Average down calculator

Average cost and the break-even price

Average cost is the total you paid, fees included, divided by the shares you hold. Break-even adds one more cost. You pay a fee to sell, and you are only level once the sale proceeds cover everything that went out, that fee included. The rise needed is the break-even price over the current price, minus one. Each new purchase pulls the average toward its own price, in proportion to the shares it adds. A small second buy barely moves it. A large one moves it a long way, and it also makes the stock a bigger share of your money at exactly the moment the market is marking it down. The viewpoint that averaging down moves your break-even less than you think takes that weighting apart.

A worked example on the defaults

You buy 100 shares of a hypothetical stock at $50 and pay a $5 fee. It falls to $40 and you buy another 100, another $5 fee. You now hold 200 shares that cost $9,010 in total, an average of $45.05. Selling will cost $5 more, so the break-even price is $9,015 / 200, or $45.075. From $40 that is a rise of 12.69%. With only the first 100 shares, break-even would be $50.10, a 25.25% climb. The second purchase roughly halved the distance. It also doubled the money in the stock. At $40 the position shows a loss of $1,010 on $9,010. Whether that trade was worth making depends on why the price fell, and deciding that in advance is what a sell rule is for; see why a first portfolio needs a sell rule.

What the broker's cost basis may show

The average cost on a positions screen can differ from this one. Some platforms fold fees into cost basis and some leave them out, and tax rules can adjust the basis of shares bought around a sale at a loss, so the figure on your tax forms may not match either. Check how your own account reports it before you lean on it. The break-even price here ignores dividends received, which lower your real cost. It ignores margin interest too. After a second purchase, run the new position through the position concentration calculator, because the stock now takes up more of the portfolio than it did. Grade the decision has rounds built around exactly this kind of add.