Here’s what you need to know about asset appreciation and depreciation
In personal finance, assets are something that holds value or are valuable resources, with a future benefit – which can be converted into cash. Personal goods are things of present or future value – owned by individuals or a household.
Personal property includes car, house, collectibles, among others. Investments such as bonds, mutual funds, pension plans, stocks, etc. are also included in personal assets. However, to effectively manage your money, it is important to understand the importance of both types of assets – asset appreciation and asset depreciation.
Both appreciation and depreciation of assets have one purpose: wealth management, so individuals need to know how to use them effectively. Here’s what you need to know about asset appreciation and depreciation:
- Assets that appreciate are those whose value increases over time. Investing money in an asset that appreciates or is owed can be a key factor in growing one’s wealth. However, the owner must realize the increase in the value of the asset to revalue it at a higher price, which offers significant gains in the long run. An asset can appreciate due to demand, supply or an increase in interest rates.
Some of the most popular assets that appreciate are stocks, bonds, real estate, REITs (real estate investment trusts), savings accounts, and private equity.
- On the other hand, impaired assets are those whose economic value declines over time and with use. Some of the more common impaired assets include cars, furniture, equipment, including computers and electronics, machinery and sports equipment.
Even though asset depreciation loses value over time, there are some major reasons why homework is important. These assets would offer tax benefits, according to experts.
“After reading about asset appreciation and depreciation, you might ask yourself what benefit a depreciated asset gives me? Why should I even invest in it? It is true that you will not be able to get any monetary profit on the sale of the asset due to its reduction in market value, BUT it is not always about that, especially not in case of depreciation of assets. This is the opportunity cost or the value that these assets give you.
Suppose you live in a subway and have to commute to work every day – you have two options; either you take a taxi or public transport every day, or you buy a car and drive to work. Even if a car is a depreciating asset, it won’t affect your buying decision.
Other factors can affect your buying decision, such as how much value the car will bring to you, a cost-benefit analysis, your intention to buy a car, the convenience it might offer if you are a regular traveler, ” explained Ms. Snigdha Chaturvedi, Financial Blogger Staff at Nasdaqnarc.