What is appreciation?

Appreciation, or capital appreciation, is an increase in the price or value of an asset. Appreciation occurs when the market value of an asset is higher than the price an investor paid for that asset. It can refer to an increase in value of real estate, stocks, bonds, or any other class of investable asset. Capital appreciation is the portion of an investment excluding the original cost basis of the investment.

Deeper definition

An asset is an item of value that you expect will provide future benefit. For most people, this benefit is usually an increase in the item’s value, which is appreciation. In order to experience appreciation, an investor needs to hold an asset for a period of time.

Assets also experience losses in price or value, which is known as depreciation. The price or value of all assets fluctuate over time; however, the most basic principle of investing is that all other things being equal, the value of assets usually appreciate over longer time spans.

National currencies also appreciate or depreciate against other currencies. Driven by currency market dynamics and the economic performance of individual countries, currencies constantly fluctuate in value against one another.

Appreciation example

An investor purchases a home for $150,000; this figure is also the present value of the home. Shortly after the investor buys the home, property values experience a temporary decline, reducing the market value of the home to $140,000. Over a period of a few years, property values increase again and the home is worth $165,000. The increases and decreases in the home’s value represent appreciation and depreciation.

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Other Investing Terms

Discount brokerage

Discount brokerage is a term every investor should understand. Bankrate explains it.

Blend fund

A blend fund is a mix both value and growth stocks. Bankrate explains.

Average annual yield

Average annual yield tells you the health of an asset over time. Bankrate explains.

Return on assets (ROA)

What is return on assets? Return on assets (ROA), also known as return on total assets, is a measure of how much profit a business is generating from its capital. This profitability ratio demonstrates the percentage growth rate in profits that are generated by the assets owned by a company. Deeper definition Return on assets tells investors […]

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