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What is Capital Growth?

Capital growth is the increase in value between the purchase and sale price of an asset.
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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 24 November 2014
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Capital growth has to do with the increase in the value of any capital assets that are current part of the financial portfolio. Essentially, the goal of acquiring assets is to achieve a level of appreciation or growth that will keep the value of the asset ahead of the current rate of inflation.

One of the easiest ways to understand capital growth is by looking at the acquisition of a piece of property. Initially, the property will be purchased at a rate that is considered to be a fair market price. The expectation is that as time passes the property will increase in value at a rate that is at least equal with inflation.

Along with acquiring the property, the investor may also take some additional steps to help along the process of capital appreciation. Buildings may be erected on the property, or existing structures updated and enhanced. Making improvements to the asset is an excellent way to realize a market price increase. Other factors that are outside the control of the investor, such as the general condition of the immediate area can also impact the rate of capital growth.

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There are a number of capital assets that commonly generate at least some degree of capital growth. Along with property, there are assets that tend to appreciate in value for no reason other than a proven ability to remain desirable from one generation to the next. Investing in diamonds is one example of an asset that has only in the rarest of situations failed to increase in value at a rate that stayed ahead of inflation. In some parts of the world, hand woven textiles are a tangible asset that will realize capital growth with each passing generation.

The amount of capital growth is usually identified as the difference between the initial purchase and the amount that the asset would realize if it were sold or liquidated today. This makes the acquisition of capital assets that have a high opportunity for increasing in value ideal for a retirement plan. Whether stocks with a secure track record, bonds that will return an equitable return, land, buildings, and even precious gems are all potential investments that have the potential of realizing capital growth over time.

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