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Average Cost Formula:
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Dollar cost averaging is an investment strategy where an investor divides up the total amount to be invested across periodic purchases of a target asset to reduce the impact of volatility on the overall purchase. The average cost is calculated by dividing the total amount invested by the total number of shares purchased.
The calculator uses the average cost formula:
Where:
Explanation: This formula calculates the weighted average price you've paid for all shares in your position, which is particularly useful when you've purchased shares at different prices over time.
Details: Knowing your average cost per share is essential for evaluating investment performance, determining when to take profits, and making informed decisions about when to add to or reduce a position.
Tips: Enter the total amount you've invested in dollars and the total number of shares you've acquired. Both values must be positive numbers.
Q1: How does dollar cost averaging reduce risk?
A: By investing fixed amounts at regular intervals, you buy more shares when prices are low and fewer when prices are high, which can lower your average cost per share over time.
Q2: Should I include fees in the total invested amount?
A: Yes, for accurate average cost calculation, include any brokerage fees or commissions paid for the purchases.
Q3: How often should I recalculate my average cost?
A: Recalculate after each purchase to keep track of your current average cost basis.
Q4: Does this work for fractional shares?
A: Yes, the calculator works with fractional shares. Simply enter the exact number of shares you own, including fractions.
Q5: How is this different from the volume-weighted average price?
A: Your average cost is specific to your purchases, while VWAP is a trading benchmark that gives the average price a security has traded at throughout the day, based on both volume and price.