Market value is the value an asset can be sold for in the marketplace, and that value changes depending on a multitude of variables including long-term growth potential, economic climate, scarcity, and inflation.
Market value does not always reflect the book value of a given asset, but rather the price a prospective buyer in the marketplace is willing to pay for the asset. Due to all the different factors that affect market value, it is constantly changing.
What you need to know
Market value reflects the investment community’s perception of the asset.
Many factors go into market value, which it what causes it to fluctuate.
Every asset that can be sold has a market value, even intangible assets.
Market value can also be mentioned when talking about the value of a publicly traded company, and in this context is synonymous with market capitalization.
Market capitalization is calculated by multiplying the current share price by the total number of outstanding shares.
Market value just means the value the market thinks an asset is worth for any combination of reasons. It's simply the price it will fetch.
This could be a share, security, car, house, some sort of intellectual property — you name it.
The factors that make up market value are not simple, though. There are a world of factors that affect an asset's price including buyer sentiment, existing supply/demand factors, macro world events, inflation, liquidity.
Part of an investor's goal when managing a portfolio is to sell when the market value is overvalued and to buy when it is undervalued. Investor Benjamin Graham likened this game to dealing with an erratic man named Mr. Market — a metaphor for the irrational and contradictory traits of the stock market / the risks of following groupthink.
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Learn moreLet’s say you opened a taxable investment account and invested $10,000 of your money into a Premier Growth Fund. After a month passes by, you check your portfolio balance and you see that your investment is now worth $10,400. This would be your portfolio’s market value.
In other words, $10,400 is the value you would receive if all the holdings in the portfolio were sold into the marketplace.
In collaboration with
Gabe Hoffman
Gabe Hoffman, MBA, CFP®, is the co-founder and COO of Taylor Hoffman, a registered investment firm. Gabe is the founder of Avidus, a FinTech platform that allows its users to invest with all the coveted techniques traditionally reserved only for wealthy investors, for a simple flat fee of 1% AUM.
Gabe received his undergraduate degree in Trust and Wealth Management from Campbell University in North Carolina, along with a minor in Financial Planning. Gabe continued his education with an MBA in Financial Services, also from Campbell University.
Gabe is a frequent industry speaker across a range of fiduciary, wealth management and investment topics.
In collaboration with
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