What Are Blue Chip Stocks & Benefits?

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A blue chip is a stock of a well-established corporation with a reputation for reliability, quality, and financial stability.

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What Is Blue Chip Stocks?

Blue chip companies are large, sound, and stable, with a significant market presence. Many traders and investors prefer blue chip stocks because they are stable and pay rising dividends.
 
A blue chip company typically has a market capitalization in the billions. It’s generally the market leader or among the top three companies in its sector, and, more often than not, is a household name.
 
Blue chip stocks are frequently considered a good investment option due to their consistent returns.
Blue chip definition

Understanding Blue Chip Stocks

In the early 1920s, a Dow Jones employee named Oliver Gingold coined the term “blue chip” to describe high-quality stocks. Oliver was standing near the stock ticker at the brokerage firm when he noticed some shares trading for $200, $250, or more. Blue chip stocks do not necessarily need to be highly priced but should be of high quality.
 
While dividend payments are not necessary for a stock to be considered a blue chip, most blue chips have long records of paying stable or growing dividends.
 
Individuals can invest in Blue-chip stocks either directly or through Mutual Funds.
 

Features of Blue-chip Stocks

Blue-chip stocks are shares of well-established, financially stable, and reputable companies with a history of reliable performance. These stocks are known for their resilience during economic downturns and their ability to generate consistent returns. Below are some key features of blue-chip stocks:
Blue chip feature

Blue-chip stocks are favored by conservative and long-term investors due to their reliability, making them a key component of a balanced investment portfolio.

 

Are Blue Chips Good Investments?

An investor’s financial needs, investment goals, diversification objectives, risk tolerance, and investment style all influence whether blue chip stocks—or any other securities—represent a wise investment.

Blue chips, however, can be a valuable addition to a portfolio. They offer a helpful blend of growth and value traits that can counteract market volatility and economic hardship.

The businesses consistently deliver excellent results and have strong foundations. Additionally, dividend income is typically consistent. Reinvesting dividends allows you to take advantage of compounding, which is always beneficial.

How to Invest in Blue Chip Stocks?

You can invest in mutual funds or exchange-traded funds (ETFs) to buy a basket of stocks or buy stocks individually through a brokerage firm.

Depending on the degree of individualized attention you want, you can select an online broker, full-service broker, or discount broker when purchasing stocks through a brokerage. 


You must deposit money with the broker after an account has been opened and you have submitted all required paperwork. After that, you can put in your first buy order for the quantity of shares of a particular stock that you wish to purchase.
 
Some mutual funds or ETFs use “Blue Chip” in their name and contain a list of the best-performing stocks in various sectors.

The Bottom Line

Because they are issued by the top companies in a given industry or sector and typically have enviable valuations and rock-solid financials, blue chip stocks are appropriately named.
 
Generally speaking, blue chips have a track record of outstanding performance and alluring returns for successive generations of investors. Therefore, depending on your investing goals and style, they can be a great addition to a portfolio.
 
They are not impervious to market declines and economic disruptions, though. All investors thinking about blue chips should keep that in mind.
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