AboutWarren Boroson Expertise Author of "Keys to Investing in Mutual Funds" (Barrons), "Ultimate Mutual Fund Guide" (Probus), "How to Pick Stocks Like Warren Buffett" (JKLasser), and "The Reverse Mortgage Advantage" (McGraw-Hill). Former financial columnist for Gannett News Service.
Experience Author of 20 books; winner of 1996 Personal Finance award from Investment Company Institute and Washington University. Formerly on staffs of Money and Sylvia Porter's Magazine. Had a radio program (on WEVD) about mutual funds and a newsletter, FundDigest.
Expert: Warren Boroson Date: 10/12/2004 Subject: YTD Return v. Yield
Question I monitor my mutual funds daily using Yahoo. When I click on the "chart" feature for a mutual fund, it gives me two different performance percentages: year-to-date return and yield. What's do these two terms really mean? One fund I hold shows a YTD return of 7.39 percent, but a yield of only 0.19 percent? Am I doing great, or lousy? (The fund is Fidelity Low-Priced Stock Fund, where I have an IRA, and the figures are for today, Oct. 12, 2004.)
Answer Dear Brian:
A high yield is a warning sign. It is a red light. It means: Prepare to abandon hope all ye who enter here. It means: Proceed extremely cautiously.
The yield is what an investment earns. In simple terms, interest from a bond, dividends from stocks.
If a bond has a very high yield, it often means that investors have doubts about getting their money back. That's why the price has gone down -- and the yield up.
If a stock has a very high yield, it often means that investors are worried. They may even be worried that the dividend will be reduced or eliminated--so the yield will fall to zero.
In short, when you buy a stock mutual fund, like the wonderful Fidelity Low-Priced Stock, don't pay much attention to the yield. The profit you will make will come almost entirely from capital gains--from the rise in the price of the fund's shares.
As for a year-to-date return (from Jan. 1 to now), 7.39% is sensational. Compare it to what the stock market in general has done. Look up Vanguard Total Stock Market or Vanguard Index 500.
I don't mean to denigrate yields too much. A high-yielding stock that's in good financial shape may be a good buy, especially these days, when everyone is predicting low returns from stocks over the next few year.
But small- and mid-sized company stocks usually don't pay much in the way of dividends, so you should not be discouraged if their yields are miniscule or nonexistent.
Yields are the major reward you typically get from bonds. Capital gains are the major reward you typically get from stocks.
I happen to own shares of Fidelity Low-Priced Stock. I have NEVER ABSOLUTELY NEVER checked what its yield is. I don't care what its yield is.
