Breaking Down the Jargon: Yield vs. Total Return

Making financial decisions is hard enough for the average investor. What makes it even tougher, though, is investing jargon that many people don’t really understand.

“Yield” and “total return” are two good examples. An investor comparing one investment’s yield with another investment’s total return would be comparing apples to apple pies.

Yield is just one part of total return. It’s a measure of the income (from interest and/or dividends) likely to be earned from an investment in the future. Total return, on the other hand, looks back at the actual rate of return on an investment over a given period of time. That includes any change in the investment’s value, along with interest, dividends and distributions.

Let’s consider this example of a stock that’s worth $100/share today. Over one year, it pays a dividend and increases in value.

Dividend $1.50
+ Price Increase $4.00
= Total Return $5.50

As a result, that investment’s total return is 5.5 percent. Its yield is 1.5 percent.

An investor who needs regular income from an investment may be more interested in the investment’s yield than its total return. Someone investing for long-term growth, on the other hand, will likely be more interested in total return.

Not sure which is more important for you? Chat with a financial professional about your goals.

 

Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc.

t140214028z