Realized yield, or realized return, is the actual rate of return on an investment over a given period of time. This yield is based on the amount of income received from the investment, as well as the appreciation or depreciation of the investment's price. Realized yield can also be calculated using the cost basis of the investment, which is the original purchase price plus any associated transaction fees.
Bonds are typically the investments which have the most significant potential for realized yield differences between the stated yield and the realized yield. This is because for many bonds, the yield to maturity presumes that all the interest payments are reinvested into the bond. The realized yield, in contrast, would be affected by the amount actually reinvested in the bond. The same logic applies to certificate of deposits (CDs) and other fixed-income funds.
Realized return on stocks is affected by the timing of the stock's purchase and sale and any associated transaction costs. If a stock is purchased at one price and sold for a different price, the realized return could be calculated by subtracting both the purchase cost, including brokers' fees, and the subsequent sale price, including any taxes due. If the stock paid a dividend during the period of ownership, that amount should also be factored into the realized return calculation.
Once the realized yield is calculated, investors can compare it to the return they anticipated to determine if they met their investment goals. Although this analysis is important, it is not helpful in predicting future yields or returns. Rather, investors should use realized yield to obtain insight into how their investments have performed in the past and apply this information as they make changes to their investing strategy.
Bonds are typically the investments which have the most significant potential for realized yield differences between the stated yield and the realized yield. This is because for many bonds, the yield to maturity presumes that all the interest payments are reinvested into the bond. The realized yield, in contrast, would be affected by the amount actually reinvested in the bond. The same logic applies to certificate of deposits (CDs) and other fixed-income funds.
Realized return on stocks is affected by the timing of the stock's purchase and sale and any associated transaction costs. If a stock is purchased at one price and sold for a different price, the realized return could be calculated by subtracting both the purchase cost, including brokers' fees, and the subsequent sale price, including any taxes due. If the stock paid a dividend during the period of ownership, that amount should also be factored into the realized return calculation.
Once the realized yield is calculated, investors can compare it to the return they anticipated to determine if they met their investment goals. Although this analysis is important, it is not helpful in predicting future yields or returns. Rather, investors should use realized yield to obtain insight into how their investments have performed in the past and apply this information as they make changes to their investing strategy.