Blue Chip Stocks: All You Need to Know
Blue Chip stocks are some of the strongest and most consistent performers in the stock market. Most investors love investing in blue chip stocks. A lot of time, blue chip stocks can be quite expensive but they are usually worth the price in the long run. Find out more.
Blue Chip stocks are stocks of companies that are financially very strong and have performed remarkably well over a long period of time. Companies whose stocks are considered to be blue chip stocks consistently perform great in the stock market. These companies also have a strong financial platform, pay good dividends to their investors and are profitable in general. Investing in a Blue Chip Stock is a great way to reach your economic development goals and realise your investment targets. In this post, we will take a quick look at blue chip stocks and give you the basic information about them. Let’s get started.
Blue Chip Stocks: Important Things to Consider
What is a Blue Chip Stock?
While blue chip is a common term in the stock market, it has actually been borrowed from the world of poker. The most valuable chip in every poker game is always the blue chip. Blue Chip stocks are usually some of the most valuable stocks available in the market. They achieve that status through consistent performance over a long period of time. The term “blue chip” is also used to refer to top recruits in the American college sports scene. Just like blue chip stocks, these players are known as blue chip players because they have consistently performed at a high level in their career.
Blue Chip stocks are almost always stocks which belong to well known brands that offer widely acclaimed goods and/or services, and their output reflects their sales, profitability, and dividend outcomes. These reasons make blue chip stocks very safe to invest in. These stocks also tend to be far less volatile than lower market players and if stability and security in your investments are very important for you, you should definitely consider investing in blue chip stocks,
What are the Advantages of Blue Chip stocks?
High capital growth
Every single investor wants to create wealth with his/her investment. When investors accumulate an enormous corpus, they usually channel that money into different investment avenues to create wealth. The returns earned from those investments enhance their standard of living and provide a luxurious way to live. Blue Chip stocks help achieve such goals. By accumulating returns gained on investments, Blue Chip stocks play a crucial role in wealth creation.
Great level of financial stability
In order to live your life comfortably, you must have some financial stability. Investing in Blue Chip stocks provides recurrent revenue and consequently guarantees consistency. Investing your hard earned cash in Blue Chip stocks helps create a great source of revenue.
Helps meet your investment goals
Investment objectives such as retirement planning, the future of the child, etc. can be met by investing in Blue Chip stocks. Historically speaking, Blue Chip stocks have delivered the yields that have helped many investors earn significant revenue over time. Investors can achieve their investment objectives effectively by accumulating an enormous corpus in the future.
Easy to withdraw
Blue Chip stocks are open-ended that can be redeemed or withdrawn whenever required by the investor. Whenever investors have some urgent need for liquid cash, they can withdraw money from their Blue Chip stocks and utilize it. The returns are consistent enough that even in the case of an unplanned redemption, the investor does not suffer losses.
Usually very secure
Investing money in a Blue Chip stock is reassuring and safe as all Blue Chip stocks have a historically great performance record.
Are blue chip stocks always safe to invest in?
Companies with blue chip stocks usually perform very well and tend to overcome market volatility and come out unharmed regardless of financial challenges and changing market cycles. This has led to them being perceived as very safe kinds of investments. However, that’s not always the case. You only need to look back to the 2008 recession and the bankruptcy of General Motors and Lehman Brothers to know that even blue chip stocks aren’t completely immune to market vicissitudes. The struggle of the blue chip stocks during the housing market collapse and the recession of 2008 wasn’t just an American phenomenon, blue chip stocks all over the world suffered during that time.
How to incorporate blue chip stocks in your portfolio?
Blue chip stocks are definitely a great choice for using as your portfolio’s core holding but you should never make the mistake of building your entire portfolio using nothing but blue chip stocks. While the allure of consistent performance and great name recognition is tempting, the best way to go is always to have a diversified portfolio with some bonds and cash allocation. Aside from cash and bonds, investors should also allocate some of their portfolio for mid-cap and small caps as well. Younger investors with higher risk tolerance should definitely have a higher percentage of their portfolio dedicated to stocks, including blue chip stocks. As investors grow older, they should reduce the risk factor in their investments and increase the allocation in cash and bonds.