Yield is a measure of the income generated by an investment over a particular period of time. It is expressed as a percentage of the investment’s cost, current market value, or face value. Yield includes the interest earned or dividends received from holding a particular security. Depending on the valuation (fixed vs. fluctuating) of the security, yields may be classified as known or anticipated.
Here are some of the types of yield:
- Dividend yield: Dividend yield is the amount of money a company pays to shareholders for owning a share of its stock, expressed as a percentage of the stock price.
- Interest yield: Interest yield is the amount of money an investor earns from holding a bond or other fixed-income security, expressed as a percentage of the security’s price.
- Total return: Total return is the total amount of money an investor earns from an investment, including income and capital gains, expressed as a percentage of the investment’s cost.
Yield is an important factor to consider when making investment decisions. Higher yields are generally perceived to be a sign of lower risk and higher income, but a high yield may not always be a positive, such as the case of a rising dividend yield due to a falling stock price.
Here are some of the factors that can affect yield:
- The type of investment: The type of investment will determine the type of yield that is generated. For example, stocks typically generate dividend yield, while bonds typically generate interest yield.
- The risk of the investment: The risk of the investment will also affect yield. Higher-risk investments typically generate higher yields, as investors demand a higher return for taking on more risk.
- The market conditions: The market conditions can also affect yield. For example, interest rates typically rise when the economy is strong, which can lead to lower bond yields.
Yield is an important factor to consider when making investment decisions, but it is important to remember that it is not the only factor. Other factors, such as the risk of the investment and the market conditions, should also be considered.