1. What is Average Down?

Averaging down is an investment strategy where an investor purchases additional shares of a stock they already own after the price has dropped, lowering their average cost per share.

2. How Does the Calculator Work?

The calculator uses the average down formula:

Where:

• \( \text{Total Cost} \) — Original investment amount (price × shares)
• \( \text{New Cost} \) — Cost of additional shares being purchased
• \( \text{Old Shares} \) — Number of shares originally owned
• \( \text{New Shares} \) — Number of additional shares being purchased

Explanation: The formula calculates the weighted average price per share after purchasing additional shares at a different price.

3. Importance of Averaging Down

Details: Averaging down can reduce your break-even price, but it also increases your exposure to the stock. It should be used carefully on fundamentally sound companies.

4. Using the Calculator

Tips: Enter your original total cost, new purchase amount, original shares, and new shares being purchased. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: When should I average down on a stock?
A: Only average down on stocks where you're confident in the long-term fundamentals and the price drop is temporary.

Q2: What are the risks of averaging down?
A: The main risk is increasing your position in a losing investment. It can amplify losses if the stock continues to decline.

Q3: How does averaging down affect my break-even point?
A: It lowers your average cost per share, meaning the stock doesn't need to recover as much for you to break even.

Q4: Should I average down on all my losing positions?
A: No, this strategy should be selective. Analyze why the stock dropped before deciding to average down.

Q5: Is there a limit to how much I should average down?
A: Yes, avoid over-concentration in any single stock. Most experts recommend no more than 5-10% of your portfolio in any one position.