Passive appreciation often happens to barren assets -- those which pay nothing until they are sold. For example, in the mid-1970s, gold bullion appreciated dramatically during a period of extreme inflation. Many people bought one-ounce bars of gold and for a time enjoyed the satisfaction of feeling they had "beaten the market" because the value of gold continued to increase. Later, of course, gold plunged and these people felt the blast of downturn, particularly those who had gone in at the high end of the market.

Houses normally enjoy a passive appreciation that make them very attractive as an investment. Houses may appreciate actively and passively at the same time. A house, for example, may increase in passively as a result of updrafts in the real estate market in a given area as well as actively when, for example, central air conditioning is installed.

Passive appreciation is an updraft, an unearned increment in the value of an asset. What goes up, however, can come down -- and dramatically.

See also Active Appreciation.

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