What is yield?
This blog explains what return is. In this case, it is about the return that can be achieved when investing . You will find out what it is made up of and how you can calculate it. Return is used more often and has multiple meanings. In this blog, we will discuss what return means in the world of investing. Read on quickly if you want to know more about return.
Yield, the meaning
Yield is a word that is not only used when we talk about investing our money. It has multiple meanings and can be used in many different situations. Yield means something like yield, productivity or profit. This can be seen in a factory or on the land, for example.
When we use the word for investing it means “the profit achieved on an investment”. The return is generally expressed as a percentage over, for example, a month or a year.
Investing and returns
If you are going to invest in shares, bonds or index trackers, the goal is to make a profit. By making a profit, your money becomes more valuable. If investing did not yield anything, people would keep their money under their mattress. When investing, you always run the risk of losing part of your investment and that your money will therefore become less valuable. In order to take this risk, there must of course be something in return. That is the return that you can make by investing your money. The return and the risk always go hand in hand, with more risk there is a higher return and with less risk you also receive less.
How do you achieve it?
There are several ways to achieve returns when investing. These methods are explained below.
Price gain
The capital gains of your investments account for by far the largest part of the return. The capital gain is achieved on the price . The difference between the purchase price and the sales price of your investments is your capital gain. The greater the difference between these two prices, the higher the return you achieve on your investments.
Suppose you buy a share of a telecom company for 100 euros. After 10 years the value of that share has risen to 125 euros, you then have a capital gain of (125-100) 25 euros.
Later in this article we will show you how to calculate the return in its entirety.
Dividends or interest
Another way to earn a return is through interest or dividend. You can receive interest if you invest in bonds, you actually lend your money to the issuer of the bond. This could be the Dutch government, for example. By paying interest, the issuer gives you the certainty that the loan can be repaid and you receive compensation (interest) on your lent money. At the end of the term of the loan, you will receive the entire amount that you lent back. During the term, you will receive interest on the borrowed amount and this is the return that you achieve.
There is also a way to make a return when investing in shares, in addition to the price gain. We are talking about companies that pay dividends on their shares. Because you are a shareholder, you can share in the company’s profit. The profit distribution that a company makes is called dividend. These shares are therefore dividend shares and in this way provide extra profit.
Yield, how do you calculate it?
You can calculate the return you receive as a percentage of the amount you invested. To do this, you use a formula called “new minus old, divided by old formula” (new – old / old x 100%). With this formula, you first calculate the result of the share: new (sales price) – old (purchase price). Then you divide this result by the amount you initially invested, or the share price when you bought it.
An example
If you bought a share for €10.00 and sold it after a year for €12.00, you calculate the return as follows: €12-€10 = €2, this is the result. To calculate it as a percentage, you then divide this by old: €2:10 = 0.2 x100 = 20%. This share has therefore yielded a return of 20%.
Compare brokers
To start investing and earning returns, you need an account with a broker. Easily compare brokers via the comparator of Compareallbrokers.com .
