How to Calculate Average Share Price for Your Stocks

Calculating your average share price provides a clear understanding of your true cost for a stock. This figure is fundamental for assessing investment performance and is significant for tax reporting when selling shares. Knowing your average share price helps you make informed portfolio decisions.

Defining Average Share Price and Cost Basis

The average share price represents the average amount paid for each share of a stock you own. This is essentially your average cost basis per share, which is the original value of an asset for tax purposes. Cost basis includes the purchase price and any associated costs like commissions or fees paid during acquisition. Understanding these definitions helps accurately track your investment’s financial standing.

Calculating Average Share Price with Multiple Purchases

When an investor buys shares of the same stock at different times and prices, the weighted average method is used to calculate the average share price. This method reflects the varying amounts paid across multiple transactions. To apply this, sum the total cost of all shares purchased, ensuring you include any commissions or fees associated with each transaction. Next, sum the total number of shares acquired across all purchases. Finally, divide the total cost by the total number of shares to arrive at your average share price.

For example, consider an investor making three purchases:
50 shares at $20 each, plus a $5 fee, totaling $1,005.
30 shares at $25 each, plus a $5 fee, totaling $755.
20 shares at $18 each, plus a $5 fee, totaling $365.

To calculate the average share price, determine the total cost: $1,005 + $755 + $365 = $2,125. Then, find the total number of shares: 50 + 30 + 20 = 100 shares. Dividing the total cost by the total shares ($2,125 / 100) yields an average share price of $21.25. This weighted average provides a precise picture of the overall cost per share.

Accounting for Stock Splits and Dividends

Corporate actions like stock splits and reinvested dividends can alter your average share price. A stock split increases the number of shares you own while proportionally decreasing the price per share, but the total cost basis of your investment remains unchanged. For instance, if you owned 100 shares at an average cost of $50 ($5,000 total cost) and the company executes a 2-for-1 split, you would then own 200 shares, and your new average cost per share would become $25, with the total cost basis still at $5,000.

When dividends are reinvested, the cash dividend is used to purchase additional shares, which directly increases your total cost basis. This is because you are effectively buying more shares, and the cost of these new shares (the dividend amount) is added to your overall investment. This addition to your total cost basis will then affect your average share price, typically by increasing it if the new shares are purchased at a higher price than your current average, or decreasing it if purchased lower.

Record Keeping and Maintaining Your Average Share Price

Consistent and accurate record keeping is important for tracking your average share price over time. You should retain all purchase confirmations, which detail the date, price per share, number of shares, and any commissions or fees paid for each transaction. Dividend statements are also necessary, especially if you reinvest dividends, as these indicate the additional shares purchased and their cost. Notices of corporate actions, such as stock splits or mergers, are also important for adjusting your cost basis.

Brokerage firms typically provide annual statements and IRS Form 1099-B, which include reported cost basis information for covered securities. However, investors should maintain their own records, whether through personal spreadsheets or portfolio tracking software, to cross-reference and ensure accuracy. This diligent record-keeping helps in precisely calculating your average share price and fulfilling tax obligations.