We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is Paper Profit?

Esther Ejim
Updated May 17, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Paper profit is a term that is used in reference to a situation that might occur as part of investing when there is an upward review of an asset, which may be the consequence of an appreciation of the market value of the asset in question. When people make investments, something that may be in the form of a stock or some other defined type of asset, it is for an ascertainable sum of money. Even when people inherit the asset or security, it usually has a market value at the time that they inherit it. Over time, changes may occur in the market that may lead to a situation where the value of the assets will either increase or decrease, leading to a difference between the value of the item under consideration at the time and the value of the same item at the time the owner either purchased or inherited it. It is this upward appreciation of the value of the item that is known as paper profit due to the fact that the profit is only on paper and has not been converted to physical cash by the owner.

The owner of the asset may decide to convert it to a real profit only when such a person succeeds in selling the item for close to the increased price. In such a case, the profit will be whatever remains after the original market value has been subtracted from the total sale price, including taxes and other fees. An illustration of this can be seen in a situation where an investor purchases some stock in a computer company for a stated sum. If after two years the market value of the stock increases suddenly and the investor's stock experiences an upward increase of 40 percent, the 40 percent increase in the stock value will be the paper profit. This paper profit will be converted to real profit when the stock owner sells the stock and realizes at least 30 to 35 percent after the subtraction of fees and taxes.

Even though the concept seems positive, some investors have found it to be an impediment in their quest to maximize their profit from investments. For example, assuming the reason why the computer firm’s stock rose that high was due to a new product that generated a lot of interest, some investors might decide to convert the paper profit to real profit by selling the share, while others might not, thinking that the value of the stock will continue to rise. Assuming this does not happen, then the investors would have lost a valuable opportunity to make a healthy profit.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Esther Ejim
By Esther Ejim , Former Writer
Esther Ejim, a visionary leader and humanitarian, uses her writing to promote positive change. As the founder and executive director of a charitable organization, she actively encourages the well-being of vulnerable populations through her compelling storytelling. Esther's writing draws from her diverse leadership roles, business experiences, and educational background, helping her to create impactful content.

Discussion Comments

Esther Ejim

Esther Ejim

Former Writer

Esther Ejim, a visionary leader and humanitarian, uses her writing to promote positive change. As the founder and...
Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.