Average Cost Basis

When you buy the same investment at different times and prices, the average cost basis helps you figure out what you really paid per share or unit overall. To find it, add up the total amount you spent on all purchases, then divide by the total number of shares or units you own.

If you’ve also sold some of your holdings, calculating average cost basis gets trickier. You need to decide which specific purchases, called “lots,” those sales came from, since each lot may have a different cost. Common approaches include selling the oldest shares first (FIFO), the newest shares first (LIFO), or the shares with the highest cost to potentially reduce capital gains taxes. Choosing the right method can impact your tax bill, so it’s important to keep good records.