The term 'capital appreciation' refers to what?

Capital appreciation specifically refers to the increase in the market price of an asset over time. When an investor holds an asset, such as stocks, real estate, or other investments, and the value of that asset rises, the investor benefits from that increase when they choose to sell the asset. This increase in value is what is termed capital appreciation, signifying that the price at which the asset can be sold has grown compared to its purchase price.

This concept is crucial for investors as it represents a primary way to realize gains on investments; it indicates the potential for profit without necessarily involving immediate cash inflows like dividends or interest payments. Thus, capital appreciation is a key factor in long-term investment strategies, focusing on the growth of asset value rather than the income generated by the asset itself.