Should you averaging down stocks?

Averaging down stocks is one of the long-term investors’ most common investing approaches, and it allows them to lower their average price per share and take advantage of market volatility. But when should you do it?

Should I buy more shares to average down the price?

Purchasing more shares to average down the price wouldn't change that fact, so do not misinterpret averaging down as a means to magically decrease your loss. Averaging down is considered to be a value-oriented investing strategy. There are no hard-and-fast rules.

What would happen if a stock price went down?

You would be decreasing the price at which you originally owned the stock by $5. This is sometimes called "buying the dip." However, even though your average purchase price would've gone down, you would've had an equal loss on your original stock—a $10 decrease on 100 shares renders a total loss of $1,000.

What is average down?

Averaging down is an investing strategy that involves a stock owner purchasing additional shares of a previously initiated investment after the price has dropped. The result of this second purchase is a decrease in the average price at which the investor purchased the stock.