Investing Basics: Capital Appreciation

If you plan on getting involved with investing, you will need to understand the basics of capital appreciation. Capital appreciation is one of the two main forms of investment returns. Here are the basics of capital appreciation and what it means to you as an investor.

Capital Appreciation

When you invest in a security, capital appreciation represents the amount of money that the value of the security increases by. When you purchase a security, it has a certain market value at time of purchase. After a certain period of time, the value of that security might rise because of market factors. The difference between what you pay for the investment and the current value of the investment is known as capital appreciation. Many investors look for capital appreciation above anything else in their investments. For example, many mutual funds strive to provide capital appreciation instead of regular dividend income for the investors of the fund.

Example

Let's say that you purchased a stock that was trading and $100 per share. After a few years, you look at the price of the stock and it is not trading and $200 per share. In this case, the capital appreciation would be $100. 

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