What Is Cost Basis?

Understanding what cost basis is allows you to accurately track the returns on your investments and the tax implications those returns may have.

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Whenever you buy a stock or mutual fund you establish a cost basis in that investment, which is the original purchase price of that asset. Over time, though, that cost basis can change based on a variety of factors. 

This means you should keep good records of each of your investments. Your custodian or brokerage firm can typically track the initial cost basis and its changes over time, but you may have to make adjustments.

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Mark R. Hake, CFA
Contributing writer, Kiplinger

Mark R. Hake, CFA, is a Chartered Financial Analyst and entrepreneur. He has been writing on stocks for over six years and has also owned his own investment management and research firms focused on U.S. and international value stocks, for over 10 years. In addition, he worked on the buy side for investment firms, hedge funds, and investment divisions of insurance companies for the past 36 years. Lately, he is also working as Chief Strategy Officer for a tech start-up company, Foldstar Inc, based in Princeton, New Jersey.