Growing your wealth often involves investing in assets that appreciate in value over time. An appreciating assets is one that increases in value, as opposed to depreciating assets which lose value over time.

Investing in appreciating assets is a sound strategy for securing your financial future.  However, it’s important to remember that not all assets appreciate, and there’s no guaranteed high return on any investment. 

Despite this inherent risk, certain investments are historically more likely to appreciate than others, and are therefore known as appreciating assets.   

What are Appreciating Assets?

An appreciating asset is one that increases in value over time. Think of it as an investment that grows in worth. A prime example of an appreciating asset is real estate. Real Estate, particularly well-maintained homes in desirable locations, often experience value increases over time. Renovations can further enhance the value of a property.

In contrast, depreciating assets lose value over time. A classic example is a car. The moment you drive a new car off the dealership lot, it begins to depreciate.  

Any asset that increases in value over time is considered to be appreciating assets. This encompasses a wide range of assets including property (real estate), stocks, bonds, and even some forms of currency. In the context of financial assets, the term “capital appreciation” is commonly used to describe an increase in value.  These appreciating assets typically form a significant portion of most investment portfolios.

Factors Affecting Appreciating Assets 

Several factors can contribute to appreciating assets:

• Interest Rates: Changes in interest rates can impact asset values. For example, when interest rates fall, the relative attractiveness of holding cash decreases, potentially leading investors to seek alternative investments like stocks or property, which can drive prices up.
• Supply and Demand: Basic economic principles of supply and demand also play a role. If the supply of a particular asset becomes limited while demand remains steady or increases, the asset’s value is likely to rise. This can be seen in the property market, for instance.
• Inflation: Inflation, the general rise in prices over time, can also lead to appreciating assets. While the purchasing power of cash declines with inflation, assets like property or stocks may see their value keep pace or even outpace inflation, resulting in a net gain.

An asset’s value increase isn’t automatically translated into wealth for the owner. To capture this appreciation, the owner needs to “realize” the gain. This typically involves selling the asset at a price higher than the original purchase price. The difference between the buying and selling price represents the realized capital gain. 

Investing in assets that appreciate in value over time is a cornerstone of wealth building. But with so many options available, where do you begin? 

Here are eight popular appreciating assets that many investors consider for their portfolios. Remember, thorough research is crucial before investing in any asset, as these examples may not be suitable for everyone’s circumstances or risk tolerance.

1. Real Estate

Real estate is a classic example of an appreciating asset class. Property values tend to increase over time, making it a popular investment choice. There are various ways to invest in real estate, including:

• Rental Properties: Purchasing single-family homes, multi-unit dwellings (like apartments), or commercial properties (such as office buildings or shopping centres) can generate rental income while offering the potential for long-term capital appreciation on the property value.  
• Land Banking: Investing in vacant land can be an option, though it typically requires a longer investment horizon and may involve development costs in the future.

Real Estate Considerations

• Investment Approach: There are two main approaches to real estate investment: buy-to-hold for rental income and capital appreciation, or fix-and-flip, where renovations are undertaken to increase the property’s value before resale.
• Patience: Real estate is a long-term investment. Property values generally appreciate over time, but patience is key, as there can be periods of stagnation or decline, as witnessed during the 2008 housing crisis.

Investing in real estate requires careful consideration and research. Speak to a qualified financial advisor to determine if real estate aligns with your investment goals and risk tolerance. 

For those seeking an alternative to direct property ownership, Real Estate Investment Trusts (REITs) offer a viable option. REITs are essentially companies that own, operate, or finance income-generating real estate. They are often publicly traded on stock exchanges, allowing everyday investors to participate in the real estate market.

REITs offer several advantages

• Accessibility: They provide a more accessible entry point into real estate compared to purchasing individual properties. 
• Reduced Investment Costs: You avoid the need for a large down payment or mortgage typically required for direct property ownership.
• Diversification: REITs can offer diversification benefits by allowing you to invest in a portfolio of various properties across different sectors (residential, commercial, etc.) 

2. Stocks (Equities)

Stocks, also known as equities, are another asset class with the potential for appreciation. When you buy a stock, you’re essentially purchasing a share of ownership in a company. The hope is that the company’s value will increase over time, leading to a rise in the stock price. Additionally, some companies pay dividends to their shareholders, which can provide a regular income stream. 

Investing in stocks does carry inherent risks, particularly with new or emerging companies.  Most financial experts recommend diversifying your portfolio across a range of stocks to mitigate risk.

Diversification

By spreading your investments across different companies and sectors, you lessen the potential impact of a single stock’s decline. This helps to safeguard your portfolio against market volatility.

Research is Key

Before investing in any stock, thorough research is crucial. Carefully analyse the company’s financial health, growth prospects, and competitive landscape.

Investment Platforms and Options

There are numerous online brokers and investment platforms that allow you to buy and sell stocks. Here are a few ways to invest in stocks:

• Individual Stocks: You can choose to purchase shares in specific companies that align with your investment goals and risk tolerance.
• Exchange-Traded Funds (ETFs): ETFs offer a way to invest in a basket of stocks that track a particular market index or sector. This provides instant diversification and reduces your exposure to the risk associated with any single company. Many ETFs also offer lower fees compared to actively managed funds.
• Thematic ETFs: Thematic ETFs focus on specific themes or trends, such as sustainable businesses or industries like technology or healthcare. This allows you to target specific areas of potential growth within the market.

3. Bonds

Bonds are a valuable asset class to consider for a well-rounded portfolio, even though they may offer slower appreciation compared to stocks. 

What are Bonds?

Bonds are essentially debt instruments that represent loans made to governments or corporations. When you purchase a bond, you’re essentially providing a loan and in return, you receive a fixed interest rate (coupon) at regular intervals until the bond matures (reaches its predetermined repayment date) at which point you receive your original investment back. 

Types of Bonds

There’s a variety of bonds available, each with its own risk and return profile. Some common types include:

• Government Bonds: These are typically considered the safest bonds as they are issued by governments (e.g. US Treasury Bonds in the US) and carry a very low risk of default.
• Corporate Bonds: Issued by companies, these bonds generally offer higher interest rates than government bonds but also carry a higher risk of default if the company encounters financial difficulties.

Purchasing Bonds

Bonds can be purchased through various channels:

• Stockbrokers: Many online brokers and investment platforms allow you to buy and sell bonds.
• Mutual Funds: Some mutual funds invest in a portfolio of bonds, offering diversification and professional management.
• Bond Issuers (Government or Corporate): In some cases, you may be able to purchase bonds directly from the issuing government or corporation.  

Bonds can provide a reliable source of income and offer stability within a portfolio, particularly when interest rates are rising. However, it’s important to understand the risks associated with different types of bonds before investing.  

4. Collectibles (including Fine Art)

Collectibles, including fine art like paintings, sculptures, and antiques, can be valuable assets with the potential for appreciation. However, this is a complex and specialised investment area with inherent risks. 

Considerations for Investing in Collectibles

• High Entry Barrier: Fine art can be very expensive, making it less accessible for many investors.
• Market Volatility: The value of collectibles can be highly subjective and susceptible to market fluctuations. Unlike stocks or bonds, there’s no readily available market for many collectibles, making it difficult to sell them quickly if needed.
• Expertise Required: Investing in collectibles successfully often requires significant knowledge and expertise in the specific area (e.g., art history, antiques).  Authenticity and provenance (ownership history) are crucial factors that can significantly impact value.

Purchasing Collectibles

• Traditional Methods: Collectibles are typically purchased through art galleries, auction houses, or directly from private sellers. 
• Fractional Ownership Platforms: There are some innovative platforms like Masterworks that allow you to invest in fractions of ownership for high-value art pieces, making them more accessible to a wider range of investors.

5. Certificates of Deposit (CDs)

Certificates of Deposit (CDs) are similar to bonds in that they offer a fixed rate of return in exchange for locking your money away in a bank for a set period. They are generally considered a lower-risk investment compared to some other options, but this also typically translates to lower potential returns.

Investing in CDs

CDs can be purchased as an investment through your local bank or building society. When you buy a CD, you deposit a specific amount of money for a predetermined term (e.g., 6 months, 1 year, 5 years). At the maturity date, you receive your original deposit back along with the accumulated interest. 

CDs can be a suitable option for investors seeking a secure way to grow their savings with a guaranteed return. However, they may not be ideal for those seeking high growth potential or needing easy access to their money. 

6. Commodities

Commodities are a distinct asset class from traditional investments like stocks and bonds. They represent physical goods like wheat, cattle, oil, or precious metals like gold. While commodities can offer diversification benefits and have the potential to appreciate in value, they are also generally considered a higher-risk investment.

Factors Affecting Commodity Prices

Commodity prices can be highly volatile and susceptible to various influences, including:

• Supply and Demand: Fluctuations in global supply and demand can significantly impact prices. For example, a poor harvest due to drought could drive up grain prices.
• Geopolitical Events: Political instability or conflict in resource-rich regions can disrupt supply chains and cause price spikes.
• Economic Conditions: Global economic growth can affect demand for commodities. Strong economic growth often leads to increased demand for commodities, putting upward pressure on prices.

Investing in Commodities

Retail investors generally don’t directly buy and sell physical commodities due to logistical challenges and storage costs. However, there are several ways to gain exposure to commodities in your portfolio:

• Commodity Exchange-Traded Funds (ETFs): These are investment funds that track the performance of a basket of commodities. This allows you to invest in a diversified range of commodities without the hassle of managing physical assets.
• Shares in Commodity-Related Companies: Investing in stocks of companies involved in the production or exploration of commodities (e.g., oil companies, mining companies) can provide indirect exposure to commodity prices.

7. Alternative Investments

Beyond traditional asset classes like stocks, bonds, and real estate, there’s a world of alternative investments that may offer diversification and potential for appreciation.  However, these investments are generally considered higher-risk and require careful consideration.

Examples of Alternative Investments

• Collectibles: This includes items like fine art, antiques, classic cars, and even rare sneakers. The value of collectibles can be subjective and highly dependent on market trends and authenticity.
• Wine: Fine wines can be a valuable asset class, but proper storage and market expertise are crucial for successful investment.
• Digital Assets: Emerging areas like Non-Fungible Tokens (NFTs) and digital collectibles are gaining traction, but they are still a nascent asset class with inherent risks and uncertainties.

Investing in Alternatives

• Direct Ownership: Some alternative investments can be purchased directly through auction houses, specialist dealers, or online platforms.
• Investment Platforms: Platforms like Yieldstreet allow fractional ownership of certain alternative assets, making them more accessible to a wider range of investors.

8. Digital Currency (Cryptocurrency)

Cryptocurrency has emerged as a popular asset class with the potential for appreciation. Over the past decade, some cryptocurrencies have experienced significant price increases.  Well-established cryptocurrencies like Bitcoin boast market capitalisations in the billions.

However, it’s crucial to understand that the cryptocurrency market is highly volatile, making it a relatively high-risk investment. Prices can fluctuate dramatically, and there’s a possibility of significant losses.

If you’re considering investing in cryptocurrency, several specialised trading platforms cater to this market, such as Coinbase and eToro. Be aware that some of these platforms may have higher fees compared to traditional stock brokers. Factor in any potential platform charges when evaluating your investment strategy.

Key Considerations

• Volatility: Cryptocurrency prices can be extremely volatile, leading to potentially significant losses.
• Regulation: The regulatory landscape surrounding cryptocurrency is still evolving in many countries.
• Security: Cryptocurrency exchanges and wallets can be vulnerable to hacking. It’s essential to choose reputable platforms and implement robust security measures to protect your holdings.

Growing your wealth often involves investing in assets that have the potential to increase in value over time, known as appreciation. This can encompass a wide range of assets, including:

• Equities (Stocks): Owning shares in companies with the expectation that their value will rise over time.
• Bonds: Loaning money to governments or corporations in exchange for a fixed interest rate and the return of your original investment at maturity.
• Commodities: Physical goods like oil, gold, or wheat, whose prices can fluctuate based on supply and demand.
• Real Estate: Property (land and buildings) that can appreciate in value over time and potentially generate rental income.
• Cryptocurrency: A digital form of currency that uses cryptography for security and can be a volatile but potentially high-growth investment.

By carefully considering your risk tolerance, investment goals, and time horizon, you can develop a diversified investment portfolio that aligns with your needs. A diversified portfolio spreads your investments across various asset classes to mitigate risk and achieve your financial objectives.