Weight every price by shares
A small purchase at a high price should not influence the average as much as a large purchase. Multiplying price by shares creates the cost contribution for each lot.
Choose how to handle fees
For a planning average, be consistent about whether transaction fees are included. Tax cost basis can follow account type, jurisdiction, wash-sale, corporate-action, and lot-identification rules beyond a simple weighted average.
Use the average as a position measure
Average cost helps compare current price with the blended entry price. It does not predict the next price or by itself determine which lot should be sold.
Example: two stock purchases
100 shares at $20 cost $2,000; 50 shares at $32 cost $1,600. Combined cost is $3,600 across 150 shares, for a weighted average of $24 per share.
What to check before you decide
- The result is an educational weighted average, not tax-lot accounting.
- Corporate actions, reinvested dividends, and wash sales can alter basis.
Sources behind this guide
These official and primary sources let you verify rules, definitions, and terms that may change.
Investor.gov — Investing glossary↗