Investments and Capital Gains

Two neighbor farmers came together one day to talk business. The first farmer sold his bull to the second for one million dollars, then he bought it back for $100 more.

Right away he started advertising his bull (actually worth $100), as a bull he had paid over one million dollars for!

We can laugh over such schemes, or perhaps we should laugh at ourselves for having been fooled! If there is one area in life that is really deceptive and touches all of us it is the financial. What else can we do about it except laugh?

If there's one thing all investors have in absolute common, it's their desire to buy stocks that rise in price!

There is a name for this good fortune ...

Capital Gains. Capital gain is the increase in value of your stocks or in any of your assets.

Capital gains come in two types:

Realized:

A realized capital gain means that you made a profit by selling a stock at a higher price than you paid for it.

Unrealized:

On the other hand, unrealized capital gains are profitable only on paper.

For example, let's say you bought XYZ stock at 100, you still hold the shares, and now it's trading at 125.

You now have an unrealized capital gain of 25 per share.

This remains an unrealized capital gain until you actually sell the stock.

On the other hand, the same two types stand true for realized and unrealized losses, but in reverse ...

Capital Loss!