What is yield and why is it important for investors

When it comes to investing, the term “Yield” (Return Rate) is a number that tells you how much money you will get back from the invested capital. This yield comes in various forms depending on the type of asset you invest in, whether it’s stocks, bonds, real estate, or mutual funds.

What does Yield mean exactly?

Yield is a figure that shows the profit you earn from your investment, expressed as a percentage per year. Often, Yield is distinguished from “Return,” which includes the total profit that encompasses price changes of the asset. Yield usually refers to income generated from holding the asset, such as dividends, interest, or rent.

Basic Yield Calculation

The simplest formula to calculate Yield is:

Yield = (Annual income ÷ Purchase price or current price) × 100%

For example, if you buy a stock at 100 baht and receive 5 baht in dividends per year, your Dividend Yield is 5%.

What factors influence Yield?

1. Type of asset invested in

When you choose to invest in debt instruments (such as bonds), Yield is generally lower than investing in stocks. Therefore, stocks often offer opportunities for additional income.

2. Market conditions and environment

Economic factors, interest rates, political stability—all significantly impact the expected Yield. When interest rates are high, bond yields tend to increase as well.

3. Investment duration

The longer you invest, the higher the chances of earning greater returns because your money has more time to compound additional gains.

4. Risk level

High-risk investments (such as growth stocks or new assets) usually need to offer higher Yield to compensate for increased risk.

5. Company management policies

Decisions on dividend payouts or investments in development projects directly affect the Yield shareholders receive.

Types of Yield investors should know

Dividend Yield - Return from dividends

When you hold a company’s stock, the company may pay dividends. Dividend Yield is the dividend amount relative to the current stock price.

Example: Company X pays 10 baht in dividends per year, with a stock price of 200 baht, so Dividend Yield = (10 ÷ 200) × 100 = 5%.

Stock Yield - Return from stock profit

This type of Yield is calculated from the company’s net profit per share divided by the current stock price, sometimes called Earnings Yield.

Example: Company Y has a net profit of 15 baht per share, with a current stock price of 300 baht, then Earnings Yield = (15 ÷ 300) × 100 = 5%.

Bond Yield - Return from bonds

When you invest in bonds, you receive interest periodically. Bond Yield measures the return from that interest relative to the bond’s value.

Example: You buy a bond worth 1,000 baht, earning 50 baht in interest annually, then Bond Yield = (50 ÷ 1,000) × 100 = 5%.

Mutual Fund Yield - Return from mutual funds

Mutual funds accumulate income from dividends of stocks and interest from bonds in their portfolio. Mutual Fund Yield is that total income relative to the fund’s net asset value.

Example: Fund Z has income of 100 baht, with a net asset value of 1,000 baht, then Mutual Fund Yield = (100 ÷ 1,000) × 100 = 10%.

Yield vs Return - Know the difference

Beginners often confuse Yield with Return. These two terms have different meanings:

Yield is what you “expect,” while Return is what you “actually receive.”

Which type of Yield offers the highest returns?

There is no definitive answer for everyone, but we can compare broadly:

Stocks

Stocks tend to offer the highest long-term returns, especially growth stocks. However, they come with higher risks and are suitable for those comfortable with volatility.

Real estate

Provides moderate to high returns (rent + appreciation) but requires significant capital and management.

Bonds

Lower returns than stocks but with less risk. Suitable for those seeking stability.

Mutual Funds

Returns vary depending on investment strategies. They are flexible and convenient for beginners.

Cryptocurrencies

High returns but also the highest risk. Suitable for those who understand the technology and are willing to accept losses.

Tips for choosing investments based on Yield

1. Don’t decide solely based on Yield figures; consider long-term trends, stability, and risk as well.

2. Compare Yield with yields of other investments to see if the returns justify the risks.

3. Consider the investment horizon; longer-term investments can tolerate more risk and may opt for higher Yield assets.

4. Diversify your portfolio; don’t put all your money into one asset class. Mix stocks, bonds, and real estate.

5. Monitor economic factors; interest rates, inflation, and market conditions greatly influence Yield.

Summary

Yield is a key indicator that helps investors understand how worthwhile their investment is, whether it’s Dividend Yield from stocks, Bond Yield from bonds, or returns from other investments. The important thing is to select Yield that aligns with your objectives and financial situation.

Remember, higher Yield often comes with higher risk. Therefore, evaluating Yield should include analyzing risks, investment duration, and your personal goals. By thoroughly understanding Yield, you can plan your investments wisely and increase your chances of financial success.