yield
The income generated by an investment, expressed as a percentage of the investment's cost or current value.
Example
“The bond had a yield of 4%, meaning it paid $40 per year for every $1,000 invested.”
Memory Tip
A farm YIELDS a harvest. An investment YIELDS returns — what it produces for you.
Why It Matters
Yield helps you compare the actual income you earn from different investments relative to what you pay for them. Understanding yield is critical for making informed decisions about where to put your money, whether in bonds, dividend stocks, or savings accounts, because it shows you the real return on your investment.
Common Misconception
Many people think yield and total return are the same thing, but yield only measures the income generated, not the change in the investment's price. If you buy a stock for 100 dollars and it drops to 90 dollars while paying 5 dollars in dividends, your yield is 5 percent even though you lost money overall.
In Practice
Imagine you purchase a corporate bond for 1000 dollars that pays 40 dollars annually in interest. The yield is 4 percent because 40 divided by 1000 equals 0.04 or 4 percent. If that same bond later trades at 900 dollars in the market, a new buyer would get a 4.4 percent yield because they would receive the same 40 dollars annual payment on a smaller investment.
Etymology
From Old English 'gieldan' meaning 'to pay, repay' — what an investment pays back.
Common Misspellings
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Related Terms
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See Also
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