To keep track of your investments, it’s important to understand how to calculate an average stock price. If you like a stock, you’re probably not going to just buy it once and then never again. Investors often prefer dollar-cost averaging, putting a set amount of money into stocks at regular intervals. You can gradually increase your position this way while smoothing out some of the market’s volatility.
There is a little more work involved, though. Each investment will change the average price paid for the stock, which is your breakeven point. Fortunately, this is fairly easy to calculate. Here’s how to do it, step by step, based on how much you invest and how many shares you purchase.
Step 1: Set up a spreadsheet to track your trades
You can do this with your program of choice, such as Excel, or by hand. Make columns for:
- Purchase date.
- Amount invested.
- Number of shares purchased.
- Average purchase price.
Step 2: Fill in the data for the first three columns
This information will be available in your brokerage statements. You can also fill it in after every trade.
Step 3: Add up the totals at the bottom
In the last row, calculate the sum of the amount invested and number of shares purchased columns. If you’re doing this with a spreadsheet program, you can set up a formula to calculate it for you.
Step 4: Divide the amount invested by the number of shares purchased
After you do this, you’ll have your average stock price paid on each purchase date, as well as a total average for all your trades.
Example
Let’s say you’ve decided to invest in stocks, starting with $250 per month, in a company you like. You do that for the first six months of the year. It was originally trading for $25 per share, but the market was volatile, so it moved around quite a bit. To see if your decision paid off, you calculate your average stock price.
Here’s a sample of what this would all look like on a spreadsheet:
PURCHASE DATE | AMOUNT INVESTED | SHARES BOUGHT | AVERAGE PURCHASE PRICE |
|---|---|---|---|
January | $250.00 | 10 | $25.00 |
February | $250.00 | 12 | $20.83 |
March | $250.00 | 15 | $16.67 |
April | $250.00 | 12 | $20.83 |
May | $250.00 | 11 | $22.73 |
June | $250.00 | 9 | $27.78 |
Total | $1,500.00 | 69 | $21.74 |
In this case, dollar-cost averaging paid off. Since you didn’t invest all your money at once, you paid a lower average stock price. While that’s not always the way it works, spreading out your investments is a good strategy for dealing with market volatility.
Related investing topics
Knowing how to calculate an average stock price is a useful skill
When you’ve purchased shares of a stock multiple times, being able to figure out the average price you’ve paid comes in handy. You’ll have a firm grasp of your breakeven point and be able to figure out your investing returns.
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