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What is Stock Averaging?
Stock averaging, often referred to as calculating the average cost basis, is the process of determining the average price at which you purchased shares of a particular stock, especially when you've bought shares at different prices over multiple transactions. Knowing your average cost is crucial for tracking your investment performance and calculating capital gains or losses when you eventually sell.
How to Calculate Average Stock Price
The calculation involves two main steps:
Calculate the Total Cost: For each purchase transaction, multiply the number of shares (Quantity) by the purchase price per share. Sum up these costs across all transactions to get the Total Cost.
Calculate the Total Quantity: Sum up the number of shares purchased across all transactions.
Calculate the Average Price: Divide the Total Cost by the Total Quantity. The result is your average purchase price per share.
Performance Tracking: It helps you understand your break-even point. You know you're profitable only when the current market price is above your average purchase price.
Tax Calculation: When you sell shares, your capital gain or loss is calculated based on the difference between the selling price and your average cost basis (purchase price). Accurate averaging is essential for correct tax reporting.
Investment Decisions: Knowing your average cost can inform decisions about whether to buy more shares (averaging down if the price drops below your average) or sell existing ones.
Disclaimer: This calculator is for informational purposes only and does not constitute financial advice. Tax implications can be complex; consult with a qualified tax professional regarding capital gains calculations. Investment decisions should be based on your individual financial situation and risk tolerance after consulting with a financial advisor.