# What is Net Yield?

Jim B.
Jim B.

Net yield refers to the total amount of return on an investment of any kind minus the amount of costs for that investment. In terms of stocks, it is the amount of money made from a stock sale over the price at which it was originally bought while also factoring in extraneous costs. The most common of these extra costs are commission costs, which are paid to stock brokers to execute trades. Investors search for the highest net yield possible from their investments.

Different investors have different goals when they place their money in the stock market. Some are willing to take big risks for the possibility of huge gains, while others may be looking for the type of investments that provide long-term stability. But all investors ultimately want the highest possible return on their investments, which is why the net yield is such an important measurement. It measures the exact amount of gain from a specific investment on the stock market.

As an example, imagine that an investor buys a stock at a price of \$36 US Dollars (USD) per share. After the price soars, she decides to sell the stock when it reaches \$56 USD per share. The commission costs paid to the stock broker for the two trades total \$4 USD. In this case, the net yield is the price at which the stock is sold, or \$56 USD, minus the sum of the price at which it was bought, or \$36 USD, and the commission costs of \$4 USD. These calculations lead to a yield of \$16 USD.

This concept is even more useful when judged in terms of how much capital was included in the investment. If a lot of money is placed on a single stock, then the investor may come away with a high yield that doesn't quite match his expectations for the stock. Rate of return, which is the net yield measured as a percentage of the investment, is a good way to measure the positive impact of a single investment.

Using the example above, the yield of \$16 USD is measured against the total investment costs of the \$36 USD stock purchase price and the \$4 USD commission costs. Adding these two amounts yields a sum of \$40 USD. The rate of return is reached by dividing the net yield of \$16 USD by the total investment cost of \$40 USD, which comes to 0.4. That means that the investor managed a 40 percent rate of return on her investment.