Lux Investing

what is capital growth in investing?

apparently its some sort of strategy but does anyone know what it actually is? i know the actual definition but apparently its also the name for doing something to try and get capital growth

Public Comments

1. when the value of your investments increases
2. no its not a strategy, it is the difference between income accrual and capital growth. Imagine a dollar sitting on a shelf for 20 years, every year the dollar gets bigger, that is capital growth, in twenty years the dollar would be worth enough to buy you the same as it did 20 years ago. Interest, however is 3what someone would give you for letting the dollar just sit there, perhaps 2 or 3% every year and the good news is you can keeop the interest, so 2 cents every year as income would take 50 years to make another dollar... get the idea?
3. you either invest for the capital growth ie you want the item to rise in price so you sell at a capital gain, or for regular income eg rental or dividend Whichever someone chooses is usually dependent on their tax situation
4. Capital growth (also called capital appreciation) should be everyone's investment strategy. The goal of investing is to grow the original investment dollar. For example, if I invested $1000 in a company's stock and the stock price goes up 10% in 1 year, then my original $1000 has grown to $1100. This $100 growth is the appreciated amount. The actual percentage growth varies depending on the market conditions, type of investment (stock, bonds, mutual funds, money market, CD, etc.), etc. Of course, you can also have a loss if you make a poor investment decision.
5. There are basically two ways to make money out of investing: by receiving income (often in the form of interest or dividends, usually paid on a periodic basis) or by an increase in the value of the asset you own (capital growth/gain, which is only realised when your asset is sold, although you might sell some of it to realise some of the growth/gain). A growth strategy is one where you select assets in which to invest based on an expectation that their value will increase, and not based on an expectation of receiving a regular income. If you are investing in equities (shares) you might look for small start up companies which might grow rapidly or you might look for companies which are investing heavily in R&D. Such companies' shares may shoot up in value (if they are sucessful), but the dividend payments may not increase rapidly (at least in the short or medium term). Some investments do not pay any income and therefore would be purely growth investments. An example is a derivative like a future or option.
6. No, it's not a startegy as such, nor is it a name for something other than "making your money grow". Everyone's strategy boils down to Capital Growth - it basically means you invest your money in such a way as to get back a larger amount than you put in, which is surely what everyone is aiming for. (eg if you buy a house for £100,000 and it becomes worth £120,000, then £20,000 is your Capital Growth. It has nothing to do with any interest or rental money you might also make).
7. Agree with Deltic21 Capital growth (some people call in principal gain) does not include any other income from rents, dividend yield, interest payments, etc.
8. I basically agree with AT but wouldn't class derivatives as having "capital growth" because the capital - the principal amount on the trade - is really only a fiction. Basically, shares tend to be classed as "income stocks" - shares in old, reliable companies that generate plenty of cash but don't grow much, like utilities, where you make your money mostly in dividends - or "growth stocks" which pay little or no dividends but are in a market segment which is expected to expand in the future, such as technology companies, where you try to make your money by selling the shares for more than you paid for them. For most of the last 20-30 years growth stocks have been more "fashionable", but on average income stocks have produced a better return. Sometimes people realise that, income stocks become the big thing for a while, then it settles back to the old pattern because people like to see their 100p share price turn into 200p, or 1000p. There was a very interesting analysis (you can probably find it on the net somewhere) which compared a classic growth stock (I think it was IBM) against a classic income stock (Exxon, again from memory) over about 40 years. IBM's share price went through the roof while Exxon's plodded along - but if you looked at the effects of reinvesting your dividends, an investment in Exxon would have grown more over the time.