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The Difference Between YTD Return and Yield

By Erik Folgate

I’m new to fairly serious investing mostly because this is the first time in my life that I have had any money to invest.  I took a couple of finance classes in college, but let’s be honest, some stuff just does not stick.  I started looking at my 401k more seriously the past few weeks and I started wondering why my year-to-date return was decent, yet my yield was like 0.3% or something ridiculous like that. So started educating myself on why this was so. 

Yield:  this is basically the return that your investment makes based on dividends that companies pay out to their stockholders.  Smaller companies with high growth potential typically do not pay out dividends.  Usually more established companies and mutual funds that invest in bonds will have a higher yield.  If your percentage yield is like 4 or 5 percent, then you are investing very conservatively, and you are looking to make steady income off of your investments rather than higher capital appreciation. 

YTD Return.  This percentage represents the capital appreciation of your investments.  Someone with a higher YTD return from their portfolio has a more aggressive approach to investing.  The investor is more focused on stocks gaining value rather than paying back a dividend to its investors. 

Having a very low yield and a higher YTD return now makes sense to me, because I invest in very aggressive mutual funds.  Why do I invest in aggressive growth stock mutual funds?  Because I am young!  Don’t let some financial advisor tell you to go for a higher yield if you are under the age of 40.  You have plenty of years to ride out the waves of aggressive stocks.  Once you start trying to time the market is when you will get burned with growth stock mutual funds.  So if you are young and looking to invest for the next 20 – 40 years, you should be more concerned with your YTD return rather than your yield.  The yield means virtually nothing until you want to start supplementing your income with your investments. 

Erik Folgate
Erik and his wife, Lindzee, live in Orlando, Florida with a baby boy on the way. Erik works as an account manager for a marketing company, and considers counseling friends, family and the readers of Money Crashers his personal ministry to others. Erik became passionate about personal finance and helping others make wise financial decisions after racking up over $20k in credit card and student loan debt within the first two years of college.

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Comments

  • http://dividendmoney.com Tyler

    There is a segment of the population that is risk averse adn use dividend stocks as growth vehicles. If the dividends are re-invested in the stock, it effectively gives you growth by allowing you to purchase more of the stock.
    You are correct, younger folks have more time to ride out the waves of the market, but some people (even young people) can’t stomach the down turns.
    Great job!

  • Edie50

    I think the information in this article is mis-leading. YTD return is not just based on capital appreciation. According to Vanguard, it includes dividends and capital gains distribution. Example: YTD Return on VWINX for 2011 is 9.63%. However price on 1/3/11 was $21.72 and closed the year on 12/30/11 at $22.93 and reported YTD return was 9.63%.

  • Jason Adams

    I invested in growth (speculation) when I was younger, and essentially lost everything when the market downturned as it periodically does. I now invest for yield (income) and have averaged 22% return over each of the last 5 years. Does your speculation strategy work as well?

  • Unqualified

    “I took a couple finance classes in college”

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