What does "capital gain" mean?

Capital gain refers to the profit that is realized when an asset, such as stocks, real estate, or other investments, is sold for a price higher than its original purchase price. This difference in selling price and purchase price represents the gain in value that the asset has accrued over time. For example, if you buy a stock for $100 and later sell it for $150, the capital gain is $50. This concept is essential for investors because capital gains are subject to taxation, and understanding how they work helps in making informed investment decisions.

Understanding capital gains is important in personal finance and investing as it reflects how well an investment has performed. It also highlights the importance of timing in selling an asset, as the gains can fluctuate based on market conditions. This term is fundamental in discussions about investing strategies, tax implications, and overall portfolio performance.