The terms realized return and unrealized return refer to the profit or loss on an investment, but they differ based on whether the investment has been sold.

Realized Return

• Definition: The profit or loss you have already secured by selling the investment.

• Example: You bought a stock at $50 and sold it at $60. The $10 gain per share is your realized return because the transaction is complete.

• Tax Implications: Realized returns are typically taxable.

Unrealized Return

• Definition: The paper profit or loss on investments you currently hold but haven’t sold yet.

• Example: You bought a stock at $50, and its market value is now $60. The $10 gain per share is your unrealized return because you haven’t sold the stock yet.

• Tax Implications: Unrealized returns are not taxable since the investment has not been sold.

Key Difference:

• Realized return involves completed transactions and may have tax consequences.

• Unrealized return is still hypothetical and reflects potential profit or loss.

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Realized return and unrealized return are two ways of describing whether an investment’s gains or losses have been “locked in.”

1. Unrealized Return (Unrealized Gain or Loss)

• Also referred to as a “paper” gain or loss.

• Occurs when the value of the investment changes (goes up or down) but you still hold the asset.

• Because the asset hasn’t been sold, the gain or loss is not finalized—you could lose it if the price drops (or the loss could reverse if the price goes back up).

• For example, if you bought a stock at $390 and it’s now priced at $400, you have an unrealized gain of $10 per share (about 2.56%). But this gain is not locked in until you sell.

2. Realized Return (Realized Gain or Loss)

• Occurs when you sell the asset and “realize” (finalize) the gain or loss.

• Once you sell at a higher (or lower) price than your purchase price, the gain (or loss) becomes realized and is typically used for tax calculations.

• In the same example: if you purchased a stock at $390, and then you sell it at $400, you realize a $10 gain per share (a 2.56% realized return).

In short:

• Unrealized return is the gain or loss you have on paper, before selling.

• Realized return is the gain or loss you lock in once you sell the asset and the transaction is complete.