YIELD

Summary

Yield is a measure that shows how much money you earn from an investment relative to what you paid for it, expressed as a percentage. Think of it as the 'return rate' on your investment - if you buy a stock for $100 and it pays you $5 in dividends over a year, your yield is 5%. Unlike total return, yield only focuses on the income generated (like dividends from stocks or interest from bonds), not changes in the investment's price. It's a key metric investors use to compare the income-generating potential of different investments.

Usage Context

Essential when comparing investment options, evaluating income-generating investments, understanding bond pricing, analyzing dividend stocks, and making portfolio allocation decisions based on income needs.

Common Confusions

• Confusing yield with total return (yield doesn't include capital gains/losses)
• Thinking yield is fixed (it changes as price changes)
• Assuming higher yield always means better investment (high yield can indicate higher risk)
• Not understanding that yield is calculated differently for stocks vs bonds