How To Invest In Blue Chip Stocks A Detailed Guide
Blue chip stocks can play a significant role in constructing a well-rounded and successful portfolio. So, learning how to invest in blue chip stocks is essential. Continue reading to learn more about these critical investments, how they can help you build a strong portfolio, and how they still carry risk.
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Investing In Blue Chip Stocks
What Exactly Are Blue Chip Stocks?
The most common definition of blue chip stocks includes companies that have some combination of the following characteristics:
- Large
- Well-known and frequently a household name
- Excellent reputation Excellent financial situation
- A solid financial foundation
- Successful, frequently at or near the top of its industry
- Dividends are paid to shareholders.
Blue chip growth stocks are frequently regarded as a safer alternative to riskier, less established growth stocks. However, this does not imply that one is superior to the other.
The name is derived from the gambling world of yesteryear, when blue chips were the most valuable.
People who like to take more risks with their investments may choose to chase growth stock dividends with higher variance, which can sometimes pay off faster. Companies with blue chip stocks, on the other hand, will often have a solid, consistent history of paying dividends, but may not have the high jumps of growth stocks. People will frequently hold these capital gains stocks for an extended period of time because they are ideal for long-term investors.
Why Should Blue Chip Stocks be Part of Your Portfolio?
When it comes to getting started with online investing, one of the most important factors to consider is creating a well-balanced portfolio. This balance can manifest itself in a variety of ways, including risk tolerance and the companies and markets in which you invest. Blue chip stocks can play an important role in achieving this balance.
Regardless of your overall investment strategy, this is true. Blue chip stocks can provide a safe foundation that allows for the pursuit of more potentially volatile investments for those in a position to take a few more risks with their portfolio, such as younger investors with many more years of employability ahead of them.
Simultaneously, older traders who do not have the same earning potential in the workforce may prefer a lower-risk approach to trading. Blue chip stocks can help preserve and protect wealth while also providing potential dividends to investors.
Your capital is at risk. Other fees apply.
Blue Chip Stocks Are Dividend Paying
As previously stated, dividends are among the most appealing features of blue chip stocks — and are one of the primary reasons something can be classified as a blue chip stock in the first place. When a company does well and achieves some success, it frequently distributes the resulting profits to shareholders in the form of dividends.
Blue chip companies determine dividend payments after reviewing quarterly performance. The company then announces the amount of the dividend and when it will be paid. They also announce what is known as a record date. The dividend is paid to whoever owns shares on that day. As a result, if you own shares on the record date but sell them before the dividend is paid, you will still receive the dividend.
It is important to remember that companies, no matter how successful they are, are not required to pay dividends. Of course, some businesses cannot do so because they do not generate enough profit. Others would rather reinvest their profits in their company to grow it, improve it, acquire other companies, or even pay down debts. All of these actions can pay off in the long run. One feature of really strong blue chip stocks is that they attempt to do all of these things — they pay dividends while also reinvesting profits.
Some blue chip companies are known not only for paying dividends year after year, but also for increasing their dividend payments year after year. Exxon Mobile (XOM), Walgreens Boots Alliance (WBA), and AT&T Inc. are some of the most well-known examples of such companies (T). In contrast to the potential ups and downs of other shares and investments, these can provide a fairly consistent stream of income for investors.
Blue Chip Stocks, Some Examples
Here are a few examples of some of the world’s most popular blue chip stocks:
Because of their global popularity, Microsoft (MSFT) and Apple (AAPL) are strong blue chips. These companies’ technology is used by hundreds of millions of people worldwide, and both Microsoft and Apple have decades of proven success in innovation.
Johnson & Johnson (JNJ) has been around for more than 110 years, demonstrating its ability to adapt to changing economic conditions and overcome dozens of recessions. Its position in the health industry, as well as its wide range of popular consumer products, provide it with a diverse portfolio that is well suited to blue chip status.
Another good example of a blue chip growth stock is Amazon (AMZN). The e-commerce behemoth thrived during the massive increase in online shopping in 2020, as social isolation and health guidelines shifted customers away from brick-and-mortar stores and towards digital purchases. With a market capitalisation of well over $800 billion, Amazon is firmly established.
Remember Blue Chip Stocks Still Have Risk
So, how safe are blue chip stocks? Both yes and no. While blue chip stocks are considered to be safer than lower-level growth stocks and other riskier types of investments, saying anything is “safe” in the investment world can be a mistake. When it comes to trading, there is no such thing as a sure thing.
In the face of severe economic downturns or depressions, an industry titan such as General Motors may be forced to declare bankruptcy. While blue chip companies are less vulnerable to these types of disasters, it is important to remember that they can still fail.
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Investing in Blue Chip Stocks: Risk Warning
This information is for educational purposes only and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to, buy or sell any financial instruments. This material has been prepared without regard to any particular investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research.
Any references to past performance of a financial instrument, index or a packaged investment product are not, and should not be taken as a reliable indicator of future results. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this guide. Make sure you understand the risks involved in trading before committing any capital. Never risk more than you are prepared to lose.
[…] but reduced downside risk. Dividend-paying equities from long-standing, established corporations (blue chip stocks) are one example. On the other hand, someone searching for higher profits may consider investing in […]