Before investing, understand Yield: An essential tool that investors often overlook

New investors just entering the investment world often encounter complex terminology, but “Yield” or the rate of return is one of the essential concepts to truly understand because it answers the fundamental question: how much return will your invested money generate?

What exactly is Yield?

Often, people misunderstand Yield as the profit earned, but in reality, Yield is the ratio that indicates how much income your capital generates per year expressed as a percentage.

The key difference is:

• Yield: The expected return (excluding price changes)
• Return: The actual return (including gains/losses from price changes + income received)

For example, if you buy a bond worth 1,000 baht, earning 50 baht in interest per year, the Yield of this investment is 5% per year. Even if the bond’s price fluctuates, the Yield remains at 5% as long as you hold it.

How to calculate Yield: Basic formula

Calculating Yield depends on the asset type, but the main principle is:

Yield = (Income received ÷ Investment amount) × 100%

A common mistake is investors forgetting to consider different types of Yield for various assets:

###Dividend Yield( for stocks) If Stock A pays 10 baht in dividends per year and the current price is 100 baht Dividend Yield = (10 ÷ 100) × 100 = 10% per year

###Earnings Yield( from profits) If Company B has a profit per share of 5 baht and the stock price is 50 baht Earnings Yield = (5 ÷ 50) × 100 = 10%

###Bond Yield( for bonds) Buying a bond worth 1,000 baht with 5% annual interest Bond Yield = (50 ÷ 1,000) × 100 = 5%

Factors that cause Yield to change

Yield of an investment is not fixed forever; many factors influence it:

1. Asset type: Technology stocks may offer higher Yield than government bonds but come with higher risk.

2. Market conditions: When central bank interest rates rise, new bonds will offer higher Yield, but existing bonds you hold will decrease in value.

3. Investment horizon: Long-term investments usually have higher Yield because of the power of compound interest.

4. Risk level: Riskier assets must offer higher Yield to compensate for risk; this is the golden rule of investing.

5. Company policies: Companies investing in new developments may pay lower dividends, resulting in lower Dividend Yield. Value companies, or “harvesters,” tend to pay more dividends.

Yield of different investment types: Actual vs. projected

Stocks

Stocks can offer a combined Yield from Dividend Yield + Capital Appreciation (profit from sales). In active markets, growth stocks may yield 15-20%, but in sluggish markets, dividends may drop to only 2-3%.

Bonds

Government bonds typically yield 1-4% per year, depending on currency and country creditworthiness. Corporate bonds offer higher yields of (5-7%) but with higher default risk.

Real estate

Rental Yield ( may be 3-6% per year, especially in expanding markets. Real estate can also appreciate in value by 5-10% annually.

) Mutual Funds Yield varies widely, from 1-2% for tourism equity funds to 5-7% for bond funds.

Cryptocurrencies

Yield from crypto investments via Staking or Yield Farming can be very high, up to 10-20%, but with corresponding high risk.

Common investor mistakes

1. Comparing Yield without considering risk: A 20% Yield sounds great, but if it comes from an asset that could lose 50% today, it’s not really good.

2. Ignoring compounding ###: If you invest 10,000 baht at an 8% Yield per year, in year 1 you earn 800 baht, but by year 10, your money grows to 21,589 baht, not just 18,000 baht.

3. Focusing only on Yield and ignoring purchase price: A 10% Yield on Stock A with a very high price and low actual earnings could be a trap.

Which type of Yield offers the highest returns?

There’s no single answer; it depends on you:

• Risk appetite: If you can take high risk, try growth stocks or Crypto Yield Farming.
• Time horizon: For long-term, choose stocks or real estate; for short-term, bonds or funds.
• Convenience: If you want steady income, consider bonds or dividend-paying stocks.

The key is to balance high Yield with acceptable risk and diversify across different asset classes.

Summary: Why is Yield important?

Understanding Yield is like having a map for your investments. It helps you:

• Compare fairly which investments are better
• Forecast how much your money will grow over the long term
• Avoid traps of investments that look good but carry high risk

Once you understand Yield, investment decisions are no longer gambling but systematic money management.