Appreciation

May 17, 2022 • 2 min read

Various investment assets can increase in fiscal value over time, varying from real estate, portable property, stocks, shares, and bonds for example.

Appreciation vs Depreciation

Appreciation

As we now know, investment assets can increase in value over time, but various market factors can impact the appreciation thereof.

Some factors that may cause appreciation:

Inflation
Interest rates
Lower demand in the supply chain
Increasing demand in the supply chain

For example, if you bought a rental property in a sought-after neighborhood 10 years ago for a fixed amount, and there is a sudden property boom or need for rental space in that neighborhood, the physical value of that property or rental income will appreciate as demand increases.

Depreciation

On the opposite side is depreciation, where the value of an investment or asset decreases in value due to uncertain economic market activity.

Some factors that may cause depreciation:

Inflation

Decrease in demand in the supply chain
Decrease in the value of the asset due to negligence, or wear and tear

Appreciation Formula

There are a plethora of ways in which you can find the appreciation value of a set asset, and each case will differ depending on the investment asset and the current market condition.

The most basic method one can use is as follow:

Current Value of Asset / Initial Value = Value Result
Value Result x Number of Holding Years
Subtract the current value from the initial value

Several factors can play a role in the final results, but in general, appreciation is seen as a positive aspect of any type of asset.

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