Last week my Short & Simple Investment Lesson was about “Return on Investment” used to measure investment performance. Remember that this is just lingo for measuring the different ways that your money works for you, and the names given to each of those methods. Today, let’s look at how a rose bush relates to yield, another one of the most common investment performance terms.
If you are considering buying a gorgeous pink knock out rose bush at your local nursery, and the price is $35, you’ll naturally think about the roses that you will get from the bush before you make a decision to buy it. Different types of rose bushes are expected to yield different quantities at varying frequencies, and also provide different types of roses, such as trailing or long tip; you base your purchasing decision on these expectations, which is the yield you will get in the form of beautiful roses.
In the same way that you considered the probable yield from the rose bush, you can assess an investment based on the amount of money you can reasonably expect to receive while you own a particular investment. Just like your rose bush yields beautiful fragrant roses while you own it, your investments can yield money back to you in different forms and frequencies, depending on the type of income producing investment you make; investments that provide yield are referred to as “income producing”. The most common forms of yield associated with investments are from stocks, in the form of dividends, rental income from real estate, interest from bonds, and royalties from oil and gas properties. As a numerical example, if you invest $10,000 in a bond fund, and it pays $500 to you in interest each year, then that investment is yielding 5% a year.
Income from investments are undoubtedly as welcome as the roses from your rose bushes. Just as you would probably not buy the rose bush if it did not produce the roses, you wouldn’t want an investment that doesn’t produce a yield if that is your primary investment goal. As a financial woman, always first know your desired investment goal, then evaluate any investment you are thinking of buying to make sure it meets that goal.