You may have heard the term ‘Dollar Cost Averaging’ at least once in your trading life. But what is it exactly, and how can you apply it? Everyone at the start of their journey can relate to the ‘what if I’m wrong’ feeling before opening a trade. Even the savviest of traders share this feeling when they try to time the market, spot the best entry or exit point. When is the best time to buy or sell? Dollar-cost averaging (DCA) is the best way to achieve this. Let’s explore how!
Dollar-cost averaging ins and outs
DCA is a strategy whereby traders essentially attempt to eliminate the uncertainty associated with market timing. It means sticking to a regular investment schedule, supporting one’s effort to build a well-balanced portfolio while ‘playing safe’.
Dollar-cost averaging means investing the same amount of money in a selected security, like for example TSMC stock, which recently hit an all-time high at $218 as the company’s market cap hit the $1 trillion mark. Especially if you have TSMC on your TibiGlobe Watchlist, it may be worth following its evolution and perhaps try DCA for a change.
By using this strategy, investors can potentially lower their average cost per share and limit the impact of volatility on their portfolios. Long story short, you don’t need to time the market anymore if you practise DCA.
How does Dollar-Cost Averaging work?
Despite its sophisticated-sounding name, this strategy is perhaps one of the easiest. Ignore any price fluctuations and allocate the same amount of cash to the same stock regularly, monthly, annually, or however suits you. Whether the price heads north or south is of no importance to you, as you’re just sticking to your plan.
Many have wondered whether DCA could work during times of uncertainty. US stocks took a tumble when President Trump announced the infamous reciprocal tariffs on 185 countries. While this may not be the best time to think about savings or splurging like there was no tomorrow, stock market experts say investing with caution might be a good approach. And DCA is in many ways designed for the cautious.
Here is a real-world example of how DCA could work for you:
Over the period between April and June 2025, TSMC’s net profit soared to a record high of T$398.3 billion (or US$13.5 billion), up 60% year-over-year. This marks the semiconductor producer’s fifth consecutive quarter of double-digit growth.
For the current quarter, TSMC projected a 40% jump in revenue, while for the year ahead, it expects its revenue to grow by 30% in US dollar terms, above the previous forecast of “close to the mid-20s”. These upbeat fundamentals bolster the TSMC stock price above $241 per share.
But how can you apply DCA? Fair enough, we’ve digressed a little from the topic, but for a good reason: to fill you in on TSMC’s fundamentals and why it could be a good candidate for DCA.
Let’s assume you invest $1000 in TSMC on the first of each month, starting in August. Based on the above premise, TSMC is on the rise, so hypothetically, it could reach $252 by August 1*. Assuming that month-on-month, its share price will increase by $11, by September 1, 1 share of TSMC will be worth $263, by October 1, $274, and so on.
By investing $1000 every month in TSMC, you will have bought about 3.65 shares by the end of October. So, in only three months of investing, your investment is already worth
$1,000.1. This may not seem like much, yet in the long term, say in 2 years’ time, if you continue investing the same amount in TSMC, you will own 14.6 shares. Considering the company’s fundamentals, its share price may continue to climb.
Assuming that at the end of the year, TSMC’s share price with the $11 increase month-on-month, will reach $296. Next year, the share price rises by $5 month-on-month, meaning that 1 TSMC share will be worth $307 on January 1, $312 on February 1, $317, reaching $362 by the end of next year. Multiply that by 14.6 shares, and you’ll get a generous return of $5,285.20. Add dividends to that, and increase your net worth even more.
Of course, DCA is a long-term strategy. Not for the faint of heart. As the financial markets are constantly fluctuating, most stocks tend to move in the same direction, pulled by larger economic currents. A bull market or a bear market can last for months, if not years. That reduces the value of DCA over the short term.
Over longer periods, DCA proves its worth as you buy more shares when the prices are low, and fewer when the prices are high. It is a good way to build wealth gradually. From this perspective, DCA may not be ideal for high-speed traders who want to jump on opportunities when they arise.
CFD trading, a viable alternative
In comparison with DCA, which is rather conservative, CFD trading allows you the flexibility to capitalise on TSMC’s price movements in any circumstances, without owning the actual shares. Additionally, the competitive leverage and ultra-tight spreads that TibiGlobe offers allow you to benefit even from the slightest price change, regardless of the direction. You can buy and sell TSMC CFDs and potentially profit either way. Risk management tools like Stop Loss and the Negative Balance Protection can help mitigate potential losses. Ready to give it a go?
*Note: All prices mentioned in connection with TSMC that do not reflect its current price movement and actual earnings per share (EPS) are only for illustration purposes and are not to be construed as factual data.
Risk Warning: Contracts for Difference (CFDs) are complex financial instruments and may not be suitable for all investors. Trading CFDs involves substantial risks of losing your invested capital. It’s important to note that CFDs are a leveraged product, which means they can magnify both potential gains and losses. It’s crucial to understand that CFD traders do not possess ownership or rights to the underlying assets.
