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When it comes to investing, yield is a term that gets thrown around a lot. But what exactly is yield, and why does it matter? In its simplest form, yield refers to the income generated by an investment. It's a key metric that investors use to assess the performance of an investment, and it can be influenced by a range of factors.

Understanding yield is essential for anyone looking to build a successful investment portfolio. In this article, we'll explore what yield is, how to calculate yield, and why it's important. We'll also look at different types of yield. Whether you're a seasoned investor or just starting out, this article will provide you with the knowledge to help you make informed investment decisions.

What is yield? Understanding the basics

Simply put, yield refers to the income generated by an investment. It's typically expressed as a percentage of the investment's current value, and it can come in many forms, such as interest payments, dividends, or rental income.

Understanding yield is important for investors because it provides a way to compare different types of investments and assess their potential for generating income. For example, a bond with a higher yield may be more attractive to an investor than a similar bond with a lower yield, all else being equal.

Yield can be influenced by a range of factors, including market conditions, interest rates, and the type of investment being made. Different types of investments may have different types of yield as well, with some providing a fixed yield and others offering a variable yield.

By understanding the basics of yield, investors can make more informed decisions about where to put their money and how to build a successful investment portfolio.

The different types of yield

Yields can vary based on the invested security, the duration of investment, and the return amount. There are different types of yields for different types of investments.

Bond's yield

The yield on bonds that pay annual interest can be calculated using the nominal yield, which is calculated as the annual interest earned divided by the face value of the bond. However, a floating interest rate bond yields will change over the life of the bond depending on the applicable interest rate at different times. Floating interest rate bonds pay a variable interest over its tenure.

Similarly, the interest earned on an index-linked bond, which has its interest payments adjusted for an index, such as the Consumer Price Index (CPI) inflation index, will change as the fluctuations in the value of the index.

Yield on stocks

When investing in stocks, two types of yields are popularly used. The first is yield on cost (YOC), which is calculated based on the purchase price at the initial investment. This yield is calculated as the sum of the price increase and dividends paid divided by the purchase price. The second is the current yield, which is calculated based on the current market price of the stock.

Yield to maturity

Yield to maturity (YTM) is a special measure of the total return expected on a bond each year if the bond is held until maturity. It differs from nominal yield, which is usually calculated on a per-year basis and is subject to change with each passing year.

On the other hand, YTM is the yield expected per year and the value is expected to remain constant throughout the holding period until the maturity of the bond.

Yield to worst

The yield to worst (YTW) is a measure of the lowest potential yield that can be received on a bond without the possibility of the issuer defaulting. YTW indicates the worst-case scenario on the bond by calculating the return that would be received if the issuer uses provisions including prepayments, call back, or sinking funds.

This yield forms an important risk measure and ensures that certain income requirements will still be met even in the worst scenarios.

Yield to call

The yield to call (YTC) is a measure linked to a callable bond—a special category of bonds that can be redeemed by the issuer prior to its maturity—and YTC refers to the bond’s yield at the time of its call date.

Tax-equivalent yield

Municipal bonds, which are bonds issued by a state, municipality, or county to finance its capital expenditures and are mostly non-taxable, also have a tax-equivalent yield (TEY). TEY is the pretax yield that a taxable bond needs to have for its yield to be the same as that of a tax-free municipal bond, and it is determined by the investor's tax bracket.

Mutual fund yield

Mutual fund yield is used to represent the net income return of a mutual fund and is calculated by dividing the annual income distribution payment by the value of a mutual fund’s shares. It includes the income received through dividends and interest that was earned by the fund's portfolio during the given year.

The importance of yield in investing

Yield is a crucial metric for investors to consider when making investment decisions.

For income-seeking investors, yield is particularly important as it directly impacts their cash flow. High-yield investments can provide a steady stream of income to investors, allowing them to meet their financial goals and cover their expenses.

However, it's important to note that high yields can come with higher risks. Investors must carefully evaluate the underlying assets and the sustainability of the yield to ensure that it's not artificially inflated.

Overall, yield should be one of many factors investors consider when making investment decisions, but it's a crucial one for those seeking income.

Yield vs. return on an initial investment: what's the difference?

In investing, yield and return are both important metrics as they measure the performance of an investment, however, they have different meanings.

Return on investment (ROI) is a measure of the overall profitability of an investment over a given period of time, taking into account both capital gains and income rendered by the investment.

Yield, on the other hand, excludes capital gains and is specifically the income generated by an investment as a percentage of the investment's current value. Yield is often used to measure the income generated by fixed-income investments like bonds or dividend-paying stocks.

While yield and return are related, they can differ in certain situations. For example, if the value of an investment increases significantly, the yield may decrease even if the total return remains high. Alternatively, an investment with a low yield may have a high return if its value appreciates significantly.

Ultimately, investors should consider both yield and return when evaluating investments, but the importance of each metric will depend on the individual investor's goals and priorities.

How to calculate average yield

To calculate yield, you need to determine the return on investment for a given security or investment. The method of used to calculate yield varies depending on the type of investment. 
For stocks, the two most commonly used yields are the yield on cost and the current yield. 

Calculating yield on cost

The yield on cost is calculated based on the purchase price, price increase, and dividends paid. To calculate the yield on cost of an investment, you need to know the current annual income generated by the investment and the original cost of the investment. The formula for yield on cost is:

YOC = (Annual Income / Original Cost) x 100

For example, let's say you purchased a stock for $100 and it pays an annual dividend of $5. After one year, the yield on cost would be:

YOC = ($5 / $100) x 100 = 5%

This means that for every $100 you invested, you are earning a 5% return in annual income.

Yield on cost is particularly useful for investments that increase their dividend payments over time. As the annual income generated by the investment increases, the yield on cost will also increase, which can be a sign of a successful long-term investment.

Calculating current yield

The current yield is calculated based on the current market value, price increase, and dividends paid. 

The current yield is the annual income (interest or dividends) divided by the current market price of the security. It is calculated as follows:

Current Yield = Annual Income / Current Market Price
For example, suppose a bond with a face value of $1,000, a coupon rate of 5%, and a maturity of 10 years is currently trading at $950.

Annual income = $50 (5% coupon rate * $1,000 face value)

Current market price = $950

Current yield = $50 / $950 = 5.26%

The calculated yield value therefore is 5.26%.

In conclusion

What is yield? Yield is an essential term in investing that refers to the income generated by an investment, and it provides a way for investors to compare different types of investments and assess their potential for generating income. While a higher yield is generally preferable, investors must look at a range of other factors when determining whether it is a valuable investment or not.

The post-pandemic working world is a different place entirely. These days, many people have given up their nine to five jobs to work from home, joining the gig economy where projects are more short-term and schedules are flexible. After all, all one needs is a reliable internet connection and a space to work.

These temporary projects allow for more freedom when it comes to creative license, time constraints and living a life best suited to the individual. And they just got a whole lot easier thanks to the electronic cash system that is Bitcoin (and other crypto assets).

The Gig Economy Meets Blockchain

There are plenty of upsides to working in the gig economy, most notably that you can pick your own hours. As you are in control of your schedule you can choose your vacation times, you’re your own boss, and you get to choose what jobs you take on.

In the UK alone the gig economy between 2016 and 2019 doubled in size, equating to a staggering 4.7 million workers. Meanwhile, in the European Union, the number of freelancers rose by 24% between 2008 and 2015, from 7.7 million to 9.6 million people.

The U.S. Bureau of Labor Statistics reported that 36% of all employees in the United States are part of the gig economy, approximately 57 million people. Unfortunately of these 57 million, 58% reported that they have not been paid for work that has been completed. 

This problem could be solved through the use of blockchain and smart contracts. Smart contracts are digital agreements that automatically execute once the criteria have been met. Say you agree to complete a project within a certain time frame, once the project is completed and submitted, the payment is released. No need to request or accept payment, the funds are cleared and deposited directly into their wallet.

Another positive to merging the gig economy with blockchain technology is the use of cryptocurrencies. 

4 reasons why getting paid in crypto makes sense

While smart contracts would need to be made in order for them to smoothen out the wrinkles of unpaid jobs, cryptocurrencies are available right now. The benefits of crypto transactions when it comes to working remotely just make sense.‍

1) Cryptocurrency transactions are fast and cheap
‍While the thought of using Bitcoin payments might sound scary, they are in fact incredibly simple to send, receive and withdraw. With the use of blockchain technology and the Bitcoin network, international transactions can be completed in minutes with considerably fewer fees. Not just Bitcoin, all digital currencies for that matter.

All you need to do is pick a cryptocurrency, share your wallet address and wait for the crypto transaction to clear. Through the Tap mobile app you can then use the funds to pay bills or sell them for fiat currencies and send them to your personal Tap account to spend as you please or directly to your bank account. 

2) Anyone can make crypto payments
‍While opening a bank account is typically a very tedious task, opening a crypto account is very easy. Anyone anywhere in the world can easily create an account, add funds, and start transacting. As the network is entirely digital, employees and employers based anywhere in the world can tap into this and effortlessly make crypto payments.

3) You can work from anywhere
‍On that note, cryptocurrencies give you the freedom to work anywhere in the world as there are no constraints on receiving payments allowing you to sell your skills in the global market. There has also been an increase in jobs looking for freelancers that are willing to accept Bitcoin, goodbye central banks and hello digital assets‍

4) Low transaction fees make small jobs worth it 
‍If you've ever been hesitant about accepting small jobs, this is the one for you. When small jobs pay less, the payments might frequently be entirely overwhelmed by the transaction fees associated with receiving your payment for the job.

That is not the case when it comes to some cryptocurrencies, with Litecoin for example charging merely $0.02 per transaction. 

How to get paid in cryptocurrencies

If you’ve decided to take the plunge, you can either request that your employer pays in crypto, or specifically look for crypto-paying jobs (more on this below). The next step is to set up an account from where you can receive said crypto.

The Tap mobile app will tick all the boxes, and opening an account is incredibly simple. First, you will need to download the app and then register. You’ll be asked to fill in some personal information and then verify your identity with a government-issued identity document. This is all very normal and is required by law. 

Once you are verified, head to the home page, select the Crypto wallet and choose a cryptocurrency you would like to receive / the cryptocurrency you will be paid in. Then select Receive and send the wallet address to your employer/contractor. You will get a notification when the funds arrive in your account. 

If you're interested in jobs that offer cryptocurrency payments, consider exploring platforms like Purse.io, Ethlance and Coinality. These platforms are part of the gig economy and provide opportunities to earn cryptocurrencies. Best of luck in your search!

We know the cryptocurrency market has a reputation for being volatile, however, these last few months have been particularly nail-biting for many investors. As markets swing in wild directions, some have made impressive gains while others have lost out. In this article, we explore whether crypto markets will ever overcome volatility and what one can do to gain financial stability in turbulent times. 

What causes the markets to be so volatile?

Due to a lack of central authority, the markets more accurately present investor sentiment, rising and falling as a result of the actions of people actively buying and selling. While volatility has a bad name and is certainly a hinder in terms of mainstream payment method adoption, it is valued by traders as it poses an opportunity to make big gains. Traders have created full-time jobs that benefit solely from the crypto market's volatility.

Regulatory frameworks are likely to positively affect the volatility prevalent in the digital currencies markets, but until that is implemented let's explore the biggest factors behind the volatility.

Entirely digital

Due to cryptocurrencies being digital and not backed by any commodity or real-world currency, their prices remain dependent on supply and demand. Essentially relying on faith: the prices will rise based on people believing in the product and accumulating more, while prices will drop when investors lose faith and sell. The markets remain volatile as investors are not concrete in their positions.

In its infancy

Cryptocurrencies have been around for just over a decade, a relatively short time for an asset of such influence. As the technology remains in its earlier years there is still plenty of development that needs to take place. So while Bitcoin has built an incredible market capitalization, there is still a long way for the cryptocurrency to go. 

This contributes to the market's volatility as markets tend to rise when new developments (upgrades, discoveries, implementations) take effect, while markets can fall when deadlines are missed or errors occur, leading investors to lose faith in the technology. 

Outside speculation

Arguably the biggest contributor to the market's volatility is the speculation surrounding cryptocurrencies. Predicting price swings and then acting on them has caused many an upward and downward spiral. From buying in just before the price rises to short just before a crash, speculation plays a large role in the market's swings and increased volatility. Speculation management is a key ingredient when it comes to successfully trading crypto.

Increased media coverage

Another great contender to volatility in the market is the media. Having a great influence over investor sentiment, the media has been behind many price swings in the market. With the power to launch or crash a market, the media plays into the narrative by encouraging investors to quickly buy or sell with attention-grabbing headlines.

Easy accessibility

The final factor to consider in the causes behind the market's infamous volatility is its accessibility. Stock markets and real estate typically attract a certain calibre of investors, while the entry requirements for trading crypto are very low. It does not require any licences, degrees, lawyers or heavy capital. Anyone can enter the market with a small amount of money and internet access.

The market has typically been dominated by retail investors, however, in recent years institutional investment has been on the rise. The simple way in which anyone can enter the market provides an open invitation for volatility. 

All playing their own role, these factors contribute to market prices being thrown in seemingly random directions at unpredictable time intervals. Understanding the fast nature of price swings and what might be behind them will contribute to investors and traders gaining a tighter grip on what might happen next. 

Can the market stabilize?

Now that we've explored what factors are behind the volatility, let's dive into whether the markets could stabilize. Bitcoin maximalists claim that once Bitcoin reaches a level of adoption, the price will stabilize. While there are no clear criteria for what "adoption" is, the theory remains true. 

According to this data, Bitcoin is currently the 14th biggest currency in the world, sitting comfortably between the Swiss Franc and the Thai Baht. This illustrates the cryptocurrency's affirmative dominance despite its volatility. 

Will it improve with time, or will a seismic shift in the way people perceive cryptocurrency ultimately solve the volatility issues. At this time, one can't say for sure. So in the meantime, continue HODLing if that's what you came here to do, or leverage the swings as you trade, in the end, you can make gains either way and still come out smiling. 

How to maintain financial stability in volatile markets

First and foremost, never invest more than you're willing to lose. This is the golden rule of trading across all asset classes. The next universal rule is to not act on emotions, do not make impulsive decisions when it comes to your trading portfolio, rather expect volatility and have a plan. Below we outline several tips on how to remain calm in stormy markets.

• Do not pay attention to short-term fluctuations and rather stay focused for the long term.
• Create a limit order that will automatically execute if markets crash. This will create a safety net should things turn south.
• Consider that typically when volatility subsides, prices increase.
• Remember why you started being interested in this asset and refer back to its potential.
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