How Does My Account Grow? The Difference Between Capital Gains, Dividends and Interest

by: Cassandra Laymon, CFP®, MBA

Over the past few weeks we’ve talked about different investments (or assets) including stocks, bonds and mutual funds. We also reviewed the meaning of “the market” and how changes in the stock market can impact your investments.

A question I’m often asked is “How is my account doing?”  Of course, this means How much money am I making, and do I have more money than the last time we talked about this?

Many people are not clear about the multiple ways they are making money in their portfolios. Here is a simplified overview of some different ways your portfolio grows – because of and in spite of – changes in the market.

Capital Gain

Put simply, a capital gain occurs when the market value of your investment becomes worth more than when you purchased it. If you bought a share of Lowe’s at $70 in January, and it’s now worth $80, that’s a $10 capital gain.

Does that mean you have an extra $10 in your pocket today? No. You don’t actually lock in and collect that profit until the stock is sold. If you’ve heard someone talk about “paper gains” (also called unrealized gains) this is what they are referring to: your monthly statement says the value of your investment went up, but you don’t actually have that money – it’s just on paper.

When you do sell that investment and collect the extra money, that is called a realized gain.

The opposite can also be true. Your investment can lose value, and then you would have an unrealized loss. Many people don’t recognize that when their account value goes down, perhaps due to a drop in the market, that is also “on paper.” Meaning that if they don’t sell their investments at the lower price, they haven’t truly lost anything yet. This is similar to your home losing value when the real estate market declines, but you don’t actually realize the loss unless you sell. In those cases, investors might say, “I know it’s a loss, but it’s just on paper, so I’m going to ride it out until the market recovers.”


In our “What is a Stock?” blog we discussed that when you invest in stocks and become a part owner of the company, in many cases you will receive a share of the company’s profits on a regular basis. The regular payout is called a dividend.

We’re not going to get into the detail of how those dividends are calculated, but suffice it to say that when those dividends are paid into your account, that will reflect a higher account value on your monthly statement.  Whether the “market” is up or down, if the company is in good shape, your dividends should continue to be paid to you on a regular basis. Dividends can be a great source of income!


In the “What is a Bond?” blog we talked about the difference between the value of a bond and the interest payment.  The value of the bond can fluctuate over time, and will influence your account value. This is the same situation as stocks in that you don’t really gain or lose money on this investment until you sell it.

Interest is another way your account value grows. Much like the dividends that get paid into your account from stocks, the interest paid on your bonds also gets paid into your account, therefore positively affecting your portfolio value. The sum of Capital Gains, Dividends and Interest payments are often referred to as Total Return.

It’s important to know that there are multiple ways your portfolio can grow. I encourage you not to be so focused on the markets and the news, but to know where you stand in terms of your ability to meet your long-term goals. For each of our clients, we evaluate their current situation, their goals and their risk tolerance to calculate their Probability of Success, which includes not running out of money in retirement! If you’re unsure of your probability of success in achieving your goals, one of our advisors would be happy to help you find answers through our Vision Clarifier process.Just give us a call to schedule!


Financial Planning & Investment Advisory services offered through Beacon Wealth Consultants, Inc.