In this article, we discussed the meaning of capital growth, types, ways to grow it, and we also talked about the different between investment and capital growth
Definition
Capital growth, or capital appreciation, is an increase in the value of an asset or investment over time. it is measured by the difference between the current value, or market value, of an asset or investment and its purchase price, or the value of the asset or investment at the time it was acquired.
The investment objectives can be classified into moderate growth and high growth. An investor seeking moderate capital growth might invest in equities of stable companies such as blue-chip stocks.
Types of Capital Growth
Below are some common investments that might be used in a capital growth strategy.
Funds
Exchange-traded funds (ETFs) and mutual funds are funds that contain a basket of securities including stocks or bonds that help investors either diversify risk or target a specific sector. Some ETFs and funds mirror the S&P 500 (diversified) and those that contain only bank stocks (sector-specific).
Equities
High-growth stocks might include technology and biotechnology companies since they often can appreciate significantly over time. However, there is more risk associated with these types of stocks since some of them have to be profitable.
Also, not all technology stocks might be growth stocks. For example, some might argue Microsoft Corporation (MSFT) is a well-established company that produces safe and stable returns.
Bonds
Bonds such as U.S. Treasuries issued by the Treasury Department are considered risk-free investments. However, they tend to underperform equities when it comes to capital growth. Bonds are typically used for income since most of them pay a fixed interest rate to bondholders.
REITs
Investors who like the idea of investing in the real estate industry but don’t want to own real estate per se can invest in real estate investment trusts (REITs).
REITs are funds that contain a portfolio of commercial real estate properties, which can include malls, apartment complexes, hotels, office buildings, and warehouses. REITs offer payments to investors as they distribute the rental income received from the properties.
As with any investment, a capital growth strategy might involve tax ramifications and taxes owed to the Internal Revenue Service (IRS). Please consult a tax advisor for your specific financial situation.
The Best Way to Grow Capital
The best way to grow capital is through saving and investing. Individuals can save money, generally from the wages they earn, and then invest that money for it to grow over time. Not all investments will grow, but putting money in safe investments with guaranteed returns, such as certificates of deposit or high-yield savings accounts, will guarantee a level of return. Investors can also choose riskier assets, such as stocks.
Difference Between Investment Income and Capital Growth
Capital growth is buying an investment and then selling it at a higher price. The profit comes from the difference between the sale price and the purchase price. Investment income is regular payments of income from an asset, such as a bond or dividends from a stock.
Conclusion
Capital growth is the increase in the value of an investment over time. It is measured by the difference between the price paid for the investment and its current market price. Capital growth is the goal of most investors, seeking to gain a profit from the money they have invested.
Common capital growth investments include stocks, bonds, real estate, and investment funds. Investors choose the investments based on their risk profile, such as choosing between high-growth stocks, blue-chip stocks, or speculative assets.