Paper Millionaire

AAA

DEFINITION of 'Paper Millionaire'

An individual who has achieved a high net worth as a result of the large total market value of the assets he or she owns. This phenomenon usually occurs when investors buy marketable securities that are later bid up to much higher prices on the open market. While this creates large amounts of "paper profit", the paper millionaire's riches usually aren't safe until these holdings are liquidated.

BREAKING DOWN 'Paper Millionaire'

It is important to note that paper millionaires are not the same as true millionaires, which generally refers to people who have more than $1 million in cash in the bank.

For example, consider a hypothetical investor during the 1990s technology bubble who invested in startup dotcom companies. Assuming that none of this investor's shares is sold, he or she would have become a paper millionaire, as recorded on the brokerage statement, despite having very little cash in the bank.

However, once the dotcom bubble burst, technology stocks saw their share prices collapse, and former paper millionaires once again found themselves poor, owning only pieces of paper (i.e. share certificates) that were no longer worth the millions of dollars at which the market had previously valued them.

RELATED TERMS
  1. Warren Buffett

    Known as "the Oracle of Omaha", Buffett is Chairman of Berkshire ...
  2. Market Value

    The price an asset would fetch in the marketplace. Market value ...
  3. Paper Profit (Paper Loss)

    Unrealized capital gain (or capital loss) in an investment. It ...
  4. Unrealized Gain

    A profit that exists on paper, resulting from any type of investment. ...
  5. Liquidity

    1. The degree to which an asset or security can be bought or ...
  6. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
Related Articles
  1. Investing Basics

    Digging For Profitable Delistings

    Deregistration can provide opportunities for savvy investors. We'll show you how to cash in.
  2. Options & Futures

    How Much To Save To Become A Millionaire

    With a little discipline and the help of some powerful savings vehicles, anyone can hit this mark.
  3. Savings

    Retiring: Is $1 Million Enough?

    Find out why this magic number has lost some of its lustre as a retirement savings target.
  4. Options & Futures

    10 Steps To Retire A Millionaire

    Making this dream come true takes work, but it's well worth the effort.
  5. Investing Basics

    What's a Price-Taker?

    Price-taker is an economic term describing a market participant who has no effect on overall market activity.
  6. Term

    What is Financial Technology?

    Financial technology, or fintech, is a financial services sector that emerged in the 21st century.
  7. Term

    How Does Gamification Increase Productivity?

    Gamification is the process of using game mechanics to engage customers or employees.
  8. Professionals

    Are Stock Buybacks Always Good for Shareholders?

    Stock buyback programs aren't always done with the interests of shareholders in mind. It's important to try to understand the motivation behind such moves.
  9. Professionals

    Why Women Choose Women for Financial Advice

    Women often prefer female financial advisors because client and advisor can relate to each other on a variety of levels.
  10. Economics

    Who Are the Baby Boomers?

    Baby boomer is a descriptive term for a person who was born between the years 1946 and 1964.
RELATED FAQS
  1. What was the millionaire boom?

    When Ronald Reagan took office in 1981, he brought in an agenda to try and clear the remnants of stagflation that plagued ... Read Full Answer >>
  2. What are unrealized gains and losses?

    An unrealized loss occurs when a stock decreases after an investor buys it, but he or she has yet to sell it. If a large ... Read Full Answer >>
  3. How are realized profits different from unrealized or so-called "paper" profits?

    When buying and selling assets for profit, it is important for investors to differentiate between realized profits and gains, ... Read Full Answer >>
  4. What is the benefit of the Modified Internal Rate Of Return (MIRR)?

    The modified internal rate of return (MIRR) is a financing metric used in business capital budgeting. Its primary benefit ... Read Full Answer >>
  5. Why is the Modified Internal Rate Of Return (MIRR) preferable to the regular internal ...

    Even though the internal rate of return metric is popular among business managers, it tends to overstate the profitability ... Read Full Answer >>
  6. Who sets the guidelines for accounting principles?

    While the generally accepted accounting principles (GAAP) are not a strict requirement of all U.S. corporations, the guidelines ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  2. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  3. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  4. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  5. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  6. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!