The short answer is—you have an unrealized loss also known as a “paper loss.” If you purchased a stock or other investment at a certain price and it’s down from your initial purchase price, you have an unrealized loss. On “paper” it shows your stock has decreased in market value.
If you purchased 10 shares of XYZ stock for $10 per share, your total cost excluding commission was $100 (10 x $10).
If you are still holding the 10 shares of XYZ and the stock price goes down to $8, your total market value is $80 (10 x $8). You have an unrealized or paper loss of $20 ($100-$80).
As long as you still own the stock, your loss is unrealized. Technically, you have not been affected by the loss. That ALL changes when you sell the stock.
Using the same example, if you sell the 10 shares of XYZ for $8, then you have a realized loss of $20. It’s no longer an unrealized loss on paper; it has been realized.
Although this example illustrates a loss, it is the same for gain. Once you sell the stock, you will either have a realized gain or loss
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I am learning on a daily basis that people want to buy stocks, they just don’t know how. They don’t know where to start, who to call, or where to go. If you are one of those people, I GOT YOU! First, let me say this one thing. You can start investing on your own however, I always encourage new investors to get professional help. Getting professional help can minimize costly money mistakes. If you are new to investing and have limited assets, you want to avoid as many mistakes as possible.
Here are a few ways to start investing in stocks.
- Buy the individual stock. There are many ways you can buy an individual stock. One, you can open an account at a Brokerage Firm like Charles Schwab, E-Trade, TD Ameritrade or any other similar firm. Keep in mind, there may be a minimum to open an account. Two, you can use an online app like Robin Hood, Acorn or Stash. Many of the online apps are for the investor who can do everything on their own. You may have limited help. Lastly, you can buy stock directly from the company through their Dividend Reinvestment Plan or DRIP. For example, if you want to buy ABC stock, you would call the company DIRECTLY and set up an account to make monthly purchases of the stock.
- Buy Exchange Traded Funds (ETFs). Instead of buying stocks individually, ETFs allow you to buy a “basket of securities.” Because you are buying a basket of securities, ETFs are considered to be well diversified. ETFs also have the ability to be traded like a stock. They are bought and sold throughout the day on the market exchanges. Just like with individual stocks, you will need to open an account with a firm or online app.
- Buy a Mutual Fund. Mutual funds are professionally managed portfolios. Essentially, investors’ money is pooled together to purchase shares of different securities. Mutual funds can be made up of stocks, bonds, CDs, commodities or a mixture of these. They typically have higher fees than individual stocks and ETFs. As well, there is typically more turnover than an ETF. You can purchase mutual funds through a firm, an online app or sometimes with the mutual fund company. You are likely to see mutual funds offered through employer retirement plans.
These are 3 of the most common ways to get exposure to stocks. There are more ways, but they are usually reserved for more sophisticated or speculative investors.
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