The Short & Simple Investing Lesson this week is about more investing lingo. While realized and unrealized gains and losses are not investment performance terms, they are common related terms that you will hear in becoming involved with your money. It is important to be aware of the difference between the two. A realized gain or loss occurs when an asset is sold; on the other hand, an unrealized gain or loss occurs while still owning an asset.
Unrealized gains and losses occur due to value changes or fluctuations in the price of securities. Let’s look at an example. You buy a stock market index mutual fund for $50,000; the market races up immediately, and you see on your statement that the value of your fund went to $60,000 in three months. At that point, you had an unrealized gain of $10,000. Similarly, if the value had decreased to $40,000, you would have had an unrealized loss of $10,000 if you did NOT sell the mutual fund.
Just remember: unrealized gains and losses exist when the value of your investment moves up and down while you own it. It does not become a realized gain or loss unless you sell it. Becoming fluent with investing lingo leads you to becoming a financially empowered woman.