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Unrealized Gain: Paper Profit You Haven't Locked In

By Imperialpedia Staff

An unrealized gain, sometimes called a paper gain, is the increase in an investment's value while it's still being held. If a stock bought at $50 is now worth $80, there's a $30 unrealized gain per share, but that profit isn't locked in and doesn't create a tax obligation until the position is actually sold.

Why It Can Disappear Without Warning

Because an unrealized gain reflects a snapshot of current market value rather than a completed transaction, it can shrink or vanish entirely if the price falls back before the investor sells. This is the core reason financial advisors caution against treating paper gains as spendable money — they aren't real until they're locked in.

How It Shows Up on Statements

Brokerage account statements typically display unrealized gains and losses alongside cost basis for each holding, giving investors a running view of portfolio performance. This figure updates constantly with the market and is distinct from the account's total return, which may also include dividends, fees, and any realized gains from prior sales.

The Psychology of Holding Onto Gains

Investors sometimes hold a winning position longer than the underlying fundamentals justify, reluctant to give up an unrealized gain or trigger a tax bill by selling. This tendency, related to what behavioral economists call the disposition effect, can lead to holding losers too long and selling winners too early relative to a purely rational strategy.

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