Assets That Appreciate in Value
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All of us have a personal finance goal to build a high net worth so that we can live a comfortable and financially secure life in the years ahead. A common way to build net worth is through different appreciating assets that grow in value over the years. Your net worth is so much more than the balance in your bank account. It is a true measure of your financial health and when you invest in appreciating assets, you ensure that your net worth is growing over time and you can enjoy a comfortable and secure retirement. The biggest advantage is that some assets do not require a lot of your time. They will appreciate in value with the power of time and the movement of financial markets.
When you invest in appreciating assets, they eventually go up in price. Such assets are designed to help enhance your net worth and help diversify the investment portfolio. But there is no guarantee, just like any other investment, it could also lose value during market volatility. The idea to build wealth is not only about the temporary riches but it is about the power of appreciating assets. If you want to take your finances to a higher level, you need to invest in appreciating assets.
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Assets that appreciate in value
Real estate
One of the most common appreciating assets to build wealth is real estate. It could be any form of residential or commercial real estate including office buildings, single-family homes, land, multi-family homes, farmland, or offices. However, this means investing for the long term and probably renting out the property or listing it on sites like Airbnb.
You can also buy the home and flip it for profit. But the purpose of real estate as an appreciating asset is to grow in value in the long term. When you hold it for years, its value will jump significantly. Even if the market fluctuates, real estate will hold value over time. If you do not have the money to put in a property, consider real estate investment trusts (REITs).
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Real Estate Investment Trusts (REITs)
The traditional real estate investment is ideal for those with a high net worth and it also requires some serious knowledge. To be successful, you will need to put in time and effort, especially if you are planning to use it as a rental property. If you are not ready for it but want to add real estate to your portfolio, consider something called REITs. It is a pool of money that is used to invest in real estate properties.
The trust will generate regular income in the form of dividends and you get to invest in a large number of properties without having to take the financial risk. You can invest in them through crowdfunding platforms. They also allow you to open an individual retirement account (IRA) which helps if that is where you plan for the REIT earnings to end up. Real estate appreciates with time and whether you buy a property yourself or invest in REIT, you will generate returns. However, the investment has to be for the long haul.
Individual stocks
When you are looking to build a portfolio of appreciating assets, you have to include stocks. They give you a part in the ownership of the company and will generate dividends over time. That said, you will also be able to make the most of the appreciation in the value of the stock. The only challenge with the stock market is volatility. You will have to research and invest in the right growth stocks but you cannot ever predict how the market will move.
If you do not want to take a risk, consider investing in the top dividend stocks and enjoy passive income while you wait for the capital gains. Avoid day trading and look for stable companies that have a strong performance history.
Private equity
Investing in private equity is when you take an ownership stake in the business, like a start-up. The idea is to receive a part of the profits and be paid a lump sum when the business is sold in the future. You will have to be an accredited investor or a venture capitalist to invest in private equity since it requires a large amount of capital.
Despite being an appreciating asset, it is also the riskiest. It might be a good idea to invest in your own business but investing in other businesses is not easy. There is no guarantee of appreciation but if you are business savvy, and have the money on hand, private equity could provide massive returns. It is a great way of building your net worth but you need to keep in mind that it is a long-term investment.
Mutual Funds
A mutual fund is a group of assets that pools money from various investors and will then invest this money into securities like bonds, stocks, debt, or treasuries that increase in market value and help with diversification. If you do not have the knowledge of stock investing, you can consider mutual funds. They can be bought through different brokerages and are differentiated, which makes them an ideal appreciating asset.
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Corporate bonds
Investors with a low-risk appetite can consider investing in bonds. When you invest in bonds, you lend money to the issuer who will pay interest over the tenure. They are a slower appreciating asset and can help balance the portfolio against the risk of stocks. It is a debt investment you make and you receive interest just like any other loan. The bond will have a set maturity date which can range anywhere from one year to ten years and you will receive the principal amount back at the end of the tenure. It helps to invest in corporate bonds since they have a higher interest rate but they also carry high risk.
Peer lending
Peer-to-peer lending is a huge draw these days. It helps connect retail lenders with borrowers. Whenever a borrower applies for a loan, the peer-to-peer lending platform will sell the interest in the debt to its investors. This loan is usually a small amount and it helps generate income for investors. What was traditionally reserved for the banks is now open for investors. You can enjoy the interest payments made by the borrower. They can be paid monthly or quarterly while the borrowers benefit from the capital.
Index funds
Investing in funds is another great way of generating wealth. Funds will produce interest and you will have passive income. The rate of interest is higher than that of a savings account which is why it attracts investors. However, the interest rate will be based on the existing market rates. An index fund is nothing but a portfolio of bonds and stocks that mimic the performance of the financial market index. Whenever the market is up, you will see a high return on the fund.
Commodities
Another good investment that is not much in the spotlight as compared to others on this list is commodities. It is a broad category and an appreciating asset which will also be a good diversification tool for the portfolio. Commodities include items like precious metals including gold and silver and other items like grains, oil, and natural gas. It is a slightly risky investment since there can be ups and downs in the market which could affect the price of the commodity. However, these are strong appreciating assets.
Online brokerages offer commodities ETFs for you to invest in. They have various subcategories you can choose from. Alternatively, you can also invest in individual company stocks that fall in the commodity category. Many also choose to buy commodities directly like gold bars or silver bullions or coins.
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Collectibles
Collectibles can also be an appreciating asset if you know what to look for and when to invest. Not everyone has the knowledge and skills of investing in collectibles and it can be a challenging task to put collectibles in your portfolio. But the value in the future has massive potential to earn you big money. Some of the most common collectibles are vintage cars, fine art, and wine. Cars are depreciating assets but if you know what to look for and can identify a vintage car, you will make a nice profit on it.
Finding art is also expensive and equally speculative when it comes to a new artist. You should be able to predict if the new artists will take off in the future and whether you will be able to make money selling the piece of art over a period of time. But you can also buy shares of art through platforms like Masterworks. Wine is also an appreciating asset but you need to know which wine will go upwards from here. You can either invest in physical wine or invest in a customized wine portfolio of bottles by experts who also store it for you. When investing in physical assets, you need to consider the cost of storage and insurance.
Starting a business
It can be stressful and time-consuming to start your own business but it is an asset like no other. You will need upfront capital and business knowledge to sail your boat but it will pay off in the long term. It can create cash flow and build your net worth. There are tons of businesses you can consider, especially the ones that need low initial investment. But you also need to be aware of the risks associated with the same.
Wealth accumulation can happen but it will take a lot of time and you need to have another source of income to keep you going until then. That said, you must try to keep the liabilities at a minimum to be able to see a profit.
Cryptocurrencies
There is a new asset class that has entered the market scene in the past five years-cryptocurrencies. It is estimated that cryptocurrencies will be huge in the next decade and they will be used as a mode of payment. Crypto has also shown the fastest rise in any asset class in terms of the returns investors have made. There was a surge in bitcoin ownership during the pandemic-led market downturn.
This rapid rise has led to a growing interest in taking even a small position in cryptocurrencies. Several apps offer crypto investing at a low cost but it is advisable to have a long-term hold strategy. Hold it through the next market volatility to make the most of the upside. There is no denying the risks involved with cryptocurrencies which is why it is best to invest a small part of your portfolio in this asset class.
Related: Best Cryptocurrency of 2022
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The bottom line
Appreciating assets must gain at least at the same rate as inflation, otherwise, they could become depreciating assets. No matter the types of assets you choose to invest in, you would want them to grow in value faster than inflation so that you can earn a real return. It is a way of growing your wealth and earning returns through capital appreciation.
You can create a diversified portfolio through a mix of financial assets and income-oriented assets that have low volatility. In order to get to a secure retirement, you need to save money, and appreciating assets can make the job easier for you. It might be tempting to opt for the certificate of deposit or open a savings account but it may not grow at the same rate as inflation. If the interest rates do not rise at the same rate as inflation, you could be losing money. This is why you need to be careful when choosing appreciating assets. Look for the ones that provide dividends so you can earn money before you sell the asset.
Diversification is the key to successful investing and you need to understand which assets complement each other well so that even if one declines, the other makes up the difference.
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Writer
Vandita Jadeja is a financial writer and editorial assistant at Joywallet. She loves to read and write about money and brings 7 years of experience from the financial industry. She loves coffee, mountains and sunsets.
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