Capital Growth

Measuring Capital Growth and the Different Investment Types that Exist.

Capital growth, also known as capital appreciation, refers to the increase in value of an asset or investment as time goes by. The measure of capital growth is determined by the variance between the current market value of the asset or investment and the initial purchase price or value when it was acquired.

Determining the extent of favorable capital growth

Determining the extent of favorable capital growth relies heavily on the investor’s risk tolerance and investment objectives. Each investor’s investment objective varies based on their personal level of risk tolerance. Those with a low risk tolerance tend to prioritize seeking income, while those with a high risk tolerance prioritize capital growth.

Capital growth investment objectives can be further classified into moderate and high growth. For those seeking moderate capital growth, investing in equities of stable companies such as blue-chip stocks might be the ideal choice. However, investors looking for high capital growth may opt for more speculative investments or growth stocks, which are often companies with a limited profit or earnings history that show potential for significant growth.

Capital Growth Investments Types

Funds

When it comes to investing, there are a variety of options to choose from depending on your financial goals and risk tolerance. Two popular investment vehicles are exchange traded funds (ETFs) and mutual funds, both of which contain a diversified basket of securities including stocks and bonds. ETFs and funds can help investors either diversify their risk or target a specific sector. For example, there are ETFs and funds that mirror the S&P 500 for diversified investments, as well as those that contain only bank stocks for sector-specific investments.

Equities

When it comes to equities, high growth stocks are often associated with technology and biotechnology companies that have the potential to appreciate significantly over time. However, investing in high growth stocks comes with higher risk since some of them have to be profitable. It’s important to note that not all technology stocks might be considered high growth. For example, Microsoft Corporation (MSFT) is a well-established company that produces safe and stable returns.

Investors looking for the best capital growth prospects typically turn to companies that do not pay dividends. Dividends are payments to shareholders as a reward for owning shares in the company, and are paid from the company’s retained earnings. Companies that pay dividends tend to be well-established and consistently profitable corporations. On the other hand, companies that do not pay dividends are more interested in generating higher future returns. These growth-focused companies reinvest their profits to fund research and development or to expand operations or infrastructure.

Bonds

For investors seeking a more conservative investment option, bonds such as U.S. Treasuries issued by the Treasury Department are considered risk-free investments. However, they tend to underperform equities when it comes to capital growth. Bonds are typically used for income since most of them pay a fixed interest rate to bondholders.

REITs

For those interested in investing in the real estate industry without owning real estate themselves, real estate investment trusts (REITs) are a popular option. REITs are funds that contain a portfolio of commercial real estate properties such as malls, apartment complexes, hotels, office buildings, and warehouses. REITs offer payments to investors as they distribute the rental income received from the properties.

It’s important to note that any investment strategy, including those focused on capital growth, may have tax implications. Investors should consult with a tax advisor to determine the specific tax implications for their financial situation.