Average Cost Basis Calculator
Calculate your weighted average cost basis across multiple buy lots and see your total unrealized gain or loss.
What Is Cost Basis?
Cost basis is the original value of an asset for tax purposes. It equals the price you paid plus any commissions or fees. When you sell, your capital gain or loss is the difference between your sale proceeds and your cost basis. Accurately tracking cost basis is essential for filing correct tax returns.
Cost Basis Methods
FIFO (First In, First Out) assumes you sell your oldest shares first — the default method for most brokerages. Average Cost calculates a blended cost across all shares, commonly used for mutual funds. Specific Identification lets you choose exactly which shares to sell, allowing you to minimize gains or harvest losses strategically. Each method can produce a different tax outcome.
When Averaging Down Makes Sense
Buying more shares as a price falls (averaging down) lowers your average cost basis and reduces the price recovery needed to break even. However, it increases your overall exposure to a single position. Averaging down makes most sense when: (1) the original thesis is intact, (2) the price decline is due to market sentiment rather than fundamental deterioration, and (3) you have conviction in the long-term value.
When Averaging Down Is Dangerous
Averaging down becomes risky when the stock is falling due to real business problems — declining revenues, increasing debt, management issues, or competitive disruption. Adding more capital to a fundamentally broken investment amplifies losses. Before averaging down, ask: "Would I buy this stock for the first time at this price?" If the honest answer is no, averaging down may be throwing good money after bad.