What Is the Average Annual Yield?

The average yield on an investment or a portfolio is the sum of all interest, dividends, or other income that the investment generates, divided by the age of the investment or the length of time the investor has held it. In particular, it’s the yield or total income generated from an invest꧃ment, divided by the number of years held. 

Understanding the Average Annual Yield

The average annual yield is a particularly useful tool for 澳洲幸运5官方开奖结果体彩网:floating-rate investments, in which the fund's balance and/or the interest rate change frequently. The average annual yield can also apply to a range of other investments, from 澳洲幸运5官方开奖结果体彩网:deposit accounts, stocks, commodities, and/or real estate.

For example, for a 澳洲幸运5官方开奖结果体彩网:savings account that pays a floating rate of interest on balances, the average annual yield can be calculated by adding all interest payments for the year and dividing that number by the 澳洲幸运5官方开奖结果体彩网:average balance for the year. 

The average annual yield is a backward-looking measurement and can also be very useful in determining the actual performance of a mixture of investments. In general, the average annua꧃l yield ꦉwill determine performance over time on any multi-year investment. 

Say an investor owns a portfolio of stocks, where they generate a return of $1,000 on a $10,000 net valuation during year one. Then, the return is $1,500 on the same investment amo🔜unt in year two, and $800 on the same investment in year three.

The return on year one was thus 10%, 15% in year two, and 8% in year three. The investor’s average annual yield is 11%, or ((10% + 15% + 8%) / 3).

Types of Average Annual Yield

There are a variety of yield measurements that apply to many fixed income and money market securities. For example, the annual percentage yield or APY measures an investment’s 澳洲幸运5官方开奖结果体彩网:effective annual rate of return, taking into account the effect of compounding interest and assuming a full 365 holding period. A seven-day yield is the annualized yield for a 澳洲幸运5官方开奖结果体彩网:money market mutual fund, calculated based on the fund’s average🥀 seven-day distributi♔on.

For bonds, common yield terms include the 澳洲幸运5官方开奖结果体彩网:current yield, which is a bond’s interest rate as a percentage of its current price. The 澳洲幸运5官方开奖结果体彩网:yield to maturity (YTM) estimates what an investor will receive if they held the bond to its maturity date. A 澳洲幸运5官方开奖结果体彩网:tax-equivalent (TE) yield also refers to many non-taxable 澳洲幸运5官方开奖结果体彩网:municipal bonds. The tax-equivalent yield fairly compares the yield of a tax-free bond to that 🥀of a taxable bond and is also known as after-tax yield.

Dividend-paying stocks also have a variety of yield measurements or 澳洲幸运5官方开奖结果体彩网:stock dividend yields. The yield on cost, for example, is a security’s annual 澳洲幸运5官方开奖结果体彩网:dividend rate, divided by its average 澳洲幸运5官方开奖结果体彩网:cost basis. Many companies, particularly older and more stable ones, pay out a portion of their earnings as dividends. Investors who seek out high yields for retirement income seek out and regularly calculate these yields. At timesꦜ yields may become too high, however, implying that a company is over-extending itself.