There are many different ways to grow your net worth, such as investing, side hustles, and increasing income at your job. Another way to increase your net worth is with appreciating assets.
Appreciating assets are a pretty nifty way to grow your net worth because in some cases, their value will increase without any effort needed on your part! But wait, what’s the catch?
Well, there is often quite a bit of speculation involved with appreciating assets. In other words, rarely can you guarantee that the value of an asset will increase. Nevertheless, appreciating assets can be a powerful wealth-building tool.
In this article, we will consider some of the best appreciating assets to help you grow your wealth.
First, here is a list of appreciating assets:
- Real estate
- Real estate investment trust (REIT)
- Private equity
- Savings Accounts
- Certificates of Deposit (CDs)
- Collector’s items
Chances are, you won’t want to put your money into all of these appreciating assets. All of them are beneficial for different reasons, so it helps to understand each asset class.
So, let’s take a closer look at each of them.
One appreciating asset with which you are probably already using is housing. For decades now, buying a house has been considered one of the best ways to build wealth for middle-class families. Why? Because home values have often outpaced inflation, allowing individuals and families to increase their net worth.
Single-family homes are not the only form of real estate that can appreciate. Commercial real estate, such as multi-family homes and even office buildings, can appreciate as well.
Remember how speculation was mentioned in the introduction? Well, oftentimes, appreciation of any kind of real estate is indeed speculative. Determining whether real estate is a good investment is a complex decision, but very generally, you want a local market that is growing.
There can be bigger-picture factors at play as well, however. Consider the housing crisis of 2008. Home values fell nationwide as a result.
And while events like that don’t happen every year or even every decade, they are usually unpredictable. Hence, their appreciation is speculative.
Despite the speculative element, though, people will continue to need a place to stay, which makes real estate a nice appreciating asset.
Real Estate Investment Trusts (REITs)
A real estate investment trust (REIT) is a pool of money used to purchase and sometimes sell real estate properties. Profits are generated by renting the properties to tenants. The benefit of doing things this way is to allow you to own part of a large property without assuming the full financial risk.
Plus, you’re able to get a return on your investment without having to do all the work on the property on your own. The trade-off is that the amount you will make from a REIT will never be as much as a property you buy outright.
In any case, REITs can give you some income through rent being charged to tenants; plus, they can appreciate and help you grow your net worth if the value of the property increases.
Equity refers to having a stake in something. You might hear people say that owning a home helps you build equity. In other words, they help you build ownership of something, which is exactly what equity is.
When you have equity, you own something (or a piece of it). Thus, private equity refers to having ownership of a privately-held company.
There are a few different ways you could gain part ownership of a private equity firm, but do note that this doesn’t include buying stocks. Why? Because companies that issue stocks are publicly-traded companies.
Many companies are not traded on the open market. The easiest way to have a stake in one of these companies is to start one yourself. There are other ways this may happen, though – such as through mergers and acquisitions.
Of course, the value of companies is highly speculative, too. But those that find success can grow tremendously in a relatively short period of time.
Now that we’re considered private equity, the logical next step is to look at stocks. Shares of stock also represent part ownership of a company, but these companies are publicly-traded on the open market.
Companies issue shares of stock to raise capital for projects; in return, shareholders gain part ownership of the company. In some cases, stocks also come with voting rights.
Consider the fact that in 2004, Alphabet, Inc. (GOOGL), was trading at just over $54 per share. Since then, the stock’s value has astonishingly grown to over $1,000 per share!
Okay, so it is quite unusual for a stock’s value to grow 200%+ in 15 years, especially if its share price is already over $50. Having this happen with a new company would be like winning the lottery – but many companies experience very healthy growth.
Since it is so difficult to predict which companies will grow, one way to reduce risk is by investing in a total stock market fund. When you buy shares in these funds, you buy tiny share of all publicly-traded companies.
Bonds are similar to stocks in some ways, but they also have distinct differences. While stocks give shareholders a partial stake in the company, bonds are a form of debt. That means that while stocks come with voting rights, bonds do not.
In addition, bonds do not represent ownership in the company.
The way they pay out is different, too. While some stocks pay dividends based on the company’s earnings, bonds pay an interest rate based on the discount rate. Because bonds pay interest, you can consider them an appreciating asset.
Bonds usually have a set maturity date. The maturity date is usually one to ten years in the future. Between the time is issued and the maturity date, the bond pays out interest. Then, at the maturity date, the principal of the bond is repaid in full.
Savings accounts are appreciating assets because they increase in value. These are some of the safest assets when it comes to appreciation – it would be pretty rare for one of them to not increase in value.
Of course, that means their interest rates are much lower than other types of appreciating assets. Brick-and-mortar banks have typically offered interest rates that barely paid anything – in the 0.01% to 0.05% range. Nowadays, you can do substantially better by opening an online high-yield savings account.
These savings accounts will offer an interest rate that is near the rate of inflation – in the 1-3% range. As a result, the purchasing power of the money you have saved won’t increase much, but that is still better than losing money by having it in traditional savings.
Certificate of Deposit (CD)
Certificates of deposit (CDs) share a lot of qualities with bonds. Both are generally low-risk assets with low returns but little risk of loss. Both act as a debt that the issuer must repay with interest. And both have a predetermined maturity date.
So, what are the differences? For one, their relationship with interest rates is the opposite. CDs tend to have better yields when interest rates are high, while bonds tend to have better yields while interest rates are low.
CDs are FDIC-insured up to $250,000. This means that even if the bank goes under, you will be able to recoup up to $250,000. The same can’t be said for bonds, although bonds are still safer than most asset classes.
One potential risk with CDs is that if inflation rates rise, CDs become less valuable because their interest rates will not increase. This is why CDs are better when interest rates are already high.
Commodities, Currency, and Collector’s Items
You may have heard that cars are a depreciating asset. This is certainly true if you are buying cars made in the last 20 years and driving them every day. But it’s a whole different story if you are someone who buys classic cars, fixes them up (if needed), and sells them on auction for several times what you paid.
Yes, that kind of dealing requires extensive knowledge of cars and probably isn’t something a beginner should attempt. But the point is that cars that are desirable and not constantly being exposed to wear-and-tear can actually be an appreciating asset.
The same goes for other items, such as commodities and currencies. Quite literally, currency would be US dollars, British pounds, etc. Commodities would be things like gold, precious metals, and even cryptocurrency. These items will also be risky in terms of their value increasing; nevertheless, they can be considered appreciating assets.
Grow Your Net Worth with Appreciating Assets
Appreciating assets can help you grow your net worth in two ways: providing income and by the value of the asset itself increasing. If you buy an asset and then its value increases (appreciates), you will be able to sell it for more than you paid.
The struggle with appreciating assets is that appreciation is extremely difficult to predict. It’s very rare that anyone can reliably predict asset appreciation. That’s why timing the (stock) market is something not many people attempt to do.
That said, you can mitigate some of the risks through assets such as index funds and REITs. The wisest choice would probably to invest in those more diversified asset classes and not to try to time the appreciation of individual assets.
But, who knows. Maybe you will just so happen to buy a ton of stock in the next Google. We can all dream, right?
Do you have any favorite appreciating assets? Have any of them worked well for you? Let us know in the comments.