What cost basis means
Cost basis is the total amount you spent to acquire an investment, including the costs of buying it. If you paid $2,000 for 100 shares and $10 in brokerage, your cost basis is $2,010.
Cost basis is the starting line. A return is simply the distance between where you are now and that starting line.
Average purchase price
Most people buy the same investment more than once. Average purchase price spreads the total cost across every unit you hold:
Formula
Average purchase price = total cost of units held ÷ number of units held
| Purchase | Units | Price per unit | Brokerage | Total cost |
|---|---|---|---|---|
| 1 | 50 | $40.00 | $10 | $2,010 |
| 2 | 30 | $45.00 | $10 | $1,360 |
| 3 | 20 | $38.00 | $10 | $770 |
| Total | 100 | $30 | $4,140 |
The average purchase price is $4,140 ÷ 100 = $41.40 per unit. If the ETF now trades at $44.00, the holding is worth $4,400.
Unrealised returns
An unrealised return is a gain or loss on something you still own. It exists on paper and changes every time the price moves.
In the example above, the unrealised gain is $4,400 − $4,140 = $260, or about 6.3% of the cost basis. If the price fell to $40, the same holding would show an unrealised loss of $140. Nothing has been locked in either way.
Realised returns
A realised return is created when you sell. The gain or loss is fixed at that point: the sale proceeds minus the cost basis of the units sold, minus selling costs.
Suppose you sell 40 of the 100 units at $46.00 with $10 brokerage. Using the average cost method, those 40 units carry a cost basis of 40 × $41.40 = $1,656. Proceeds after brokerage are $1,840 − $10 = $1,830. The realised gain is $1,830 − $1,656 = $174. The remaining 60 units still carry an average cost of $41.40, and any gain on them stays unrealised.
Different methods exist for deciding which units were sold — average cost, first-in-first-out, or specific parcels. Tax authorities have their own rules about which may be used, so a tracker's figure is a useful guide but not a substitute for your tax records or an accountant.
Where fees belong
Buying fees increase your cost basis. Selling fees reduce your proceeds. Leaving fees out flatters returns, and for frequent small purchases the difference adds up. Ongoing management fees inside an ETF are different: they are taken from the fund itself and already reflected in its price.
Total return versus price return
Price return only looks at the change in price. Total return also counts income such as dividends or ETF distributions. A share that has gone nowhere in price but paid a steady dividend has still produced a return. When you compare figures, check which one you are looking at.
Incomplete transaction history
This is the most common real-world problem. You may know you own 100 units today, but the original purchase was made years ago on a platform you no longer use, or coins were transferred in from another wallet with no price attached.
Why missing information must not be treated as zero
If a tracker assumes an unknown cost basis is $0, the entire current value appears as profit. A $10,000 holding bought for $9,500 would show a $10,000 "gain" instead of $500. Combined with other holdings, that one assumption can make a portfolio look several times more profitable than it is.
The honest approach is to keep the holding's value — because you genuinely own it — while marking its cost and return as unknown, and excluding it from return calculations until the cost is supplied. Unknown is not zero.
Filling the gaps
- Download full transaction history from current brokers and exchanges; most offer CSV exports.
- Check old contract notes or confirmation emails for purchases on closed accounts.
- For transfers between your own wallets, the cost basis comes from the original purchase, not the transfer.
- If a record truly cannot be found, accept that the return for that holding is unknown rather than inventing a figure.
How Compndr handles cost basis
Compndr calculates cost basis from the transactions you enter or import, includes the fees you record, and converts foreign-currency purchases using the exchange rate for the purchase date. When a holding arrives without a known cost — for example, a token found in a tracked wallet — Compndr still counts its value but shows its cost as unknown instead of zero.
To see how cost basis connects to the bigger picture, read Understanding Your Portfolio Performance. If you invest regularly, Dollar Cost Averaging shows how repeated purchases change your average cost.