What are appreciated assets? Capital appreciation is a rise in an investment’s market price. This is the difference between the purchase price and the selling price of an investment. For example, if an investor buys a stock for $15 per share and the stock price rises to $18 per share, the investor has earned $3 in appreciation. When the investor sells the stock, the $3 becomes a capital gain.

What You Need to Know

Capital appreciation is the portion of an investment where the gains in the market price exceeds the original investment’s purchase price. This may happen for many reasons. Some financial assets that are invested in for capital appreciation include real estate holdings, mutual funds, ETFs, commodities like oil and copper, stocks, or equities, and more.

Appreciated Assets and Taxes

Capital appreciation isn’t taxed until an investment is sold and the gain is realized. Tax rates on capital gains vary depending on whether the investment was long-term or short-term. However, capital appreciation isn’t the only source of investment returns. Dividends and interest income are two key sources of income for investors.

Interest income can be earned through interest-bearing bank accounts like certificates of deposit. It can also come from investing in bonds, which are debt instruments issued by corporations and the government. Bonds usually pay a yield or a fixed interest rate. Dividends are generally cash payments from companies to shareholders as a reward for investing in the company’s stock.

What Causes Appreciation

Appreciation can occur for many reasons. It could be a general trend for asset values to increase. This includes macroeconomics factors like strong economic growth or Federal Reserve policy such as lowering interest rates. Additionally, a stock price might increase because the underlying company is growing faster than its competitors. For assets like real estate, the value can increase because of proximity to new developments like shopping centers or schools.

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Investing for Appreciated Assets

Capital appreciation is the stated goal of most mutual funds. These funds search for investments that will rise in value based on increased earnings or other fundamental metrics. These investments tend to have more risk than assets chosen for capital preservation or income generation. These include government bonds, municipal bonds, or dividend-paying stocks. 

Consequently, capital appreciation funds are considered most appropriate for risk-tolerant investors.

Financial Advisors for Appreciated Assets

A financial advisor can help you understand appreciation and how it can affect your financial goals and taxes. To learn more about how to invest and manage appreciated assets, contact Argent Bridge Advisors today.