What does the term "capital appreciation" mean?

Capital appreciation refers specifically to the increase in the value of an investment over time. This concept is crucial for investors as it directly pertains to the growth potential of their investments. When the market value of an asset, such as stock or real estate, rises beyond its purchase price, this increase represents capital appreciation. It reflects the investor's ability to realize profits through selling the asset at a higher price than what was initially paid.

Capital appreciation is an important measure for investors, particularly those focused on long-term investment strategies, as it can lead to substantial financial gains. It contrasts with other concepts like dividends or benchmarks, which serve different purposes in the investment landscape. Understanding capital appreciation helps investors assess the performance and potential of their portfolios effectively.