Tuesday, May 8, 2012

How To Get Rich - Optimize Your Yield

Do you understand what yield on an investment really means ?

Do you understand how to optimize your investment's yield ?

 Let me show you the strategy !

What Is Yield


The word yield basically means the amount of benefit you will see right now if you were to purchase an investment at it's current price. I'll use the example given in a previous post to illustrate the benefit.

Suppose a stock is selling for $10.00 per share and the yield is listed at 10% . This would give you an annual income of $1.00 per year for every share you purchase at the current price. In this example, you would have to purchase 600 shares to give you a monthly income of approximately $50.00

Therefore, yield means the amount of income you will currently receive if you purchase the stock right at this instant in time. In this case if you invest $6,000.00 right now, you will receive $50.00 per month of income.

The word yield on charts etc. is actually the "current yield" in economic terms. For simplicity sake it is shortened to just yield and this is understood throughout the industry.

Yield Variations


The yield on an investment, just as the price, is constantly changing. For every trade in the investment the price changes along with the yield. This is because the income from an investment is a fixed dollar amount as determined by the investment's board of directors etc.


Now let's suppose the price of our above example drops to $5.00 per share. The yield would now become 20% . This means that you would now only have to invest $3,000.00 to receive your same $50.00 per month of income. An extreme example, but it does show the big difference proper timing of your purchases can make.

Optimizing Yield


All investments go through cycles based on supply and demand as well as a multitude of other reasons. For the income investor, a downturn in the market is a wonderful opportunity to increase yields substantially.

To optimize your yield simply follow this simple discipline. Do all of your buying of an investment at or near the bottom of the cycle. The rest of the time simply accumulate your income and wait for the bottom of another cycle. In this way you will be paying the least amount for the income stream that you desire.

As in many strategies, it is simple. However, it does take discipline and a lot of patience to wait for the proper moments to make your investments. But it will be well worth the wait I assure you.

As always, I welcome your comments and suggestions for future topics.

No comments: