Q&A with Apricot: Why Do People Invest? Reason 3: Capital Growth

In our previous articles, we explored how investing can help you beat inflation (“Q&A with Apricot: Why Do People Invest? Reason 1: Inflation“) and achieve your financial goals (“Q&A with Apricot: Why Do People Invest? Reason 2:Financial Goals“). Today, let’s dive into another popular reason to invest: the potential for capital growth.

What is Capital Growth?

Capital growth, simply put, is the increase in the value of an asset over time. Asset is something you own that has value, like a stock, a house, or even a collection of rare coins. When you invest in something like a stock, a piece of real estate, or even collectibles, you’re hoping that its value will appreciate. This increase in value is what we call capital growth.

Why is Capital Growth Important?

Capital growth is a key driver of wealth creation. By investing in assets with the potential for appreciation, you can significantly increase your net worth over time. This can open up opportunities for you to:

• Achieve financial independence: Build enough wealth to live comfortably without relying solely on employment income.
• Fund major life events: Purchase a home, start a business, or even retire early.
• Leave a legacy: Pass on your wealth to future generations.

Great point! Here’s the revised section with the examples adjusted to emphasize the concept of buying, holding, and potentially selling for profit:

How Does Capital Growth Work?

Different assets have different ways of generating capital growth, and here’s how you can potentially benefit. Let’s take a look at the example of some assets:

• Stocks: Let’s say you buy shares of a technology company for $100 each. If the company develops a groundbreaking new product and its profits soar, investors might be willing to pay more for its stock. If the share price rises to $150, the difference between your purchase price and the current value represents your capital growth. You could choose to sell your shares and pocket the $50 profit per share, or you could hold onto them, hoping for even further appreciation in the future.
• ETFs (Exchange-Traded Funds): Imagine you invest in an ETF that tracks the performance of the top 500 companies in the stock market. If these companies collectively perform well and the overall market value increases, the value of your ETF will also rise.  The difference between what you initially paid for the ETF and its higher current value is your capital growth. You could then sell your ETF to realize that gain,or continue holding them in anticipation of further market growth.
• Real Estate: You buy a house for $100,000. Over time, the neighborhood becomes more desirable and the increased demand drives up property values. If you decide to sell your house years later for $150,000, the $50,000 difference is your capital growth.
• Gold or other precious metals: You buy a gold bar when the price is $9,500. If the price of gold rises to $11,000, you could sell your gold and pocket the $1500 profit, which represents your capital growth.
• Collectibles: Imagine you purchased a first edition copy of “Harry Potter and the Sorcerer’s Stone” for around $30 when it was first published in 1997. Over the years, the Harry Potter series became a global phenomenon, and first editions of the book became highly sought-after by collectors. Today, a first edition in good condition could be worth anywhere from $40,000 to well over $100,000, depending on the specific printing and its condition. The difference between the original $30 purchase price and the current value of tens of thousands of dollars represents the capital growth on this collectible item.

What to consider when choosing investments for Capital Growth?

When selecting investments with the potential for capital growth, consider the following factors:

• Liquidity: How easily can you sell your investment if you need the money quickly? Consider the liquidity of the asset, especially if you might need access to your funds in the near term.
• Risk tolerance: Investments with higher potential for growth often come with higher risks. Choose investments that align with your risk tolerance.
• Time horizon: Your investment horizon is the length of time you plan to hold an investment before needing the money. The longer your investment horizon, the more time you have to potentially benefit from capital growth.
• Diversification: Don’t put all your eggs in one basket. Spread your investments across different asset classes to mitigate risk.
• Appreciation potential: This refers to the estimated increase in the value of an investment over time. Research and analyze the potential value growth of different investments based on historical data and market trends.
• Maintenance costs: Some investments, like real estate, collectibles, may have ongoing costs like property taxes, insurance, storage fees, or management fees. Factor these costs into your overall investment strategy.

Let’s take a look at the comparison of the assets in our example 

Ready to Grow Your Capital?

Apricot Capital offers the possibility to invest in a variety of investment options. Open a brokerage account for free with Apricot and start building your wealth. No minimum deposit requirement, free yearly servicing, low commissions. Download our Apricot app from the App Store and Google Play.

Want to learn more about investing? Check out other articles in our Q&A series, Glossary and Apricot talks: the smart investor’s podcast.

It’s important to remember that investments are subject to market fluctuations and carry inherent risks. Consider your financial goals and risk tolerance before investing. 

Apricot Capital is regulated by the Central bank of Armenia.

*The examples in this text are for illustrative purposes only. This does not constitute investment advice or a recommendation to buy or sell any specific investment instrument. The past performance mentioned in this text is not indicative of future results.