Trump Accounts Default to the S&P 500 — But These Three ETF Alternatives Could Deliver Better Long-Term Gains
The Trump Accounts initiative, designed to give every newborn a starter investment account, defaults to the State Street SPDR Portfolio S&P 500 ETF (SPYM) for its initial contribution. The choice is sensible: SPYM tracks the S&P 500 at an ultra-low cost and has returned 320.79% over the past ten years. But families are effectively signing up for an 18-plus year holding period, and that stretch of time opens the door to alternatives that can press harder on growth, income compounding, or both — all while staying within the program's rules.
SPYM holds the 500 largest U.S. companies by market cap. Over the last five years, the fund gained 84.37%, and year-to-date through July 2 it is up 9.86%. Nothing about that is broken. The question is whether a plain-vanilla S&P 500 tracker is the best expression of an 18-year compounding runway, or simply the safest default to hand a policy program. With time on their side, account holders may want to consider funds that optimize for long-term outcomes rather than broad-market simplicity.
Read: Are you ahead or behind on retirement? SmartAsset's free tool can match you with a vetted financial advisor in minutes to help you answer that today. Each advisor has been carefully vetted and must act in your best interests. Don't wait; learn more here.
The S&P 500 is already tech-heavy through its market-cap weighting, but it still dilutes that exposure with hundreds of slower-growing companies. It also pays a modest dividend that most custodial holders won’t reinvest strategically. For a child's account, the gap worth closing is optimization: a different vehicle can either accelerate growth or turn dividends into a true compounding engine. The key constraint: Trump Accounts only permit funds that track a broad U.S. equity index with an expense ratio no higher than 0.10%, so any alternative must earn its place under that ceiling.
The obvious growth play — a Nasdaq-100 fund like QQQ or QQQM — is off the table here because the cheapest Nasdaq-100 wrapper still charges 0.15%, above the account's 0.10% fee cap. The eligible way to tilt toward growth is the Schwab U.S. Large-Cap Growth ETF (NYSEARCA:SCHG), which tracks the Dow Jones U.S. Large-Cap Growth index — a basket heavy in software, semiconductors, and consumer platforms — at a 0.04% expense ratio that clears the rule with room to spare.
The performance edge over SPYM shows up in the numbers. SCHG returned 27.91% over the past year, and its longer record compounds hard: a 15.93% annualized five-year return works out to roughly 109% cumulative, versus SPYM's 21.5% and 84.37% across the same windows. On a $1,000 contribution five years ago, that gap is roughly $250 in extra ending value. Extend that through the 18-year window a Trump Account gets, and even a modest annualized edge becomes real money. The tradeoff: SCHG is more concentrated in megacap technology and will fall harder in tech-led drawdowns. But for an account a toddler won't touch until college, that volatility is exactly what long time horizons are designed to absorb.
The Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) takes a different approach. It screens for U.S. companies with sustained dividend growth, strong cash flow, and reasonable payout ratios. Its top holdings include Lockheed Martin, ConocoPhillips, and Chevron. It runs on a 0.06% net expense ratio with roughly $95.8 billion in net assets. SCHD's case rests on reinvested dividends compounding for two decades inside a custodial account. Its ten-year total return of 233.33% trails SPYM's, so the appeal here is different: a lower-beta base that historically holds up better in bear markets, plus a growing income stream. If a parent sets dividend reinvestment on, the account buys more shares automatically every quarter, especially when prices dip.
The third option is a blend of two funds. A 50/50 allocation to SCHG and SCHD gives the account a growth engine and a dividend compounder in the same portfolio, rebalanced annually. It broadens sector exposure beyond either fund alone, since SCHD’s weight sits in energy, healthcare, defense, and consumer staples while SCHG leans tech. The pairing also softens SCHG's drawdowns without giving up its upside entirely, and because both funds sit under the 0.10% fee ceiling, the blend stays fully eligible.
Trump Accounts offer flexibility on fund choice beyond the default; account holders can typically redirect contributions to another qualifying low-cost ETF, and SCHG and SCHD both qualify as U.S. equity index funds with sub-0.10% fees. Since Trump Accounts are tax-advantaged, reallocating existing balances does not trigger capital gains, removing the biggest friction that normally kills these swaps in taxable brokerage accounts.
SPYM remains a defensible default. But for a child who won't touch the money for 15 to 20 years, leaning into growth via SCHG, building a dividend compounder with SCHD, or blending both is a defensible upgrade. The right call depends on how comfortable the account holder is with tech-heavy volatility and whether they value income growth alongside price appreciation.
Retirement planning doesn't have to feel overwhelming. The key is finding expert guidance, and SmartAsset's simple quiz makes it easier than ever for you to connect with a vetted financial advisor. Here's how:
Why wait? Start building the retirement you've always dreamed of. Get started today! (sponsor)
Contact [email protected] for any questions or corrections.