In plain words: The income returned on an investment, such as the interest received from holding a particular security.
Yield measures the income an investment produces, usually expressed as a percentage of its price. It answers a simple question: for what you have invested, how much cash comes back each year? A bond's coupon and a share's dividend are common sources of yield, and the figure helps compare assets on equal footing.
How is yield different from total return?
Yield captures the income stream alone, while total return also includes changes in the asset's price. A holding can offer a high yield yet still lose value if its price falls. Reading yield alongside price movement gives a fuller picture than either number on its own.
Why does yield move when prices change?
Yield is income divided by price, so when the price of a bond drops, its yield rises, and vice versa. This inverse link is why yields shift as interest rates move. To see how coupons translate into yield, a closer look at bonds is a useful next step.
Key takeaways
- Yield is the income an investment returns, shown as a percentage of price.
- It differs from total return, which also includes price changes.
- Yield and price move inversely, so yields shift with interest rates.