What is Capital Growth and why is it an important consideration for your investment portfolio? On the CrowdfundUP Blog, we explain Capital Growth strategies and their advantages.
Capital Growth is the increase in value of your property portfolio over time, and is considered alongside property yield. It is also referred to as Expansion Capital and Growth Equity.
Capital Growth largely depends on where and what property you are investing in, with real estate traditionally having steady growth over the long term. Capital Growth investments often have a higher price and lower rental yield, making them negatively geared.
As a starting point, it is important to define your objectives and goals from long term investing, by developing a Capital Growth strategy. Once defined, the aim is to then increase the value of a property portfolio or asset over a long term period.
A Capital Growth Strategy is an asset allocation strategy that seeks to maximise capital appreciation, or an increase in the value of a portfolio over the long term.
Portfolios with the goal of Capital Growth generally consist of mainly equities - with the proportion of equities to everything else in the portfolio depending on the individual investor's investment horizon, financial constraints, investment goals and risk tolerance.
Generally, a capital growth portfolio contains 20-25% fixed income securities, 65-70% equities, and the rest in cash or money market securities.
An Aggressive Investment Strategy attempts to maximise returns by taking a relatively higher degree of risk, placing an emphasis on capital appreciation as a primary investment objective, rather than income or safety of principal. This strategy has an asset allocation with substantial weighting in stocks, and small allocation of fixed income and cash.
This strategy is suitable for lengthy investment horizons and a high tolerance for risk.
A balanced investment strategy is a portfolio allocation and management method aimed at balancing risk and return. These portfolios are generally divided equally between equities and fixed-income securities.
While a balanced investment strategy aims to balance risk and return, it does carry more risk than other strategies and is suitable for Investors with a longer term investment horizon and have some risk tolerance.
The Strategic Asset Allocation strategy involves setting target allocations for various asset classes, and periodically rebalancing the portfolio back to the original allocations when they deviate significantly from the initial settings due to differing returns.
Target allocations depend on investor's risk tolerance, time horizon and investment objectives, and may change over time.
Some advantages of Capital Growth investments include:
"Any advice provided on this blog is general in nature. Readers are urged to seek their own professional advice before making decisions."