My question is about how and why the average cost of a stock is re-computed after the capital gain distributions of the corresponding fund. I'll give the actual example that confuses me to ground the discussion but I think this is quite general.
I bought VSP stocks for 62.65$ per unit (say 10 units). In late December, Vanguard has announced the annual capital gain distributions for 2020. The average cost of these same units is now displayed at 65.06$ per unit on my brokerage account (original price of 62.65$ + 2.40$ of capital gain per unit). This is the press release:
In particular, in the above press release, they mention that these amounts have been automatically "re-invested and the resulting units immediately consolidated so that the number of units held by each investor will not change".
Shouldn't capital gain distributions lower the average unit cost rather than increase it? I would have expected my new average cost to be 62.65$ - 2.40$ = 60.25$ per unit.
How is this updated average cost going to impact me in practice? Since the transaction had already occurred (10 units for 62.65$ each), now that they compute they were "bought" for 65.06$ each, am I owning a debt towards Vanguard?
What does it mean to have the additional units (from the reinvestment) "consolidated" with the original units?
When I sell, I'll just sell the 10 units for the current market price of the stock, so what does it matter that the average cost was updated?