Weighted Averaging in Investing | Investor's Almanac

Weighted averaging is a fundamental technique in finance that assigns different levels of importance, or 'weights,' to data points when calculating an average. Unlike a simple average where each data point has equal influence, weighted averaging allows investors to prioritize certain assets, time periods, or factors. This method is crucial for calculating metrics like the Dow Jones Industrial Average, where a higher-priced stock has a greater impact, or for determining the average cost basis of a stock acquired at different prices. Understanding weighted averaging is key to accurately assessing portfolio performance and making informed investment decisions.