What distinguishes yield from return in investments?

Yield is a financial measure that primarily focuses on the income generated from an investment relative to its cost or current market value, typically expressed as a percentage. This includes elements such as interest or dividends, but does not consider the price appreciation or depreciation of the investment itself.

The distinction between yield and total return is significant because total return encompasses all facets of an investment's performance—specifically, it includes income generated from the investment (dividends, interest, etc.) as well as any changes in the investment's market value. Therefore, while yield gives investors an idea of how much they are earning in terms of income, it does not reflect the complete performance picture that total return provides, which can be influenced by market fluctuations.

Understanding this difference is crucial for investors as they assess the potential profitability of their investments. Evaluating yield alone might lead investors to overlook significant factors such as capital gains or losses that substantially impact the overall performance of their portfolio.