February 17, 2014
Why is it important to understand the difference between an appreciating asset and a depreciating asset? Examples?
Why is it important to understand the difference between an appreciating asset and a depreciating asset? Examples?
Appreciating assets are how you grow your net worth, they will become more valuable the longer you hold on to them, such as good stocks, bonds and houses(technically). These assets will grow and increase in value, while depreciating assets will lose value the longer you hold them, a vehicle is one of the biggest depreciating assets someone normally buys, pretty much every thing a normal person is a depreciating asset, clothing, technology, stuff. You should try to avoid depreciating assets unless you need them, do not just buy them because they seem cool at the time, your money will be eaten up quickly if you buy a large amount of them.
“A normal person buys is” is what its to say, not a “normal person is”
It is important to know and understand the difference between an appreciating asset and a depreciating asset, because one will make you poor, and the other will grow your net worth. An appreciating asset grows in value over time. Appreciating assets are thing such as real estate, stocks, and bonds. Depreciating assets are just about anything else, or “stuff”. Stuff that we fill our houses with, clothing, cars, etc. are all depreciating assets that lose much or all of their value almost immediately upon purchase.
You explained the situation very clearly, Garrett and Kayla. Well done! Let’s review.
Appreciating assets (specifically income producing stocks, bonds, and Real estate) gradually grow over time (there will be years where they will not). Time and compound interest will increase your wealth when you buy these assets efficiently (no-load index mutual funds) and hold on to them through good times and bad.
Depreciating assets (almost everything else)do none of that. They lose value immediately and continue to fall over time. Limit these assets to increase your chances of developing wealth over time, it’s that simple. Onward!
Appreciateing asset is a asset that increases at rate above inflation, if it fails to increase above inflation rate than it is a depreciation assets