DEFINITION:
Yield is the income return on an investment, expressed as a percentage of the investment’s cost or current market value. It typically refers to dividends or interest earned.
WHEN AND WHY IT’S USED:
Yield is used to assess how much income an investment generates relative to its price. Investors focus on yield when they need a predictable income stream, such as during retirement or when supplementing other sources of income. It is especially relevant in comparing income-generating investments like dividend stocks, bonds, or REITs.
IMPORTANCE IN COMMUNICATION:
Discussing yield with your financial advisor is crucial for understanding the income component of your investments. It allows you to evaluate how well your portfolio is meeting your income needs and to compare different investments on an apples-to-apples basis. This clarity is essential when planning for cash flow requirements, especially for long-term financial stability.
Moreover, clear communication about yield ensures that you are aware of any trade-offs between higher yield investments and the associated risks. It provides a basis for informed decision-making regarding which income-generating assets are best suited to your overall strategy. This dialogue is essential for aligning your investment choices with both your short-term income needs and long-term growth objectives.