Stock Average Down & Cost Basis Calculator
Calculate your new blended average share price, total capital required, and lower break-even rebound percentage when dollar-cost averaging down.
Calculated Results
Frequently Asked Questions
What does averaging down mean in stock investing?
Averaging down involves purchasing additional shares of a company as its stock price falls below your original purchase price. This reduces your overall average cost basis per share, requiring a smaller percentage rebound for the position to return to profitability.
What is the major risk of averaging down?
The classic Wall Street adage warns: 'Never average down into a falling knife.' If a stock is declining due to deteriorating business fundamentals, accounting fraud, or impending bankruptcy, buying more shares magnifies total capital loss. Averaging down is primarily suited for broad index funds (S&P 500) and fundamentally sound blue-chip companies.
How do you calculate your new average cost basis?
The formula is: New Average Cost = (Total Original Dollars Spent + New Dollars Spent) / Total Shares Owned.
How does averaging down change the required break-even gain?
If you buy at $50 and it drops to $30, the stock must rise +66.7% ($30 to $50) to break even. If you buy an equal number of shares at $30, your cost drops to $40, requiring only a +33.3% rebound ($30 to $40) to reach break-even.