Unrealized Gains/Losses are not the same as Performance

So you want to check your investments at your brokerage firm, and you log in online to view your account.  Basically, you want to see how you've been performing, so you see a link that says, "Unrealized Gains/Losses." Ah-ha!  That must be what I'm looking for! 

"I just don't get it. Why is that fund showing a loss, when I know I've made money in it?"

So you click on that link, only to see that some of your holdings, especially income producing mutual funds show unrealized capital losses.  "Wait a minute.  Morningstar/my advisor said this fund made money in the past year? Why am I down? What the devil is going on here?! "

...and then the frustration sets in.  

The good news?  Your brokerage account is most likely accurate. And Morningstar and your advisor's reports are most likely accurate.  The problem is that they are two different calculations for two separate uses. 

More good news? If you have been reinvesting dividends and/or capital gain distributions on a mutual fund, your actual performance will always be better than the taxable gain/loss calculated for the IRS.

Two Different Numbers for Two Different Uses

Your brokerage firm is providing numbers that are only used for calculating TAXABLE gains and losses.  The IRS adds any reinvested dividends and distributions to your cost basis, which over time LOWERS your TAXABLE capital gains.  They do not generally provide your internal rate of return since inception. 

*NOTE: Most brokerage firms even show unrealized capital gains/losses in retirement accounts like IRA's. Yes, it's ridiculous and irrelevant since IRA's are tax deferred. Welcome to the world of, "Required by law, in spite of the insanity of it."

Your advisor's performance reports generally calculate performance based on your original investment. Dividends and capital gains distributions are treated as returns on that original investment (as they should be). 

You aren't alone

This is a huge problem for many investors, especially with the advent of online account access. Most people just want to know how their performance has been, and it's frustrating to lack that clarity. Even the index giant, Vanguard has put out an explanatory piece on this topic.  Here is a link for your information: CLICK HERE

So, next time you want to check performance, remember to completely ignore the "Unrealized Gains/Losses" online (or on your statement). That is only for tax calculations.  Ask your advisor to provide you with a performance report. Or check public websites like Morningstar for the total return performance of a fund or investment.  You'll likely be pleasantly surprised.