POSTED ON October 08, 2019
How finance folk use it
The yield is how much an investment can grow money. How you get the yield depends on what kind of investment it is. For example, if it’s a time deposit, the yield is the interest you get on maturity. If it’s a stock, you look at how much its value has grown plus how much it’s given out in dividends over a span of time.
For unit investment trust funds (UITF), the yield is how much the fund’s net asset value per unit (NAVPU) has increased in a span of time.
Some ways of calculating yield consider other factors. For example, if you’re planning to buy a bond, you can check how much it has left in coupons, (aka yield to maturity) vs the price of the bond to see if it’s worth it.
Is it good or bad?
Getting an investment’s yield is a good way to see its potential. However, always take it with the thought that it’s just a projection and not a prediction. For fixed income investments like time deposits and bonds, you can count on the yield with a bit of confidence.
On the other hand, investments that grow by increasing in value are a different story. Looking at a stock’s past movement and dividend payouts is only meant to give you an idea of what to expect.
What it means for you
You may not realize it but you probably already compute for yield. Whenever you look at a time deposit’s interest rate or when you compute for how much you would have earned if you invested in a certain UITF, you’re already looking at yield.
Just make sure you don’t confuse it with “return.” You calculate yield before investing and you calculate return after investing. What’s the difference? Return factors in how much your money has grown vs the cost of investing.