What is a yield?

Demystifying investment terms

A yield is the income you get from an investment. It can come from either the interest received from a fixed income security such as a bond, or the dividends received from a share.

Yield is normally expressed as a percentage of the asset's price.  And since it measures only the income an investment earns, and disregards the capital gains or losses, the yield figure is a convenient way of comparing the returns on financial investments when you are investing for income.

The yield from a bond takes into account the fixed rate of interest the bond pays (also known as the coupon value) and the price at which the bond was purchased. For example if a £1 bond cost you £1.10 to buy, and has a 5% coupon value, that would give you a yield of 4.5% at the maturity date of the bond (1 year in this example).

Things to discuss with your adviser

Yield only represents the percentage of income received from the value of your assets, and is not an indication of whether the price will rise or fall. Whilst bonds may be a source of fixed income, dividend income is hugely variable and not guaranteed in most cases. There are other ways of investing for income such as preferred shares and property. To understand more about these please click on the word to be directed to our glossary or ask your adviser for more details.

You should be aware though that any investment, even for income, comes with risk to your initial investment. Your adviser will be able to discuss your attitude to risk and help construct your portfolio of investments to suit your needs.

To understand more about some technical words mentioned in the article, please refer to our glossary.