Cost base per share vs. average purchase price

One thing we often hear from our customers is that they want an easy way to see the average price they have paid for an investment, as this will help them decide whether they want to purchase more shares or not. Based on this feedback, we’ve introduced ‘average purchase price’ as a value on the portfolio’s individual holdings page. It can be easy to confuse ‘average purchase price’ with ‘cost base per share’, but it’s important to understand that these are two different values that are used for different purposes.

Keep reading to learn exactly what the average purchase price is, how it’s calculated and how it differs from an investment’s cost base per share.

What is the average purchase price?

The average purchase price is an average of the price of all shares an investor has purchased in a particular asset, inclusive of reinvested dividends and adjusted for splits and consolidations. This is calculated from the inception of that holding in the investor’s portfolio. Most importantly, the average purchase price cannot be used for tax purposes – it is simply a quick indicator that investors can use to make decisions about their trades.

It should be noted that the average purchase price does not include:

• Sell trades

• Dividends (except for DRPs)

• Merge buys

• Brokerage fees

• Adjustment for bonuses.

How to calculate average purchase price

As mentioned above, the average purchase price is calculated by taking an average of the price of all shares an investor has bought in an asset. For example, if an investor purchased 20 shares priced at $100 and another 40 shares priced at $150, the average purchase price would be ((20 x 100) + (40 x 150)) / 60 = $133.33

If the stock has undergone a split or consolidation at any point since its inception in your portfolio, that makes calculating the average purchase price a little more complicated, particularly if you are tracking your portfolio manually. For instance, investors who purchased Apple shares before and after 28 August 2020, when there was a 4:1 stock split, must account for this split in their portfolio. From there, the split is taken into consideration in the average purchase price calculations.

Using the screenshot below as an example, the average purchase price would be ((100 x 248.76) + (50 x 132.54) + (50 x 165.81)) / 500 = $79.587

An example of the average purchase price for a series of buy trades in Apple (NASDAQ: AAPL), which underwent a stock split in August 2020.

How to see your average purchase price in Sharesight

It’s easy to see the average purchase price of your investments with Sharesight. Simply click into the individual holding and scroll down to ‘Instrument Detail’ to see the average purchase price of your holding, along with other key information.

Note: At the time of publishing, this feature is in the beta phase. While it is currently only visible in the Instrument Detail section on the Holdings page, we may look to include this value on the Portfolio Overview page in the coming months.

What is the cost base per share?

The cost base of an investment is its original value for tax purposes. This is typically the value of the asset’s purchase price, adjusted for corporate actions including stock splits, dividends and return of capital distributions. It also includes any fees associated with purchasing, holding or selling the asset.

Cost base is used to determine an investment’s capital gain, which is calculated based on the difference between the investment’s cost base and current market value. It’s important to know the cost base (and capital gain) of your investments, particularly if you have sold shares, because this can create tax implications. The cost base per share is simply the investment’s cost base divided by the number of shares held.

When cost base per share is used for tax purposes, it:

• Is converted to the portfolio currency

• Includes brokerage fees

• Takes into account all cost base adjustments

• Is based on the chosen sale allocation method

For more information, please refer to our blog on cost base per share, how it is calculated and where to find this value in your Sharesight portfolio.

Summary

To sum up, a holding’s average purchase price is the average price of all the buy trades an investor has made in a particular asset; whereas the cost base is a value that reflects what it cost you to acquire an asset, including costs associated with purchasing, holding or disposing of the asset. The key difference is that the cost base (or cost base per share) is a value used for tax purposes, while the average purchase price is simply an indicator investors can use to decide whether they want to purchase more shares in an asset.

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Disclaimer: The above article is for informational purposes only and does not constitute a specific product recommendation, or taxation or financial advice and should not be relied upon as such. While we use reasonable endeavours to keep the information up-to-date, we make no representation that any information is accurate or up-to-date. If you choose to make use of the content in this article, you do so at your own risk. To the extent permitted by law, we do not assume any responsibility or liability arising from or connected with your use or reliance on the content on our site. Please check with your adviser or accountant to obtain the correct advice for your situation.

FURTHER READING

• How to calculate cost base per share

• How mergers and acquisitions affect your investment performance

• 7 reasons why Sharesight is better than a spreadsheet