Average Down Calculator
Calculate your new average cost per share after buying more shares at a lower price. Add up to 10 purchase lots.
| # | Price/Share | Shares | Total Cost | Weight |
|---|
What Does “Average Down” Mean?
Averaging down is an investment strategy where you purchase additional shares of a stock or asset after its price has fallen below your original purchase price. By buying more at a lower price, you reduce your average cost per share โ which means the stock needs to recover less to reach your break-even point.
For example, if you bought 100 shares at $50 and the stock drops to $35, buying another 100 shares at $35 brings your average cost down to $42.50. Instead of needing the stock to recover to $50 to break even, you only need it to reach $42.50 โ a 21.4% difference.
Average Down Formula
// Average Cost Per Share Average Cost = Total Amount Invested รท Total Shares Owned // Example with two purchases: Total Invested = (Shares1 ร Price1) + (Shares2 ร Price2)
Total Shares = Shares1 + Shares2
Average Cost = Total Invested รท Total SharesAverage Down Example: Step by Step
| Purchase | Price/Share | Shares | Total Cost | Avg After |
|---|---|---|---|---|
| 1st Buy | $60.00 | 100 | $6,000 | $60.00 |
| 2nd Buy | $45.00 | 100 | $4,500 | $52.50 |
| 3rd Buy | $38.00 | 200 | $7,600 | $45.25 |
| Combined | โ | 400 shares | $18,100 | $45.25 |
When Does Averaging Down Make Sense?
Strong fundamental thesis
Averaging down works best when you have high conviction that the underlying business is sound and the price decline is temporary โ caused by market sentiment, macro conditions, or short-term headwinds rather than deteriorating fundamentals. Warren Buffett’s approach of buying “wonderful companies at fair prices” often involves adding to positions during broad market selloffs.
Dollar-cost averaging (DCA)
A systematic version of averaging down is dollar-cost averaging โ investing a fixed dollar amount at regular intervals regardless of price. DCA naturally results in buying more shares when prices are low and fewer when prices are high, lowering your average cost over time without requiring market timing.
Index funds and ETFs
Averaging down is widely considered a sound strategy for broad market index funds and ETFs (like S&P 500 or NASDAQ 100 trackers), because diversified index funds have historically recovered from every drawdown. Regular DCA into index funds is one of the most evidence-backed long-term wealth-building strategies available.
When Averaging Down Can Be Dangerous
- Concentration risk โ Repeatedly averaging down into one position can lead to dangerous over-concentration in a single name.
- Broken fundamentals โ If the company’s earnings, competitive position, or balance sheet has genuinely deteriorated, a lower price may not be a bargain โ it may be a fair reflection of reduced value.
- Leverage and margin โ Averaging down using borrowed money magnifies both potential gains and losses. A position can become a margin call if the price continues falling.
Averaging Down vs. Averaging Up
Averaging up means adding to a position as the price rises โ the opposite strategy. Momentum investors and trend-followers often prefer averaging up because it means adding to winning positions. Value investors typically average down. Neither approach is universally superior โ the right strategy depends on your investment philosophy, time horizon, and the specific asset.