Capital growth, or capital appreciation, is an increase in the value of an asset or investment over time. Measured by the difference between the current value and its purchase price, capital growth is a key factor when buying a property or reviewing investment options. A capital growth strategy is suitable for most investors with a long time horizon, usually 10 years or more. Investors have a multitude of options when it comes to creating an allocation that pursues capital growth.
More sophisticated investors may choose to create a portfolio of individual stocks that can be balanced with fixed income and cash or through hedging strategies that take advantage of options and futures. By opting for a one-size-fits-all approach, investors can select a target date fund that maintains an allocation of stocks, bonds and cash that becomes more conservative as the target date approaches. Another pre-established allocation option is a lifestyle fund that maintains a static allocation based on a variety of risk levels. For capital growth, an investor would choose a moderate or aggressive allocation.
Home renovations (done well and on budget) can be another effective way to generate capital growth on your property. Developments in the local area are another way to achieve some capital growth in your property. Smart investors who research and invest in suburbs or emerging areas with high and consistent demand can sometimes achieve significant capital growth in just a few years. Put simply, capital growth is the increase in the value of your property over time.
You can calculate capital growth by finding the difference between the current market value of your investment and the price for which you initially purchased it. While increasing your wealth without lifting a finger sounds appealing, there are a few things to keep in mind when it comes to capital growth.
