Capital growth is the increase in value of assets in a financial portfolio, with the goal of keeping ahead of inflation. Property and assets that remain desirable over time, such as diamonds and handwoven textiles, can generate capital growth. Improving assets and investing in secure stocks, bonds, land, buildings, and precious gems can also achieve capital growth for retirement planning.
Capital growth has to do with the increase in the value of any capital assets that are currently part of the financial portfolio. Essentially, the goal of acquiring assets is to achieve a level of appreciation or growth that will keep the value of the asset ahead of the current rate of inflation.
One of the easiest ways to understand the growth of capital is to look at the acquisition of a property. Initially, the property will be purchased at what is considered a fair market price. The expectation is that as time passes, the property will increase in value at a rate that is at least equal to inflation.
Along with acquiring the property, the investor can also take some additional steps to help in the capital appreciation process. Buildings can be erected on the property or upgrade and improve existing structures. Making improvements to the asset is a great way to achieve an increase in the market price. Other factors beyond the investor’s control, such as the general condition of the immediate area, may also affect the rate of capital growth.
There are a number of capital assets that commonly generate at least some degree of capital growth. Along with property, there are assets that tend to appreciate in value for no other reason than a proven ability to remain desirable from one generation to the next. Investing in diamonds is an example of an asset that in only the rarest of situations has not increased in value at a rate that kept ahead of inflation. In some parts of the world, handwoven textiles are a tangible asset that will generate capital growth with each passing generation.
The amount of capital growth is typically identified as the difference between the initial purchase and the amount the asset would realize if it were sold or liquidated today. This makes acquiring capital assets that have a high chance of increasing in value ideal for a retirement plan. Whether they are stocks with a secure track record, bonds that will yield a fair return, land, buildings, and even precious gems are potential investments that have the potential to achieve capital growth over time.
Smart Asset.
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