What are blue chip stocks?
A blue-chip stocks is large well known company with a excellent reputation. They are financially sound companies that have been in business for many years and have a history of steady growth performance in the stock market. They're generally considered as lower risk investments and mainly play as a defensive position for your portfolio. The origin of the term "blue-chip stocks" originates from the game of poker, where blue-chips are traditionally considered the highest value chip for the game.
Characteristics of a blue chip stock
- They're well known, established companies: Most blue chip stocks are well-known brand names that usually have been in business for decades and have a good financial balance sheet.
- They're industry leaders: Often a stock that becomes a blue-chip has been innovating there product/brand over the years and become the market leader in their perticular industry.
- They're worth billions and have good, stable dividends: Blue-chip stocks have a large market capitalization and offer a good dividend that increases continuously throughout the years.
Examples of blue chip stocks
Some well known companies that are blue-chip stocks
$PG Proctar & Gamble
$IBM International Business Machines
$JNJ Johnson & Johnson
$XOM Exxon Mobil
$HD Home Depot
Most blue-chip stocks reside in the Dow Jones Industrial Average or S&P 500 index
Advantages and Disavantages when investing into blue chip stocks
- Low risk: Blue-chip companies are financial better sounded compared to companies with debt, less capital and are unlikely to go bankrupt.
- Low volatility: During periods of economic being volatile, blue-chip stocks typically are more stable names and tend to outpreform the market as they are more well established companies and profitable compared to newer companies trying to grow their operations.
- Relativity Reliable Returns: Blue-chip companies have been around for many years and tend to have relativity reliable returns to investors, with many companies having a dividend and share buyback program.
- Modest Returns: These names won't have that massive blowout return in the short-term compared to some other investments. They have been around for many years and they tend to be successful, but at a modest pace.
- Slow Growth: Blue-chips are mature and they're unlikely to have a rapid growth. Slow and steady is their type of growth pace. Investors looking to for massive gains would might have better luck (along with much higher risk) investing in relatively newer companies that are still in major growth phases.
Investing into blue chip through an ETF or Index Fund
Investing through an exchange-traded-fund/ETF or Index Fund is a great way to have exposure throughout the entire area of blue-chips.
Some ETF and Mutual Funds that cover blue-chip stocks
$VOO Vanguard S&P 500 ETF
$DIA SPDR Dow Jones Indutrials Averages ETF Trust
$QQQ Invesco QQQ Trust
$NOBL ProShares S&P 500 Dividend Aristocrats ETF
$SPLV Invesco S&P 500 Low Volatiliy ETF
$FBCG Fidelity Blue Chip Growth ETF
Blue-chip stocks can be a solid investment choice for your portfolio. They mainly focus on large, well known companies that are market leaders within there industry but typically don't offer high growth and potentially massive returns as they are more of a slow and steady pace. Blue-chips are viewed more as a conservative/defensive play in the stock market, helping hedge against high levels of volatility and the intent to hold onto them for the long-term.
Discover the 2022 list of blue-chip stocks
This is for educational purposes only and is not investment advice or an investment recommendation. Do your own research to understand the risks you may be taking on before investing. I own positions in some of the names that have been listed in this post.
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