A:

Because investors are very concerned with how well their investments are performing or how they are expected to perform, knowing how to gauge such performance is essential. This makes understanding the difference between yield and return important.

While both terms are often used to describe the performance of an investment, yield and return are not one and the same thing. Knowing what each measure takes into account and recognizing that each considers different time periods is key.

Return, also referred to as "total return," expresses what an investor has actually earned on an investment during a certain time period in the past. It includes interest, dividends, and capital gain (such as an increase in the share price). In other words, return is retrospective, or backward-looking. It describes what an investment has concretely earned.

Learn more about returns - Read How to Calculate Your Investment Return.

Yield, on the other hand, is prospective, or forward-looking. Furthermore, it measures the income, such as interest and dividends, that an investment earns and ignores capital gains. This income is taken in the context of a certain time period and then annualized, with the assumption that the interest or dividends will continue to be received at the same rate. Yield is often used to measure bond or debt performance; in most cases, total return will not be the same as the quoted yield due to fluctuations in price.

To learn more about yield, check out the Bond Basics Tutorial.

RELATED FAQS
  1. What is the difference between yield and rate of return?

    Read about the differences between yield and rate of return. See why many novice investors often struggle more with the concept ... Read Answer >>
  2. Can I use the current yield to compare a bond to an equity investment?

    Learn about the different types of yield measurements for stocks and bonds, and find out how to make careful comparisons ... Read Answer >>
  3. What is the difference between yield and dividend?

    Learn how to differentiate between dividend yield and dividend return, and see why dividend yield is the more popular rate ... Read Answer >>
  4. What size of annual dividend yield is typical of companies in the financial services ...

    Learn the importance of calculating the annual dividend yield and how income investors can use it to analyze companies in ... Read Answer >>
  5. What is the difference between yields and interest rates?

    The main difference between yields and interest rates is that each term refers to different financial instruments. Yield ... Read Answer >>
Related Articles
  1. Investing

    Calculating Capital Gains Yield

    Capital gains yield refers to a security’s appreciation or depreciation during the time it’s held.
  2. Investing

    Yield vs. Total Return: How They Differ

    Understanding yield vs. total return is essential in constructing portfolios that meet income generating needs while providing growth for the future.
  3. Managing Wealth

    Finding The Best Yields

    Using yields to supplement earnings can mean big bucks, with the right strategy.
  4. Investing

    4 Types Of Money Market Yields

    We give you four equations to help figure out the yields on your investments.
  5. Investing

    Are High-Yield Dividend Stocks Good for Income Investors?

    High-yield dividend stocks can be an enticing alternative for income, but it's important to research them carefully before investing.
  6. Investing

    A History of the S&P 500 Dividend Yield

    Find out why the dividend yield for the S&P 500 Index remains historically low, and what dividend yields used to look like before the Internet Age.
  7. Investing

    How to Get More Yield From Your Investments

    Yield seeking investors can boost the amount of income their investments generate through tweaking their portfolio of stocks and bonds.
  8. Investing

    The 3 Biggest Misconceptions of Dividend Stocks

    To find the best dividend stocks, focus on total return, not yield.
RELATED TERMS
  1. Yield

    The income return on an investment. This refers to the interest ...
  2. Gross Yield

    The yield on an investment before the deduction of taxes and ...
  3. Total Return

    When measuring performance, the actual rate of return of an investment ...
  4. Earnings Yield

    The earnings per share for the most recent 12-month period divided ...
  5. Yield On Cost - YOC

    The annual dividend rate of a security divided by the average ...
  6. Indicated Yield

    The dividend yield that a share of stock would return based on ...
Hot Definitions
  1. Preferred Stock

    A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares ...
  2. Net Profit Margin

    Net Margin is the ratio of net profits to revenues for a company or business segment - typically expressed as a percentage ...
  3. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  4. Current Ratio

    The current ratio is a liquidity ratio measuring a company's ability to pay short-term and long-term obligations, also known ...
  5. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  6. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
Trading Center