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24 June, 2015

Yield vs Total Return

When investing there are two components to your return; the income, or yield, is the amount of money paid to you for owning the security and is typically a measure of the profitability of the stock.  The second component is the capital appreciation where the value of the stock goes up (hopefully) between the purchase date and the date of sale.  Different asset classes and different stocks or securities have different characteristics, and it is important to appreciate why.  Some investors have a preference one way or another - here a research article from Dimensional Fund Advisers explains why having this bias can result in reducing diversification, and thus increase the level of unrewarded risk you take on as an investor.

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by John Stirling