POSTED ON November 05, 2019
How finance folk use it
Paper loss is what happens when an investment’s current value is lower than the amount you spent to buy it, but you haven’t yet sold it. Paper loss is a potential loss that is realized only when you sell.
This is similar in spirit to paper profit, which is when an investment’s current value is higher than the purchasing amount but you have yet to sell it.
Is it good or bad?
Paper loss is potentially bad, because it means that your investment did not pay off as you expected and you may lose money because of it. However, you still have the choice to hang on to the investment in the hopes that the value rises to at least parity with the amount you spent on it (break even), or even higher (meaning you actually get a profit).
This is especially common for stocks, which can experience much movement in response to market conditions.
What it means for you
While paper loss is nominally negative, remember that the loss only becomes real when you sell the investment at that moment. Over time, the loss may get even worse, end up returning to the previous amount, or even turn into a profit, so consider your next step carefully.
To make the right decision, try looking at the factors that made the paper loss happen, and see if things are expected to stay that way in the near future. A sudden market shift due to the announcement of a new financial policy, for example, is likely to have longer-lasting effects than movement caused by uncertainty over industry rumors.