New to this? Read the plain English guide first.
Combine several purchases into one average cost per share.
When you buy a stock in several pieces at different prices, your cost basis is the average price you paid per share. It matters for judging performance and for taxes when you sell.
Average cost equals the total dollars spent divided by the total number of shares bought.
You buy 50 shares at $40 and later 50 shares at $32. You spent $3,600 for 100 shares, so your average cost is $36. If the stock now trades at $34, you are still down about 5.6 percent even though your latest purchase is in profit.
Know your average cost, but make decisions based on the company, not on getting back to even. Averaging down works only when the business is still sound.
Forgetting to include fees, mixing accounts with different tax treatment and assuming a lower average cost means the stock is cheap now.
Read dollar cost averaging and how to keep an investing journal. See every term in the investing glossary, try more tools in investor tools, or test yourself in Stock Jeopardy.
For education only, not investment advice. Results are estimates based on the numbers you enter.