Nov 28, 2018
This week I’m demystifying some of the most important financial and investing jargon you should know to help you make smart decisions with your money.
Today, I’m talking yield. Yield is a measure of cash flow that an investor gets on the amount invested in a particular stock, bond, or fund. That’s the basic definition from Investopedia.
Knowing the cash flow, or income that your portfolio generates becomes increasingly important as you transition into retirement, and start drawing money out of your investments.
Let’s say you have a million dollars in your portfolio, and the total yield of your portfolio is 3%. A 3% yield on $1 million is $30,000 of cash flow or income that year.
Even if your portfolio drops by 10% or soars by 20% in a given year, you should be able to plan on receiving that $30,000 of income if your portfolio is diversified and all of your stock and bond investments keep paying dividends and interest - which they usually do.
When you transition into retirement, it becomes increasingly important to understand how much cash flow (or yield) your portfolio can reliably generate for you in a given year.
Because, if your portfolio can generate a reliable and growing stream of income for you in retirement, you’ll be better positioned to keep up with increasing cost of living in your retirement years.
Thanks for listening today. Tomorrow we’re going to talk about why expense ratios matter so much when calculating the total fees of your investment portfolio.
My name is Ashley Micciche...and this is the One Minute Retirement Tip.
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