Yield refers to the return generated by an investment, expressed as a percentage of the investment's cost, face value, or market value, over a specified period, typically representing income or dividends earned from the investment relative to its price or principal amount.
Yield is a critical measure of investment performance, risk, and income potential, providing investors with insights into the expected return, cash flow, and profitability of different investment options. Common types of yield include dividend yield, bond yield, yield to maturity (YTM), current yield, and yield on cost (YOC), each reflecting specific aspects of investment returns and cash flow characteristics.
Yield analysis helps investors assess the attractiveness and relative value of investment opportunities, compare alternative investments, and make informed decisions about asset allocation, portfolio diversification, and risk management strategies to optimize returns and achieve financial goals.
By considering yield alongside other factors, such as risk, liquidity, and capital appreciation potential, investors can build diversified portfolios, mitigate downside risks, and enhance long-term wealth accumulation while balancing income generation and capital preservation objectives.