I'm trying to think of situations where an investor would not want an asset to appreciate significantly. Instead, the investor would want the asset to retain its original value without significant growth.

Are there examples of such situations?

  • When they're saving up to buy it. – Lawrence Oct 27 '18 at 14:24
  • @Lawrence good point, but I should have been clearer: I meant an asset that an investor does not wish to appreciate once the investor has already purchased it. – painter48179 Oct 27 '18 at 18:52
  • Not to worry. I was joking, hence the comment rather than an answer. :) – Lawrence Oct 27 '18 at 22:17
  • Kind of like in The Producers ?! :) – Fattie Oct 28 '18 at 3:59

If you consider your house as an asset, and you have no intention of moving, you might not want it to appreciate, because that would raise your property tax, and perhaps insurance costs.

The same would be true of land & real estate in general. If you have no intention of selling, appreciation just increases your tax.

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    Nice answer. In fact, if you are a wealthy person transferring tens of millions in assets to your children, you might fraudulently undervalue those assets, and the children might overvalue them when bragging about their ill gotten wealth, but still undervalue for tax purposes. – JTP - Apologise to Monica Oct 27 '18 at 16:58
  • @JoeTaxpayer: Not getting into current US politics, are we? – jamesqf Oct 28 '18 at 2:52
  • No sir, that's frowned upon here. – JTP - Apologise to Monica Oct 28 '18 at 11:38

Yes, that’s why there are income funds as well as capital appreciation funds. The reason you might not want your asset to appreciate in value is because you want to receive an income from it instead.

Edited, because a second example occurs to me. Suppose you have a small investment in AAA-rated government bonds, and you have lent a lot of money at a floating interest rate that’s linked to the central bank base rate for the same currency. If your holding of bonds appreciates, that can only be because the interest rates have fallen, which means you’ll make less money from your loan book. The very last thing you want is for that asset to appreciate. The general case is that the value of the asset is negatively correlated with the value of a different asset of which you have a larger holding.

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