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Capital growth involves increasing the value of assets in a financial portfolio above the rate of inflation. Buying property and making improvements can aid in achieving capital growth, as can investing in assets that remain desirable over time, such as diamonds or hand-woven textiles. The difference between the initial purchase and current value is used to measure capital growth, making it a good option for retirement planning.
Capital growth has to do with increasing the value of any capital assets that are currently part of the financial portfolio. In essence, the goal of the asset acquisition is to achieve a level of appreciation or growth that will keep the value of the asset above the current rate of inflation.
One of the easiest ways to understand capital growth is to look at buying a property. Initially, the property will be purchased at a rate considered to be a fair market price. The expectation is that over time the property will increase in value at a rate at least equal to inflation.
In addition to acquiring the property, the investor can also take some additional steps to help along the capital appreciation process. Buildings may be constructed on the property, or existing structures upgraded and improved. Making improvements to the asset is an excellent way to realize an increase in the market price. Other factors beyond the investor’s control, such as the general condition of the surrounding area, may also affect the rate of capital growth.
There are a number of capital assets that generally generate at least some degree of capital growth. Along with property, there are assets that tend to increase in value for no reason other than a proven ability to remain desirable from one generation to the next. Investing in diamonds is an example of an asset that has only in the rarest of situations failed to increase in value at a rate that has remained above inflation. In some parts of the world, hand-woven textiles are a tangible asset that will realize capital growth with each passing generation.
The amount of capital growth is usually identified as the difference between the initial purchase and the amount the business would realize if it were sold or liquidated today. This makes the acquisition of assets that have a high opportunity for appreciation to be ideal for a retirement plan. Whether it’s stocks with a secure track record, bonds that will return a fair return, land, buildings, and even precious gems are all potential investments that have the potential to deliver capital growth over time.
Smart Assets.
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