What investors should know: How to understand Yield and calculate returns

Why Study Yield?

Making successful investment decisions requires understanding the concept of “Yield” or investment return. Yield is not just a mathematical figure but a tool that helps you compare investment opportunities and assess risks aligned with your goals.

What is Yield?

Yield represents the profit earned from investing in various assets over a specified period, expressed as a percentage per year or other specific durations. Whether you invest in stocks, bonds, real estate, or mutual funds, Yield indicates how much income your investment will generate.

Basic formula for calculating Yield

Calculating Yield varies depending on the asset type you invest in. For debt instruments like government bonds, the formula is:

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

This formula helps you see the appreciation of your investment in percentage terms.

Types of Yield You Need to Know

Dividend Yield: Income from holding stocks

Dividend Yield is calculated by dividing the dividends paid to shareholders by the current stock price, then multiplying by 100%.

Example: Company A pays a dividend of 10 THB per year. The market price of A stock is 100 THB.
Dividend Yield = (10 / 100) × 100 = 10%

This means you earn a 10% annual return from dividends.

Stock Yield: Profit from earnings

Stock yield or Earnings Yield is calculated by dividing net profit per share by the current stock price, with the formula: (Earnings per Share / Current Stock Price) × 100%

Example: Company B has a net profit of 5 THB per share. The market price is 50 THB.
Earnings Yield = (5 / 50) × 100 = 10%

Bond Yield: Return from bonds

Bond yield is the return you receive from holding bonds, expressed as a percentage per year.

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

Mutual Funds Yield: Return from mutual funds

Mutual Funds Yield is calculated by dividing total income (from dividends and interest from debt instruments) by the net asset value of the fund, then multiplying by 100%.

Example: Fund A has income of 100 THB and a net asset value of 1,000 THB.
Mutual Funds Yield = (100 / 1,000) × 100 = 10%

Factors Affecting Yield

1. Asset type you choose

Investing in debt instruments usually yields lower but with lower risk, while stocks tend to offer higher yields but with increased risk. Choosing the right asset class according to your risk tolerance is crucial.

2. Economic and market conditions

Interest rates, economic health, political risks, and other economic factors all influence the expected returns.

3. Investment duration

The longer you invest, the greater the potential to accumulate returns. Longer periods often benefit from compound interest calculations.

4. Risk level

Higher-risk investments typically require higher yields to compensate for the increased risk borne by investors.

5. Company capital management policies

Dividend payout policies, investments in infrastructure, and R&D all impact the achievable Yield.

Which assets offer the highest Yield?

Stocks: High returns but high risk

Stocks can provide high long-term returns, especially technology and growth stocks, but you must accept price volatility.

Real estate: Moderate to high returns

Investing in residential or commercial real estate can yield good returns but involves maintenance costs and management fees.

Mutual Funds: Diversity and balance

Debt and mixed mutual funds offer varied returns by diversifying risk.

Gold: A safe and stable asset

Gold is often viewed as a risk hedge investment, providing moderate returns.

Cryptocurrencies: High returns but very high risk

Cryptocurrencies are suitable for investors who understand the technology and are willing to accept significant risks.

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Yield vs Return: What’s the difference?

Although Yield and Return are often used interchangeably, they have different meanings:

Yield: The expected rate of return, excluding price changes of the asset, such as dividends and interest.

Return: The actual profit received, including price changes from buying and selling (profit or loss from sale).

Stock Market Yield Comparison

In the stock market, you will find two main types of Yield:

Dividend Yield: Calculated by dividing annual dividends by the current stock price. This helps identify stocks with good dividend payouts.

Earnings Yield: Calculated by (Earnings per Share / Current Stock Price) × 100%. This indicates how much profit the company makes relative to the investment value.

Summary: Why is Yield Important to You?

Yield is the key to understanding how your money works. Whether you choose stocks, bonds, real estate, or mutual funds, knowing how to calculate and compare Yield helps you make smart, situation-appropriate investment decisions. The importance of studying this concept lies in making your capital work hardest for you, considering risks, investment duration, and your financial goals.

Risk Warning: Investing involves risks and may not be suitable for everyone. Please study thoroughly before making decisions.