This is a purchase-cost average for planning. A broker's official tax basis can differ because of tax lots, wash sales, splits, reinvested distributions, transfers, and adjustments.
Why the average must be weighted
Each purchase contributes both shares and dollars. A large purchase affects the combined average more than a small purchase, so averaging the quoted prices alone can be misleading.
The tool multiplies shares by cost for each block, adds optional fees, and divides the total cost by the combined number of shares.
- Enter the existing average shown by your records or broker.
- Include fees only when they are part of acquisition cost.
- Use positive share quantities for an additional purchase.
- Keep separate records when tax-lot identification matters.
Average cost versus tax basis
A displayed portfolio average is useful for tracking, but tax reporting can rely on individual lots and required adjustments. Selling shares may use specific identification, first-in-first-out, or another permitted method.
Wash-sale rules can shift a disallowed loss into the basis of replacement securities. Corporate actions and transferred positions can also change official records.
Do not confuse average cost with risk
Lowering the average cost does not reduce the number of dollars at risk or guarantee recovery. Adding to a declining investment increases exposure even when the break-even price moves lower.
Evaluate the investment decision independently from the arithmetic of the average price.
The formula used
New average cost = (existing shares × existing average + new shares × new price + fees) ÷ total sharesThe calculation weights each block of shares by its purchase cost. It is not a simple average of the two share prices unless the share quantities are equal and there are no fees.
Example: averaging a position
An existing 100 shares at a $42 average represent $4,200 of cost. Buying 50 more shares at $36 adds $1,800. The combined $6,000 cost across 150 shares produces a new average of $40 per share.
Sources and further reading
We use primary educational sources to check terminology and explain how the calculation fits into real financial decisions.
IRS — Publication 550, Investment Income and Expenses↗Investor.gov — Stocks↗