Appreciation

Definition: The increase in value of an investment or asset (eg: something of value that you own).

Example: Marcus bought stock in RST Corporation when the share price was $24. It is now $34 per share. His RST investment has appreciated $10 per share.

Investeach explains: We want our investments to grow so we try to put our money into appreciating assets. Another example of an asset that usually appreciates is real estate (ie: land and buildings). However, as the economic crisis which began in late 2007 has taught us, no asset is immune from losing value. Putting our money into assets that lose value, such as an ordinary car or boat, is not a good way to build wealth.

There is a way to make money investing in assets that do not appreciate!?! Some assets, “throw off” regular income to their owners. An example is a stock that pays high dividends. You may be perfectly happy receiving significant dividend checks and not concerned that the stock price itself doesn’t go up. Another example is a bond, which pays regular interest over its life.

You can only have appreciation of assets you still own. Therefore, appreciation is another name for unrealized gains. After an appreciated asset is sold, you’ve got a profit in hand but no longer own the asset!

Finally, for those familiar with accounting, notice that appreciation is the opposite of depreciation.

Riddle me this:

1. What is the formal name for something of value?
2. Identify an asset that usually goes up in value over time.
3. Identify an asset that usually goes down in value over time.
4. How can investors make money owning an asset that does not appreciate?
5. What will you have if you sell an appreciated asset?

Opposite of: Depreciation.

2017-08-30T21:55:25+00:00