off Debt and Learning About Investing Before Aggressively Buying

A recurring theme in the comments was how important paying off high-interest debt is before ramping up investments.

“Do a 100% to your credit card. You won't beat that return with these funds. Credit card debt is savage. Once clear, SCHD. Forget MSTY,” a Redditor advised.

One Reddit member of the r/Dividends community suggested the poster shouldn’t think of investing in MSTY if he isn’t familiar with income investing.

“If you don't know how to income invest (deal with decay, shift, collar, or options), I wouldn't start with YieldMax. They can make a lot of money if you are used to that investing i.e. closed-end funds, high-yield, waterfall strategy. But you can lose it fast and not know how you lost it,” he said.

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This article 48-Year-Old With $1 Million Wants Dividend Income To Retire Early–'Should I Bet Big On MSTY's $2/Share Payout Or Stick With SCHD?' originally appeared on Benzinga.com

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