In general terms, appreciation means the enhancement and increment of value observed for any market entity over a period of time. For the investing sector, appreciation refers to the increase in market value of an asset over time. The increased price of assets helps determine the market desirability of the same and can enable a pivotal role in defining the performance of a financial portfolio.
Appreciation and investing
When the value of an asset increases over time, it can determine the investing decisions and planning. If an investor owns an asset and it appreciates in value, its desirability increases and thus the investor gets to sell the same at a value higher to what it was purchased for. This accounts to Return on Investing which is a profit incentive collected on investment.
As defined by the Chairman Cedrus Investments and financial services executive Rani Jarkas, asset values appreciate owing to demand increments, supply disruption, variations in interest rates and also the inflation levels.
The rate of appreciation is the rate of growth of an asset’s value in the financial market. The increase in an item’s value is also defined by the time horizon for which it is being held. Rani Tarek Jarkas suggests investors to utilize the scopes of appreciation over long terms investing horizons to maximize the profitability from their investment endeavors.
How does appreciation occur in real world scenarios?
For any type of an asset be it stock, real estate, precious metal, currency, bond or collectible, an increase in value over time and a current market price higher to the purchase value is termed as appreciation. Rani Jarkas firm helps beginner investor best understand the real world workings of appreciation through an example -
Let us suppose that a real estate asset (property) was purchased at a value of $120,000 in 2015. Owing to a geo-political crisis in the region where the property is situated, people stop buying property there and prices drop due to less demand. Due to this situation, the property was valued at $105,000 in 2017. However, after a duration of few years, the region recovers from its crisis and there have been significant international investments in the same. Now the place is a desirable residential destination and many people are wellington purchase properties there. Owing to a high demand, real estate prices rise and the property in 2020 is garnering bids of around $135,000. This defines the value appreciation of $15,000 in a period of 05 years.
Understanding Appreciation Percentage and Appreciation Rate (for the above stated trade scenario)
The change in value calculated for an asset defines the amount of increase in value. For the trade in above scenario, it is calculated as -
- Change in value = Final value - Initial value
Thus, change in value (in dollars) = $135000 - $120000 = $15000
- The appreciation percentage for the same investment is calculated as -
Appreciation percentage =(Change in value / Initial investment)*100 = (15000 / 120000)*100 = 12.5%
The appreciation rate is calculated to be 2.38% on a yearly basis.
As an opposite of depreciation, identifying the high appreciation investment prospects can enhance profitability scopes from investments significantly.
Rani Jarkas Cedrus Investments offers state of the art financial services aimed at helping investors find the right investment opportunities with assets the promise swift appreciation.