Appreciating assets become worth more money over time; all you have to do is hold onto them. So what more straightforward way to make money, right?
Appreciating assets are fantastic in your portfolio, letting them grow long-term so you have a higher net worth and can reach your financial goals. So which appreciating assets should you have in your portfolio?
Understanding Appreciating Assets
An appreciating asset is an item that increases in value over time. You don't have to do anything to make it appreciate – it just becomes worth more the longer you hold onto it. Appreciating assets increase in value at least as fast as inflation, if not faster.
Appreciating assets aren't income-producing assets. Income-producing assets produce income, such as dividends, throughout the asset's life. Appreciating assets become worth more the longer you hold onto them, resulting in capital gains when you sell them.
Appreciation can happen for a variety of reasons besides time. It can be the increase of demand and decrease of supply (like we saw with the car industry), inflation, or maybe the hype and excitement we have seen with cryptocurrencies. As assets appreciate, they can bring more value to your portfolio.
Here are some top appreciating assets that can be added to your portfolio.
The Top 9 Appreciating Assets
The ten appreciating assets below would make a great addition to any portfolio. You can invest in one or several to increase your net worth over time.
1. Real Estate
Real estate appreciates over time; even if there are peaks and valleys, on average, it appreciates. Therefore, you can invest in real estate to live in it (your primary home), as a vacation home, or as an investment property.
Real estate is an investment because it increases in value over time. So if you hold onto it long enough and strategically plan when you'll sell it, you should walk away with a profit.
If you buy real estate as an investment property, it can also be an income-producing asset, as you earn rental income monthly.
You can also purchase commercial real estate, such as office buildings, multifamily units, or even apartment complexes.
2. Crowdfunded Real Estate
Crowdfunding real estate investments opens more opportunities to invest in commercial real estate, even with little capital.
Investors combine their money to invest in commercial real estate investments that real estate developers build, operate, and sell. You earn a prorated amount of the property's income based on your investment. In addition, you'll receive dividends monthly or quarterly based on the property's structure, and you can reinvest your dividends for larger investment opportunities in commercial real estate.
The nice thing about crowdfunding real estate is you can invest as little as $10 and call yourself a real estate investor. In addition, platforms like Fundrise allow everyday investors, not just accredited investors, a chance to invest in real estate.
3. Real Estate Investment Trusts
Real estate investment trusts are an investment in a real estate company. First, you buy company shares, which invests in commercial real estate properties.
REITs pay out 90% or more of their profits as dividends to shareholders, and they own, manage, and sell properties in the portfolio.
This is another excellent way to invest in real estate without owning the property yourself or without investing a lot of capital.
REITs usually have a 5+ year term, so ensure you can tie up your funds for at least that long.
There are three types of REITs:
- Equity REITs – These REITs buy and manage properties, paying shareholders the rent earned and the capital appreciation when they sell the property.
- Debt REITs – These REITs invest in the debt side of a property, acting as the lender. They pay dividends from the interest earned.
Hybrid REITs are a mix of equity and debt, giving investors the best of both worlds.
You can invest in public or private REITs. Public REITs are more liquid because you can trade the shares on the open stock market. On the other hand, private REITs aren't as liquid and can tie up your funds without a way out for 5+ years.
When you own stock, you own part of a company. Not all stocks increase in value, so it is easier to pick a simple, low-cost index fund like SPY or VOO; they track the S&P 500 to give you a piece of every stock on the index. If you hold onto stocks long-term, you'll earn an average return of 9% – 10%, even given the peaks and valleys stocks experience.
You can invest in dividend stocks, which pay stockholders monthly, quarterly, or semi-annually, or common stocks, which appreciate (or depreciate) but don't pay dividends. SCHD or VYM can give you an excellent dividend index ETF to make things simpler.
Try diversifying your portfolio when investing in stocks. For example, don't put all your capital in one industry or type of stock. Instead, invest in several industries or stocks to offset the risk. For example, if one sector performs poorly, another sector may do well, offsetting your loss.
You can buy stocks through online brokerages, robo-advisors, or a full-service broker. Pay close attention to the fees charged and who must manage your portfolio before choosing your method to invest in stocks.
A favorite place to start investing in stocks is M1 Finance, it has the robo-advisor feel, but you can pick and choose and create your portfolio. It starts as low as $10.
Many people don't realize the value of art. Like a collectible car, art increases in value over time. But, of course, not all art is worth money or will appreciate. The key is that it comes with a certificate of authenticity, so you know you have the ‘real deal.'
Art by famous artists who have passed away or with a limited number of paintings available will typically appreciate the most.
Investing in art yourself can be risky because it's a subjective opinion. So rather than taking a chance, consider using a platform like Masterworks that curates valuable pieces of art and sells shares and fractional shares to investors, much like real estate crowdfunding.
When you own a part of the art, you also earn a prorated amount of its appreciation when sold. So this can be a great way to take advantage of art investments without taking any chances or being responsible for the work of art yourself.
Cryptocurrency is increasing in value and popularity. Crypto has seen the fastest growth in any asset in history, and today is a $2 trillion industry.
Most people start by investing in Bitcoin, the most popular cryptocurrency, but other options exist, including Ethereum and XRP. In addition, you can invest through platforms like eToro, and you'll need a virtual wallet to hold your currency.
Because the investment hasn't been around long and there isn't a history to consider yet, use cryptocurrency to diversify your portfolio, but only a tiny fraction. There can be issues and problems with much risk with investing in crypto.
You can invest in real estate without buying property. Land is real estate too. Since land is a limited resource, it's an appreciating asset that can be pretty profitable when bought and sold at the right time.
If you want to invest in income-producing land, consider farmland or land you can sell the commercial property owners who pay you rent. You earn monthly income from owning the land and the capital appreciation when you sell it for a profit.
8. Gold and Silver
You can invest in gold and silver that you keep in your safe or wear. Gold is a commodity that increases with inflation, so it's a hot commodity right now with the high inflationary rates.
If you don't want to invest directly in gold or silver, you can invest in ETFs that invest in gold.
You can invest directly in gold or silver, inherit it, or invest in it indirectly through the stock market.
9. Alternative Investments
The list of appreciating assets is endless. Alternative assets include things like fine wine, peer-to-peer lending, and collectibles.
You can invest in alternative investments on platforms like Yieldstreet or in the assets yourself.
Buying Appreciating Assets
The best way to buy appreciating assets is with capital you already have. Then, you exchange your cash for the assets that appreciate, earning you more money when you sell them.
However, sometimes it makes sense to leverage your investment, buying more than you have the capital to afford.
For example, investing in a house is much easier with a mortgage. This is because you invest in a much more expensive home than you could buy with the cash you have and earn the returns from the monthly income and eventual capital gains.
Not every asset should be bought with debt, but assets that appreciate fast, like real estate, can be a great option to help increase your net worth much quicker.
The key to owning appreciating assets is to hold them for as long as possible. Don't buy appreciating assets with the intent to sell them in a few months or even a year.
Instead, hold onto them for five to ten years for the best return on your investment. You'll see the peaks and valleys the asset goes through and come out ahead. Real estate, for example, appreciates and depreciates through the years. On average, though, investors walk away with a profit.
Watch the market, and try to time your investments to buy low and sell high to increase your net worth and reach your financial goals.
I’m Steve. I’m an English Teacher, traveler, and an avid outdoorsman. If you’d like to comment, ask a question, or simply say hi, leave me a message here, on Twitter (@thefrugalexpat1). Many of my posts have been written to help those in their journey to financial independence. I am on my journey, and as I learn more I hope to share more. And as always, thanks for reading The Frugal Expat.