INVESTING BASICS
Dollar-cost averaging and your average share cost
Dollar-cost averaging means investing the same dollar amount at regular intervals. When a price changes, that fixed amount buys a different number of shares. It is a way to organize purchases—not a guarantee against losses or a promise of better returns.
What dollar-cost averaging means
Instead of investing one large amount all at once, an investor might make recurring purchases—for example, $200 each month. When the market price is lower, the same $200 buys more shares. When the price is higher, it buys fewer.
The approach can make a recurring plan easier to follow, but it does not prevent the value of an investment from declining. It also may produce a different result than investing a lump sum immediately, depending on what prices do afterward.
Worked example: three equal purchases
Imagine three purchases of $200 each, with no commissions. The price changes before each purchase.
The total cash invested is $600 and the total shares acquired are 17. The lower price during the third purchase allowed that same $200 contribution to buy more shares.
How average cost is calculated
Average share cost
Total amount invested ÷ total shares acquired
In the example above, the average cost is $600 ÷ 17 = about $35.29 per share. If there are commissions or fees, include them in total cost for a more complete break-even picture. Different brokers can display cost basis differently, particularly after corporate actions or dividend reinvestment.
What it does and does not solve
Dollar-cost averaging does not ensure a profit, protect principal, or predict market direction. It is simply a purchase pattern. The investment itself can still go down, and a consistent schedule may be hard to maintain during volatile markets.
Try the average-cost calculator with your own purchase amounts and prices, then review the methodology for the site’s assumptions and rounding approach.
TRY THE MATH
Compare a few purchase prices
Enter multiple lots to see the total shares, total cost, and average cost per share.
Open the average-cost calculator