What It Is:

How It Works/Example:

Let's assume you purchased one share of Company XYZ stock for $5. If that share's value increased to $7, we would say the investment has appreciated by $2.

Why It Matters:

Appreciation is the end goal for most investors. It is the founding principle upon which nearly every investment strategy rests. However, there are responsibilities attached to appreciation. Most notably, appreciation is often taxed, meaning that when that Company XYZ share appreciated by $2, the investor may end up with only $1.60.