When you invest and grow your wealth, it’s better to do so by investing in appreciating assets. An asset that gets higher in value over time is one that appreciates, instead of losing value.
Investing in assets that appreciate is one way to build your financial future. But not all assets appreciate in value and unfortunately, there is no guarantee that your investments will grow much over time. However, there are a few investments that traditionally are known as appreciating assets.
What are appreciating assets?
When an item sees an increase in value over time, it’s said to appreciate. A good example of an appreciating asset is real estate. Generally, when you purchase a home, it goes up in value, especially if you renovate the property.
When an item depreciates, it loses its value over time. This is true for assets like cars. When you purchase a car, it starts to lose value when it leaves the car dealership.
Appreciation is used to refer to any asset that increases in value. That includes equity, bonds, real estate, and currencies. The term capital appreciation is often used when referring to financial assets that increase in value. Most traditional portfolios will contain a good portion of assets like this.
How do assets appreciate in value?
Appreciation of assets happens for a variety of reasons. It can be due to increased demand, less supply, changes in inflation, or interest rates.
Just because something has appreciated in value doesn’t mean that it is realized by the owner of the asset. An owner may revalue the asset and add the higher price to their financial statements. Which is referred to as a realization of the appreciating assets.
8 examples of appreciating assets
One of the important keys to building wealth is to invest in appreciating assets. But where do you begin?
Here are some of the more popular appreciating assets that investors add to their portfolios. Remember to do your own research, as some of these assets might not make sense for you.
1. Real estate
One of the most popular assets that appreciate in value is real estate. You can start by buying single-family rental homes. Also multi-family homes such as apartments, commercial real estate like malls or offices, and even land.
Real estate is a long-term investment. Investors will buy these properties and rent them out. Some invest by redoing the property and then flipping it for a profit.
The more time you hold the property, the more it will likely increase in value. However, real estate is not without its risks, such as the 2008 housing crisis.
To invest in real estate, you can buy a rental property.
Or you can invest through a REIT, or real estate investment trust. These are companies that own and often operate a number of different properties.
They are often traded on the public stock market, making them accessible to everyday investors. It’s an easy way to invest in real estate. And you don’t have to put in large upfront costs or get a mortgage.
Stocks are also assets that appreciate in value. When you buy equities, you are buying a share of a company in the hopes that its value will increase over time. You can even get voting rights and some companies will give out dividends to shareholders.
Investing in stocks can be risky. Especially if you invest in new and emerging stocks. Most experts recommend investing in a diversified portfolio of different types of stocks.
That way you mitigate any potential loss or volatility in the market. It’s also a good idea to research stocks before you invest.
You can invest in stocks through any investment platform or broker. You can also invest in a pool of different stocks through an exchange traded fund or ETF, which could lower your investment risk.
You’ll also diversify your exposure to hundreds or even thousands of companies in various sectors. There are even ETFs specific to certain industries or even sustainable companies.
While they might appreciate slower than stocks, bonds are a solid addition to a traditional portfolio.
A bond can be in the form of a debt purchased through a mutual fund, or a loan to a government or private company. In exchange for the loan, you’ll receive a set interest rate that matures on a specified date.
There are many different types of bonds, although the most well-known are US Treasury bonds. You can buy bonds directly through the US Treasury Department or through your stock broker.
4. Fine art
Collector’s items like fine art are another appreciating asset, but they can be expensive. And unless you buy art from a well-known artist, it’s hard to predict if the piece will appreciate in value.
There is a wide range of fine art, but you often need to have a lot of funds to buy it. You can buy fine art at auctions and art galleries.
There are even some platforms like Masterworks that let you buy shares of an artwork, which makes it a bit more approachable for the average investor.
5. Certificates of deposit
Similar to bonds, certificates of deposit or CDs give you a set return in exchange for keeping your money in your bank for a set time. They are less risky than other types of investments. In contrast, they also tend to have lower returns.
You can invest in CDs by purchasing them at your local bank or credit union. When you buy a CD, you put your money in the bank for a specific amount of time. Once the date matures, you get the money back plus interest.
The longer you keep your money at the bank, the more interest you receive. However, the interest might not be as high of a return as you could get with other appreciating assets. Plus the money is locked up for that set time, so you won’t be able to access it if you need it.
Commodities are a broad investing category, but they are another asset that appreciates in value. It could also be a good way to diversify.
There are a number of items to consider, such as gold, corn, oil, wheat, beef, and natural gas. Like stocks, commodities are a risky investment as prices tend to change depending on natural disasters and political events.
Not all brokerages allow retail investors to invest in commodities. So you’ll need to find one that does. You can invest in commodities through ETFs, or by buying shares of a company in the commodity sector, such as an oil company.
7. Alternative investments
Alternative investments are another broad category within the appreciation of assets. Wine, for example, is considered an alternative investment. You can also look at collectible investments. Think of trading cards, NFTs, or even sneakers.
However alternative investments can be risky, more so than commodities, stocks, or real estate. If you want to invest in this make sure you do so with just a small part of your investments.
You can buy items directly through auction houses, or invest through alternative investment platforms like Yieldstreet.
A popular appreciating asset is cryptocurrency. Cryptos have risen drastically over the last decade. Popular cryptocurrencies like Bitcoin have reached a market cap of billions.
However, there’s a lot of volatility in the market, which makes it a very risky investment.
If you’d like to invest in crypto, you can do so through specific crypto investing apps like Coinbase and eToro. Something to know is that many of these apps have higher fees. More than you might pay if you invested in stocks, so make sure to calculate that into your investments.
Expand your wealth with appreciating assets
One way to build wealth is to invest in appreciating assets. There are a number of appreciating assets, such as real estate, commodities, bonds, stocks, and even crypto. Each one comes with its own risks and benefits.
Before you invest, make sure you do your own research or talk to your financial advisor to make sure the appreciating asset makes sense for your portfolio and personal circumstances. And check out our free investing courses here at Clever Girl Finance.