What is a Running Yield?

Sometimes referred to as a current return, a running yield is a term used to identify the amount of income or return that investors realize from their portfolios, in terms of describing that income as a percentage of the current market value of the assets held by the investor. This approach is somewhat like a dividend yield, but applies to the entire portfolio rather than just the yield on a specific asset in terms of the dividends paid on that asset. Typically, a running yield is determined on an annual basis, but may be calculated more frequently if desired.

With a dividend yield, the income generated from either dividend payments for stocks or coupons for bonds is the focus of the calculation. This approach is very helpful in determining the feasibility of acquiring or keeping a given asset within the portfolio. In contrast, a running yield looks at the cumulative return associated with the portfolio and aids investors in determining if the current collection of securities and holdings is performing at a level that is considered equitable. This is important to the task of keeping the portfolio balanced, so that when some assets are performing below expectations, others are performing above normal levels and offsetting the difference enough to allow the portfolio to maintain its overall worth.

A running yield not only considers the dividends accumulated on various securities, but also takes into account movements of the market prices associated with the different securities in an investment portfolio. This approach makes it easier to compare the benefits derived from a portfolio from one period to the next. If the running yield indicates that the overall returns are higher than the previous period, then the investor is likely to maintain the current assets, even if some have experienced a slight decrease in market price. When the current return is lower than previous periods, this may indicate that the investor should look more closely at the dividend yield of each asset within the portfolio and determine if some of those securities should be sold and replaced with other securities.

As with any type of formula, a running yield only provides valuable data if the information used for the calculation is up to date. Should an investor underestimate the current market value of the portfolio, this could possibly lead to investment decisions that ultimately are not in his or her best interests. By accurately relating the current value of the portfolio to past performance levels and the potential for increased returns in the future, it is possible to manage assets effectively and continue earning equitable returns from the investments.