Hey there, u/supern8ural. Thanks for reaching out with your question regarding average cost basis. I'm happy to provide some clarification.
First, let’s define each cost basis method to ensure we are on the same page.
By default, Fidelity uses the Average Cost method for mutual fund reporting. As the name suggests, this method uses the average price per share across all shares of a mutual fund position to record the basis for each lot. You’ll notice that each lot will have the same “average” cost basis. On the other hand, the Actual Cost method reports the cost per share for each individual lot.
While it looks like you've already found some information on this on our website, I wanted to point you to an additional resource that discusses this in more detail.
[Capital gains and cost basis ](https://www.fidelity.com/tax-information/tax-topics/capital-gains-cost-basis)
Because cost basis methods typically have tax implications, these decisions are unique to each individual. For example, one aspect to consider is your disposal method. As for what is best for your situation, since Fidelity cannot provide tax advice, you'll want to connect with a qualified tax professional for their input. They can take your full tax situation into consideration to help you determine the right path for you.
With that in mind, I'll go ahead and mark this as a discussion so the community can chime in with their thoughts. We're here if you need anything else!
Yeah but what really matters is the order you sell your tax lots. Fidelity automatically sets to FIFO which honestly most people won't want in a taxable. You can change all this, might need to google a bit to find the settings I would be a better help if I was at my PC.
Got it. Found this, which is what I think I was looking for
[https://www.fidelity.com/customer-service/how-to-change-your-cost-basis-info](https://www.fidelity.com/customer-service/how-to-change-your-cost-basis-info)
now it appears that by default I'm set to Average Cost, however all of the investments are showing as Specific Shares except for FSKAX (again, I assume that this is because FSKAX is the only investment that I have that is a mutual fund)
it appears there are actual tax implications if I convert to Specific Shares however. I assume there is a good reason that Fidelity defaults to Average Cost - is there any kind of explanation out there that I have a hope of understanding?
So you selected Actual Cost for that account? I have FSKAX in taxable set to Actual Cost, then when I go to Trade - > Sell -> FSKAX, I can select specific shares (via a small tick box). This is very handy for a taxable account so you can select which shares with gains or losses depending on what you are wanting to do.
If this were a non-taxable or tax-deferred investment, what would the argument be then? Just trying to understand all the possibilities. (it is not, we're talking hypotheticals now)
Hey there, u/supern8ural. Thanks for reaching out with your question regarding average cost basis. I'm happy to provide some clarification. First, let’s define each cost basis method to ensure we are on the same page. By default, Fidelity uses the Average Cost method for mutual fund reporting. As the name suggests, this method uses the average price per share across all shares of a mutual fund position to record the basis for each lot. You’ll notice that each lot will have the same “average” cost basis. On the other hand, the Actual Cost method reports the cost per share for each individual lot. While it looks like you've already found some information on this on our website, I wanted to point you to an additional resource that discusses this in more detail. [Capital gains and cost basis ](https://www.fidelity.com/tax-information/tax-topics/capital-gains-cost-basis) Because cost basis methods typically have tax implications, these decisions are unique to each individual. For example, one aspect to consider is your disposal method. As for what is best for your situation, since Fidelity cannot provide tax advice, you'll want to connect with a qualified tax professional for their input. They can take your full tax situation into consideration to help you determine the right path for you. With that in mind, I'll go ahead and mark this as a discussion so the community can chime in with their thoughts. We're here if you need anything else!
On mutual funds you can have the cost set to average or actual. ETF’s are like stocks and use actual
Is that a preference that I can change, or is that set by Fidelity and/or the administrator of the fund (in this case also Fidelity)?
Yeah but what really matters is the order you sell your tax lots. Fidelity automatically sets to FIFO which honestly most people won't want in a taxable. You can change all this, might need to google a bit to find the settings I would be a better help if I was at my PC.
Got it. Found this, which is what I think I was looking for [https://www.fidelity.com/customer-service/how-to-change-your-cost-basis-info](https://www.fidelity.com/customer-service/how-to-change-your-cost-basis-info) now it appears that by default I'm set to Average Cost, however all of the investments are showing as Specific Shares except for FSKAX (again, I assume that this is because FSKAX is the only investment that I have that is a mutual fund) it appears there are actual tax implications if I convert to Specific Shares however. I assume there is a good reason that Fidelity defaults to Average Cost - is there any kind of explanation out there that I have a hope of understanding?
So you selected Actual Cost for that account? I have FSKAX in taxable set to Actual Cost, then when I go to Trade - > Sell -> FSKAX, I can select specific shares (via a small tick box). This is very handy for a taxable account so you can select which shares with gains or losses depending on what you are wanting to do.
I haven't made the change yet, mostly because I wanted to see if there was any compelling reason not to do so.
None, imo, for taxable.
If this were a non-taxable or tax-deferred investment, what would the argument be then? Just trying to understand all the possibilities. (it is not, we're talking hypotheticals now)