GLOSSARY TERM
Realized vs Unrealized Losses
A realized loss is a loss you lock in by selling an investment for less than you paid. An unrealized loss is a loss that exists only on paper because you still own the investment.
What does this mean in practice?
If the value of your investment falls, that decline is unrealized as long as you do not sell. Once you sell for less than your purchase price, the loss becomes realized. This difference matters because realized losses may sometimes be used for tax purposes, while unrealized losses usually cannot.
Example
You buy an ETF for €1,000 and its value falls to €800. While you still own it, the €200 loss is unrealized. If you sell it for €800, the €200 loss becomes realized.
Why it matters
This helps you understand the difference between a temporary drop in value and a loss you have actually locked in. It also shows why selling decisions matter, since selling during a decline makes the loss real and may affect both your future returns and your taxes.
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