We invest for all sorts of reasons, but at the core, it’s to improve our financial lives – to afford the things we want or need in life. This is the reason why the terms ‘yield’ and ‘total return’ can be so important when you are choosing an investment – they are not interchangeable, though they are often confused for being so.
Some types of investments will focus more on yield in their marketing, while others focus more on the concept of total returns, and this will usually be an indication of the type of assets held and the type of investors most likely to use that investment.
Which term actually matters more when you are a long-term investor?
Yield is the income you receive from the investment.
This might be the coupon payments from bonds in a fixed income fund, or the dividends from an equity fund, or perhaps the rental income from a property or infrastructure investment.
It can be calculated in a range of ways depending on the asset.
For example, the yield of a bond is usually calculated as per the below:
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The calculation for dividend yield is similar, replacing the concept of an annual coupon with the annual dividend per share instead.
As an example, if you look at the Affluence Income Trust, the 1-year yield (listed in performance as 1 year Income Distributions) was 7.1% to 29 May 2026. Or, if you look at the JPMorgan Equity Premium Income Active ETF (Managed Fund) (Hedged) (ASX: JHPI), the 1-year yield (also listed as 1 year Income Return) is 7.08% to 29 May 2026.
The total return of an investment is all the income it has generated plus any capital gains or losses in the assets.
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It’s everything you’ve made from the investment, rather than simply the income.
If you refer back to the Affluence Income Trust referenced earlier, the Total Return is 7.1% for the year ending 31 May 2026. You’ll notice that the yield and total return in this instance are the same – this reflects that there were no market gains or losses in the assets held in the portfolio in that period, they were largely stable. You won’t always find this to be the case.
For the JPMorgan Equity Premium Income Active ETF (Managed Fund) (Hedged) (ASX: JHPI), the Total Return for the year ended 29 May 2026 was 6.51%. You’ll notice that this is a lower figure than the income return, and this represents that the market value of the assets in the fund experienced losses in the year, offsetting the gains made.
The longer-term picture can also look different. In both the above examples, there was capital appreciation over two and three-year periods resulting in a slightly higher total return compared to yield.
Many income-focused investors will just look at the Yield of the portfolio to make their decision, while younger investors who are focused on wealth building will look at the Total Return.
Total return offers a more complete picture of an investment’s performance and can help investors avoid slipping into just selecting an investment because the income sounds good.
Many financial advisers advocate a total return approach as helping investors construct a more diversified portfolio rather than simply chasing one objective.
If the assets in a portfolio appear to be offering a strong yield, but the market value has been consistently falling over time, your total return is lower and you may find this actually chips away at your wealth. It’s also a concern for the quality and fundamentals of the underlying assets – yield can appear to increase when the market price has fallen due to the way it is calculated. Obviously falling market prices are not always a sign of poor fundamentals for an asset, but investors should be careful in their due diligence. On the flip side, assets can appear to be offering a lower yield when their market prices have increased – yield is not always a fair measure of quality and value.
If the assets were offering a strong yield and the market value has consistently gained – even just small amounts – over time, your total return is higher and will help you continue to grow your portfolio over time alongside generating an income.
Comparing yield and total return can also form part of a research approach and may give you some indications about the level of risk of assets in the portfolio and the investment style.
Where yield and total return remain largely in line with each other over time, this suggests largely stable market prices for the underlying assets – it can also indicate the assets are more income-driven, like bonds, rental properties or stable dividend-paying companies in less volatile industries.
Where yield and total return might vary considerably – say total return is significantly more than the yield – you may find that the investment carries greater risk in order to generate capital appreciation by investing in assets more subject to market movement, or is less focused on income.
For long-term investors, starting with total return is important to offer a complete picture of how a strategy works and how it might fit in your broader portfolio.
If income is not a goal at this point, this will help factor in any reinvestment of the income you’ve generated too. Looking at the yield figure will be less of a concern – though will be a consideration around tax time to ensure you’ve accurately captured everything (and factored any franking credits if available).
Those with an income focus might start with yield to ensure it meets their spending needs (and eliminate options that don’t offer enough), and then look at total return after to factor in adequate ongoing growth and overall match within their portfolio.
In short, total return should always matter as part of your due diligence on an investment for your portfolio – whether or not yield is also important comes down to your investment goals and stage of life.
A highly diversified portfolio of fixed income assets that aims to provide investors with a minimum distribution equal to the RBA Cash Rate plus 3% per annum paid monthly over rolling 3 year periods after payment of distributions.
Seeking opportunities for consistent income with lower volatility
Disclaimer: This article is prepared by Sara Allen. It is for educational purposes only. While all reasonable care has been taken by the author in the preparation of this information, the author and InvestmentMarkets (Aust) Pty. Ltd. as publisher take no responsibility for any actions taken based on information contained herein or for any errors or omissions within it. Interested parties should seek independent professional advice prior to acting on any information presented. Please note past performance is not a reliable indicator of future performance.
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