Yield in Investment: What Investors Need to Understand and How to Leverage It

What is Yield and Why Is It Important

When making investment decisions, many people tend to focus solely on increasing asset value. However, the reality is that Yield or “return rate” is a key indicator that shows how much actual return our investments generate over a specified period.

Yield is expressed as a percentage per year or according to a reference period. Once you know the Yield, you can compare different assets to see which one truly offers higher returns, without being affected by price fluctuations.

Main Factors Affecting Yield

Yield does not occur by chance. Several factors influence the expected Yield:

Type of Asset Selected: If you invest in debt instruments, Yield is usually lower but more stable. Stocks may offer higher Yield but come with additional risks.

Economic and Market Conditions: Base interest rates, market conditions, and political risks all impact the return rates investors seek.

Investment Duration: Long-term investments often provide greater accumulated returns due to more time to benefit from compound interest.

Risk Level: Investors demand higher Yield when facing greater risks. Therefore, high-risk assets must offer higher Yield to compensate for the risk.

Corporate Management Policies: Dividend payments, development investments, and other policies affect the returns that can be distributed to shareholders.

Basic Yield Calculation Method

The general formula for calculating Yield for bonds and other assets is:

Yield = ((Current Price – Purchase Price() / Purchase Price) × 100%

For example, if you buy an asset at 1,000 THB and its current value is 1,100 THB, the Yield is )(100 / 1,000)( × 100% = 10%.

This formula shows the primary return. For more complex Yield analyses, such as yield to maturity, which measures the relationship between present value, coupon rate, and maturity, more detailed calculations are required.

Main Types of Yield and Their Uses

) Dividend Yield - Return from dividends

Dividend Yield is calculated from the dividends paid per share divided by the current share price:

Dividend Yield = ###Dividends per Share / Current Share Price( × 100%

Example: Company X pays 10 THB dividend per share, and the share price is 200 THB. Dividend Yield = )10 / 200( × 100% = 5%.

Note that Dividend Yield often fluctuates with share price, even if the company pays the same dividend amount.

) Earnings Yield - Return from profits

Earnings Yield indicates what percentage of the share price is represented by the company’s net profit:

Earnings Yield = ###Net Profit per Share / Current Share Price( × 100%

Example: Company Y has a net profit of 5 THB per share, and the share price is 50 THB. Earnings Yield = )5 / 50( × 100% = 10%.

This metric helps investors see how much profit the company actually generates.

) Bond Yield - Return from bonds

Bond Yield refers to the return an investor receives from holding bonds or debt securities, including periodic interest payments and changes in value:

Bond Yield = ###Annual Interest / Current Bond Price( × 100%

Example: You buy a bond worth 1,000 THB with a 5% annual interest rate. Bond Yield = )50 / 1,000( × 100% = 5%.

In the context of yield to maturity, it includes all interest received until maturity and any gains or losses from price changes. Yield to maturity is a more comprehensive measure than simple Yield.

) Mutual Funds Yield - Return from mutual funds

Mutual Funds Yield = ###Total Income of the Fund / Net Asset Value of the Fund( × 100%

Example: Fund A earns 100 THB from stocks and bonds, with a net asset value of 1,000 THB. Yield = )100 / 1,000( × 100% = 10%.

Fund income mainly comes from two sources: dividends from stocks and interest from bonds invested by the fund.

Yield vs. Return - The Key Difference

Beginner investors often confuse Yield and Return because both relate to gains, but they have distinct meanings:

Yield is the expected annual return from an asset, excluding price changes. It is a fixed figure based on the investment instrument’s conditions.

Return is the actual gain you receive, including interest, dividends, and price changes )profit or loss from trading(.

Example: If you buy a stock at 100 THB, receive a 5 THB dividend, )Yield = 5%(, but if the stock price drops to 90 THB, your Return is )(5 + (-10)) / 100 = -5%.

Types of Yield in the Stock Market

The stock market displays Yield in several ways:

Dividend Yield shows how much dividend you will receive annually if you buy at the current price. For example, if a stock costs 100 THB and pays 5 THB dividend per year, Dividend Yield = 5%.

Earnings Yield helps investors see how much profit a company makes relative to its stock price. If Earnings per Share = 10 THB and the stock price is 100 THB, Earnings Yield = 10%.

Understanding stock market Yield helps investors select stocks that align with their risk levels and investment goals.

Which Asset Class Offers the Highest Returns

There is no single answer, as higher Yield often comes with higher risk:

Stocks: Offer high long-term returns but are volatile in the short term. Suitable for risk-tolerant investors.

Real Estate: Generates rental income and potential appreciation over time but requires significant capital and maintenance costs.

Bonds: Usually have lower Yield but are more stable and safer, ideal for investors seeking steady income.

Mutual Funds: Provide diverse Yield depending on investment policies, offering a balanced option for risk diversification.

Cryptocurrencies: Offer very high returns but with very high risks, suitable only for knowledgeable investors.

Summary: Yield as a Key Tool for Smart Investing

Yield helps investors understand how much their investments truly generate. Besides price fluctuations, understanding the Yield of various assets allows for better comparison and selection aligned with personal goals and risk tolerance.

Warning: Investing involves risks. Higher returns come with higher risks. Before investing, conduct thorough research and consult with investment professionals.