Explore commonly used personal finance terms.
The average cost method is a way of calculating the cost basis of securities or investments purchased at different times and prices. By averaging the cost of all units purchased, it simplifies tax reporting and capital gains calculations when selling portions of an investment. For example, mutual fund investors often use this method as it is challenging to track individual share purchases. This method helps streamline accounting by focusing on the average cost per unit, reducing complexity in cases where multiple purchases were made over time.
