Difference Between YTD Return and Yield

Edited by Diffzy | Updated on: September 13, 2023

       

Difference Between YTD Return and Yield

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Introduction

In the province of investment and financial affairs, the terms Year-to-date (YTD) Return and Yield hold great importance for making informed decisions. They can be used interchangeably by beginners, but they differ from each other in many aspects. They are termed as two different ways of measuring the profit or loss of an investment over a defined period of time. The financial value of the investment is measured by using different metrics. Both return and yield are distinct terms. The former tells us about how much an investment has lost or gained over time as a dollar value, whereas the latter tells how much amount an investment has generated during a period as a percentage. 

Year-to-date return vs. Yield

Year-to-date return refers to the amount of profit or loss acquired by an investment since the first trading day of the current year. It is mostly used for comparison of assets and for tracing portfolio performance. It takes into account the depreciation of investment as well.

For calculating YTD return, from the current year value, subtract the starting year value and divide the entire result by the starting year value. To convert it into a percentage, multiply it by 100.

Whereas, Yield refers to income produced by an investment as the percentage of the price of the investment, current market value, or the face value of security over a particular period. It does not take into account the capital depreciation or appreciation of investment.

The simplest way to calculate yield is to divide the market value or the current value of the stock or bond by the income generated from the investment. To convert it into a percentage, multiply it by 100.

Difference Between YTD Return and Yield in Tabular Form

Parameters of comparisonYear-to-date returnYield
DefinitionIt is referred to as a change in the percentage of the value of an investment from the start of the current year to a particular date within the year. It measures the amount of profit or loss generated by an investment.It is referred to as income realized on an investment over a specific period of time. It is determined as a percentage based on the price of an investment, the current market price, or the face value of the security.
PurposeYTD return can be used for tracking a company’s progress in attaining its annual investment goals or for assessing portfolios. Management can use YTD return to get an interim report to analyze the company’s performance rather than waiting for an annual report at the end of the year.Yield can be used by profit-motive investors to identify investments that can produce steady cash flows. It tells the income an investor can expect from holding the asset.
VolatilityAs year-to-date return can be affected by all the changes within a year, therefore it is more unstable.For instruments like bonds, which typically have fixed income, yield is more stable unless the income distribution gets changed.
ComponentsTakes into consideration capital appreciation, interest payments, or dividends.Does not consider capital appreciation or depreciation. Only takes into account the interest or dividends generated by the investment.
FormulaFor calculating YTD return, from the current year value, subtract the starting year value and divide the entire result by the starting year value.For calculating yield, divide the market value or the current value of the stock or bond by the income generated from the investment.
InferenceIf a positive YTD return is seen, it indicates higher profitability or growth in the current year, whereas a negative YTD return indicates the opposite case.If the yield is high, it may indicate a higher income. However, it can also be a sign of higher risk. Therefore, it is necessary to find out the reason for a higher yield.

What is Year-to-date Return?

Year-to-date return refers to the amount of profit or loss acquired by an investment since the first trading day of the current year. It is measured as the change in the percentage of the value of an investment from the start of the current year to a particular date within the year.

Year-to-date refers to a stretch of time starting from the first day of the current fiscal year up to the recent date. The information provided by Year-to-date is useful in analyzing the trends of business and comparing performance data with other competitors in the same field.

The year-to-date return is calculated by subtracting the beginning value from the current value and dividing the entire by the beginning value. If one wants the result in percentage for an easier way to compare returns of individual investment, then multiply it by 100.

YTD return can be used for tracking a company’s progress in attaining its annual investment goals or for assessing portfolios. Management can use YTD return to get an interim report to analyze the company’s performance rather than waiting for an annual report at the end of the year.

This standard of measurement incorporates the appreciation or depreciation of investment, along with any dividends or interest accumulated during that time frame. It is highly volatile due to its nature to be affected by the changes happening around it. A positive year-to-date return denotes higher growth and expediency in the current year, whereas a negative year-to-date return indicates a decline in development and profitability.

Year-to-date return is itself one of the types of Year-to-date. Other types of YTD are:

  1. Year-to-date Earnings- It is the amount of money one has received from the first of the current fiscal year to the current day. It can also refer to the amount of money earned by an independent contractor or a business since the start of the fiscal year. It is the amount that consists of revenue less expenses. It can be used to estimate tax payments quarterly. 
  2. Year-to-date Net Pay- This refers to the difference between the earnings of an employee and the amount of money held back from those earnings. It is calculated by subtracting taxes and other withholdings from the gross amount. It includes the entire money earned since the first of the current year minus the taxes and the money held back. 

What is Yield?

Yield refers to income produced by an investment as the percentage of the price of the investment, current market value, or the face value of security over a particular period. It measures the income-generating capacity of an investment. It focuses on the income aspect, giving an idea of how much return on investment can be expected. It includes the interest attained or dividends received from possessing a bond or any other security.

The simplest way to calculate yield is to divide the market value or the current value of the stock or a bond by the income generated from the investment. If one is interested in finding out the result in percentage, then one can multiply it by 100.

Yield is a measure of return on investment. Higher yields are often regarded as a sign of higher income and lower risk. However, a high yield may have resulted from the falling current value of the security. If yields become excessively high, it may signify that either the price of the stock is falling or the company is rewarding high dividends. Higher dividends could mean that the company’s income is on the rise as the dividends are paid from those earnings. This might lead to higher prices of stocks.

Based on securities invested, the duration of investment, and the amount returned, yield can be of various types;

Yield on Stocks- two types of yields are calculated on stock-based investment: Cost Yield, and Current Yield.

When an investor is interested in calculating the yield on the purchase price, he/she can determine the cost yield. Cost yield is calculated as the sum of the price increased and dividends paid divided by the purchase price. 

Whereas the current Yield is determined based on current market prices. It is calculated as the sum of the price increased and dividends paid divided by the current price.

There exists an inverse relationship between stock prices and yield. Hence, when the company’s stock price increases, the current yield goes down.

Yield on Bonds- For bonds that pay annual interest, yield can be calculated as Normal Yield.

It is calculated as the interest earned annually divided by the face value of the bond.

However, for a flexible interest rate bond, the yield will change over the life of the bond, depending on the relevant interest rate at different periods.

  1. Yield to Maturity (YTM) - It is a measure of the total return anticipated on a bond every year until it matures. It is the average yield that is expected to remain steady throughout the holding period until the bond reaches its maturity. Year to Maturity is basically a bond’s internal rate of return until it matures.
  2. Yield to Worst (YTW) - This refers to the lowest possible yield that can be acquired on a bond without the possibility that the issuer might default.  It represents the worst-case scenario on the bond by measuring the return received if the issuer uses prepayments or callbacks.
  3. Yield to Call (YTC) - It refers to the yield of a bond that can be redeemed by the issuer before it gets mature. These types of bonds are called callable bonds. The value is measured by the interest payments of the bond, the market price of it, and the duration until the call date.

The Securities and Exchange Committee (SEC) has introduced a standard measure for calculating the yield, known as SEC yield. It becomes useful for a fairer comparison of the bond funds.

Main Differences Between Year-to-date return and Yield in points  

  • The amount of profit or loss acquired by an investment is referred to as YTD return, whereas Yield refers to income realized on an investment over a specific period of time.
  •  While Yield can be used by profit-driven investors to find investments that can generate constant cash flows, Year-to-date return can be used to track a company’s progress toward achieving its yearly goals or to assess portfolios.
  •  YTD return is calculated if the starting year value gets subtracted from the current year value and the entire result is divided by the starting year value, whereas, to calculate Yield, divide the market value of the stock or bond by the income generated from the investment.
  •  YTD takes into consideration capital appreciation, interest payments, or dividends, whereas Yield does not.
  •  A positive YTD return indicates higher profitability or growth in the current year, whereas a negative YTD return indicates the inverse situation. Similarly, in the case of Yield, if it is high, it may specify a higher income. However, it can also be a sign of higher risk.
  •  YTD return gets affected by the changes occurring within a year, whereas Yield is more stable unless the income distribution gets compromised.

Conclusion

In matters of investment, Year-to-Date return and Yield are commonly used terms. People often use these terms interchangeably, ignoring the differences between the two. Therefore, it is necessary to understand the aspects in which they differ from each other to make informed decisions on investment.

Year-to-date return refers to the amount of profit or loss acquired by an investment since the first trading day of the current year. It is measured as the change in percentage of the value of an investment from the start of the current year to a particular date within the year, whereas Yield refers to income produced by an investment as the percentage of the price of the investment, current market value, or the face value of security over a particular period. It measures the income-generating capacity of an investment. YTD return can be used for tracking a company’s progress in attaining its annual goals or for assessing portfolios, whereas Yield can be used by profit-motive investors to identify the most profitable investment. YTD considers capital appreciation or depreciation, interest payments, or dividends, whereas Yield only takes into consideration the income aspect of the investment.


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"Difference Between YTD Return and Yield." Diffzy.com, 2024. Thu. 29 Feb. 2024. <https://www.diffzy.com/article/difference-between-ytd-return-and-yield>.



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