What is Appreciation?
Appreciation means that the value of a financial asset increases over time. This increase occurs for many different reasons, including increased demand, weakened supply, or a change in inflation or interest rates.
What Causes Appreciation?
Appreciation can be caused by a number of factors, like economic growth or changes in interest rates. If a company’s growth is faster than that of similar companies or at a quicker rate than expected, then stock prices can increase and lead to appreciation as well.
How to Invest for Appreciation
When considering mutual funds, look for investments that will rise in value based on increased earnings or other metrics. Private Equity (PE) funds are commonly considered for their appreciation potential as well. Investments made based on appreciation potential tend to have more risk than assets chosen for income generation, such as bonds or dividend-paying stocks, and are therefore most appropriate for more risk-tolerant investors.
What’s an Example of an Appreciating Asset?
Appreciating assets are assets that are typically held for more than one year because they are known to increase over time. A house is a good example of a long-term appreciating asset.