What does "paper gain/loss" refer to?

"Paper gain/loss" refers to the unrealized capital gain or loss on an investment. This term describes the increase or decrease in the value of an asset that has not yet been sold. Since the investment has not been sold or liquidated, the gain or loss remains "on paper." If the market value of the asset appreciates, it results in a paper gain, while a decrease in market value leads to a paper loss.

This concept is critical in understanding the performance of investments within a portfolio, as it indicates how much a particular asset has changed in value over time without the actual transaction taking place. Recognizing paper gains or losses allows investors to evaluate the potential profitability of their investments and make informed decisions about whether to hold or sell those assets in the future.