Capital Growth

What is capital growth?

Capital growth, sometimes called capital appreciation, refers to the increase of an investment or asset over time. To measure capital growth, an individual must subtract an asset's original purchase price (cost basis) from its current value (market value). 

Investors seeking capital growth may invest in various assets, including real estate, stocks, or commodities. The type of assets the investor chooses may depend upon their investment goals and risk tolerance. 

Investment portfolio management software can help with fund management, efficiency, and workflows. It’s also used for capital growth analysis and other performance metrics while tracking and managing investor portfolios.

Types of capital growth investments

When striving for capital growth, an individual may choose to invest in several assets. Often, an investor will aim for a diversified portfolio featuring more than one of the following:

Real estate

Unlike some assets, like cars and boats, real estate values appreciate over time. Some investors choose to purchase properties they think have good potential, keeping them in their portfolio to increase in value over a period of years. This “buy and hold” approach usually results in capital growth. An individual looking to invest in property may use real estate investment management software to maximize the market value and return on investment (ROI) of real estate properties while strategizing for portfolio growth and development.

Equities

When purchasing equity in a company, an individual is buying shares of that company. If the company’s value rises, the equity owner’s capital growth increases, too. Investing in equities comes with risk, which is often more suited for the long game. Equity management software can facilitate the administration of a company’s equity or its assets minus its liabilities.

Funds

Investors who want a pre-packaged bundle of securities with both stocks and bonds often choose exchange-traded funds (ETFs) and mutual funds. Both offer many options for various risk and growth strategies.

REITs

A real estate investment trust (REIT) is a company that owns and operates income-generating real estate properties. Investors can purchase shares and receive dividends, but typically capital growth is lower on this investment than other types.

Commodities

Investors often put their money into commodities such as gold, oil, or natural gas when they want to diversify their portfolios. These assets can also increase their value over time, leading to capital growth.

Example of capital growth

Let's say an individual purchased a home for $400,000 ten years ago. This person is about to sell their home, gets it appraised, and learns it's now worth $600,000. This would be a $200,000 in capital growth.

Benefits of capital growth

Capital growth is one of the primary goals of an individual seeking long-term investment rewards. Some of the positives of capital growth is that investors can: 

• Create wealth: One of the most obvious, but most important, benefits of capital appreciation is that it creates wealth. Buying assets for a low price and later selling them for much more is a strategy that builds a strong portfolio and generates revenue.
• Delay tax bills: Individuals do not have to pay taxes on their investment until they sell. Even then, if they have owned the asset for longer than a year, they may be taxed at lower rates than on short-term investments, which are taxed like regular income.
• Achieve long-term goals: With planning, investing for capital growth can help an individual achieve goals like saving for retirement or passing down an inheritance.

Capital growth strategy best practices

To set and achieve capital growth goals, an individual or organization must follow certain financial best practices. The savviest investors will:

• Do research. When investing hard-earned money, it’s always best to become informed about all options available. Practical information is featured on financial websites and in reference publications. 
• Allocate investments. Many individuals and organizations prefer allocating investments, dividing them across asset classes. This helps diversify a portfolio, protecting against losses and maintaining high appreciation.
• Make improvements to properties. When investing in real estate holdings, making improvements to properties can increase their value. Some common upgrades include painting, landscaping, and flooring.
• Use financial management software: Financial risk management software can help businesses track their investments’ performance over time and guide their decision-making processes. Such software can also help inform their choices about when to sell assets and how to invest in new ones.
• Find an asset manager: As a company’s portfolio grows, sometimes the best practice is to locate a highly qualified asset manager to help guide investment choices.