Unrealized gain

A rising investment balance can increase your net worth before you sell anything. An unrealized gain is not automatically this month's investment return. A $1,000 gain may include $800 accumulated before the month began, leaving $200 of new price growth this month.

In a sentence

• "My shares cost $4,000 and are worth $5,000, so I have a $1,000 unrealized gain."
• "The unrealized gain becomes a realized gain when I sell the shares for more than their adjusted cost basis."
• "The fund's unrealized gain shrinks when its share price falls, even though I haven't sold any shares."

How it's calculated

1. Find the adjusted cost basis of the investment you still hold. For a straightforward purchase with no fees or later basis adjustments, that is the amount you paid for the shares.
2. Find the current market value of those same shares. Multiply the number of shares held by the current price per share.
3. Subtract adjusted cost basis from current value. A positive difference is an unrealized gain; a negative difference is an unrealized loss.

Unrealized gain = current market value − adjusted cost basis

Use the same holding on both sides of the calculation. An account's total value may include uninvested cash and several investments, so it is not necessarily the value of the shares whose basis you are checking.

Appreciation describes an increase in market value; unrealized gain measures value above basis while you still hold the investment.

An example

You buy 100 shares at $40 each before the month being measured. Assume no fees, distributions, further purchases, sales, or basis adjustments during the holding period.

The ending unrealized gain is $1,000, but only $200 of that increase happens this month. The month's rate of return uses the $4,800 opening value, not the $4,000 purchase cost.

Monthly return = ($5,000 − $4,800) ÷ $4,800 × 100 ≈ 4.17%

With no distributions or money added or removed, the price change gives the month's return. The gain since purchase and the monthly return answer different questions.

Why it matters

Unrealized gain separates an investment's value from the cash it has produced. You may have a larger asset without having more money available for bills. A gain shown today can shrink before you sell, so a purchase planned around sale proceeds depends on the price you actually receive, along with any costs and taxes.

Unrealized gain also prevents a common net worth mistake. If you list the investment at $5,000 on your net worth statement, its $1,000 gain is already included. Adding that gain as a separate asset would count it twice.

Unrealized gain versus realized gain

An unrealized gain belongs to an investment you still hold; a realized gain results when you sell for proceeds above adjusted cost basis. If you sell all 100 shares in the example for $5,000 with no selling costs, you realize $1,000, not just the latest month's $200 increase.

Selling changes the form of the asset from an investment to cash. At the same value, and ignoring taxes and fees, the sale itself does not create another increase in net worth.

Common questions

Do I owe tax on an unrealized gain? For ordinary stock or fund holdings in a US taxable brokerage account, a price increase alone generally does not create federal capital gains tax before a sale. Dividends and fund capital gain distributions may still be taxable while you hold the shares, and special tax rules can apply.

Can an unrealized gain disappear? Yes. If market value falls back to adjusted cost basis, the unrealized gain becomes zero. If value falls below basis, the holding has an unrealized loss, even though you have not sold it.

Is adjusted cost basis the same as my first deposit? No. A cash deposit into an investment account is not necessarily the purchase cost of a holding. Additional purchases and basis adjustments can change the basis of the shares you still own, so use holding-level records rather than total deposits.

Go deeper

• How to track net worth when your investments swing every day separates money you contribute from changes in market value.
• How to read your net worth trend over a year helps explain changes in the total instead of treating every increase as new saving.
• The Compound interest calculator projects how a starting balance and monthly contributions grow at a given return over the years.