How to use DCA method for stock invesing
05-09 00:00uSMART

By James Ooi- uSMART Securities Market Strategist


SMART Savings Plan is an investment technique of dollar-cost averaging(DCA). Investors buy a certain amount or number of shares of a stock at regular intervals, treating it as a savings account that accumulates over time. This approach avoids the time-consuming and laborious task of timing the market and missing out on opportunities, and also avoids the herd mentality that leads to buying high and selling low. It is a long-term investment strategy touted as lazy investing. Most investors in recent years have had a relatively limited range of stock regular investment, locked in blue chip stocks. However, today we will mainly introduce how to earn a fortune by investing in US giant stocks! There are many advantages to regular investment in US stocks, the most important of which are the following:


1. Historically, the U.S. stock market has seen many bull markets and only a few bear markets, with the majority of broad market V-shaped reversals. Taking the period between 2000 and the first half of 2022 as an example, the SPY has experienced multiple reversals (Figure 1). The more frequently stocks are accumulated through this method, the more shares can be acquired. Even though the U.S. stock market has also experienced several bear market hiccups, the most notable ones being in 2000-2002 and 2007-2008. During the first, the burst of the Internet bubble caused U.S. stocks to be rated much higher than now, with the highest evaluations in history. However, high ratings often lead to over-optimism, and the Nasdaq 100 evaporated more than 80% of its market value. Within a few years, however, U.S. stocks rebounded to new highs. By 2007-2008, the financial crisis made U.S. stocks fall again by 50% due to the market being excessively easy money. But after the crisis, U.S. stocks began another decade-long bull market. Therefore, the end of a bear market is an excellent time to enter investment as quality assets can be bought at a lower price.

Figure 1



2. The U.S. has the largest capital market in the world with excellent liquidity. The U.S. stock market is home to some of the largest companies by market capitalization globally, and the money invested in U.S. stocks comes from all over the world, making it the most active market for trading. As a mature investment market, U.S. stocks offer many value investment targets with excellent operations and unlimited potential. For example, Alphabet (Google's parent company), Amazon, Apple, and volatile giant stocks such as Tesla and Nvidia, as well as consumer evergreens like Coca-Cola, Home Depot, and Costco, all of which are listed on the U.S. stock market. These companies have a global presence, diversified revenues, and a strong financial position with growth prospects, making them excellent choices for long-term stock ownership. (Figure 2)

Figure 2


Of course, in addition to individual stocks, the U.S. stock market has many other worthwhile investments, such as a very well-known REIT-Realty Income (O.US), which has been paying monthly dividends to investors for 53 consecutive years and has paid out 626 times. The most shocking part is that the dividend has increased 116 times since it went public in 1994! Index ETFs like SPY and QQQ are also great choices, so in the U.S. stock market, stocks that are suitable for month-to-month, or even week-to-week savings abound with stocks that have been saved for 10 years or more at a time and are the subject of long-term investments.


3. Although US stocks are traded in shares, the prices may seem intimidating at first glance. For instance, the cost of one share of Costco is $550, which is equivalent to 16,500 Taiwanese dollars. On the other hand, investing in the Taiwan stock market allows you to purchase whole shares as well as fractional shares, making it appear more flexible. However, it's worth noting that you can also purchase fractional shares in the US stock market. uSMART, for example, offers fractional trading for US stocks, making it convenient for investors. For instance, if you invest $500 per month in Apple stock, you can purchase 3.0558 shares based on the previous day's closing price of $163.62. Although the Taiwan stock market may offer access to many good stocks, uSMART enables you to invest in good stocks worldwide.


4. Investing in US stocks can be a great way to build wealth over the long term, and picking the right platform is key. uSMART, for example, offers competitive commissions and no extra charge for SMART Saving Plan which can save investors a significant amount of fees. Plus, there's no stamp duty on US stock transactions, and non-US residents don't need to pay capital gains tax, leading to substantial cost savings. If you're looking to invest for the long term, consider saving in US stocks. And to make the most of your investment, remember to follow our top 3 selection logic:

1)Companies with large market capitalization: usually serve as "powerhouses" of economic growth, with more stable stock price fluctuations

2)Strong moat: intangible assets, conversion cost, network effect, cost advantage, scale advantage

3)Dividend payout, earnings, cash flow: need for steady growth

In addition to selecting quality stocks, there are two major risk indicators to look for:

1)Maximum retracement rate: Is the maximum loss in the selected period acceptable?

2)Annualized Standard Deviation: A measure of the volatility of a stock's return. The greater the volatility, the greater the standard deviation. The smaller the standard deviation, the less volatile it is and the lower the potential risk.


“If you do not intend to hold a stock for 10 years, it is best not to hold it for even 10 minutes.”This quote by Warren Buffett highlights the importance of investing for the long term. But choosing the right stocks that can bring solid returns and having the discipline and persistence to hold onto them can be challenging for retail investors. That's where uSMART's Smart Stock Deposit feature comes in, with over 10,000 US/Singapore stock deposits and the ability to create a fixed investment plan according to your investment goals. The software automatically places orders for you and allows you to modify the plan as needed, helping you save more shares as your salary increases. Investing for the long term and saving for your future doesn't just mean saving the first bucket of money, but also saving for a full pension. Trust uSMART to help you achieve your investment goals.


About James Ooi - uSMART Market Strategist

Over 13 years of experience in buy-side and sell-side of capital markets

Former Fund Manager of renowned asset management firm

Focus on fundamental analysis and macro-outlook for US & Singapore markets

SGX Academy trainer


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