Even if you haven’t heard of the term “blue chip”, you will already know what a blue chip stock is when you see it. Do you know Google, Microsoft, Apple, Alphabet, and Walt Disney? These are all blue chip stocks.
“Blue chip stocks” refers to financially stable companies with a longstanding reputation traded on the stock market and often with dividend plans. These stocks are often considered as safe investments, particularly during turbulent times. They have a reliable income stream compared to newer companies still finding their feet. Blue chip companies are far from a slow yield savings account; however, there is a lot of money to be made from them. With a bit of learning and some trading tips up your sleeve, you will be ready to begin trading blue chip stocks!
What Are Blue Chip Stocks?
Blue chips stocks are companies (on the stock market) that have reputations for regular profits and financial security. Purchasing from big, recognizable names (such as Tesla) will give traders confidence to make a safe investment. Blue-chip stocks are also an excellent way to diversify your portfolio, and they are generally worth their higher price tag.
Stability is the number one attraction behind these stocks. Blue-chip companies are a prevalent option during a downturn in the market prices, known as a “bear market”. The financial size and business weight of blue-chip companies is not only an attractive sight. They are generally able to ride the market storms better than smaller companies. A blue-chip company will be big, at least 10 billion dollars in market capitalization. Blue-chip stocks are, by definition, industry leaders such as AT&T and Verizon in the communications sector. Each of these companies has a market cap of around $200 billion.
Characteristics Of Blue Chip Companies
Volatility can be a blessing and a curse, basically depending on whether the price goes up or down. Blue chip stocks do not have the volatility often associated with markets such as cryptocurrency or forex, although significant price rises and falls happen. The appeal of a blue chip stock lies more in its dependability. Although your investment may not make front-page news, you will likely turn a profit given enough time. Blue chip stock traders generally look for a steady ride and good rise over many years. Here are some of the hallmarks of blue chip stocks:
Market capitalization: As previously mentioned, blue chip stocks are usually priced in the billions. The market cap of these stocks will likely fall anywhere between tens and hundreds of billions of dollars. Stocks with exceptionally high market caps can usually be found across multiple global indexes (Dow Jones, Nasdaq, FTSE 100, etc.).
Brand recognition: A blue chip stock will always be a big name. Their brand will be a name you hear in everyday conversation (at least from your own country). Boeing, Virgin, Meta, and Walmart are just a few examples. As you probably know, a big name does not always mean high performance; perhaps they’ve peaked? However, industry recognition implies strong and steady prices from a financial standpoint.
Loyalty and longevity: As blue chip stocks have a large market capitalization, big names, and a worldwide reputation for steady profits, investors are attracted to them: where the profits go, investors flow! As more investors come, the prices increase, drawing further investment. This virtuous cycle is a powerful engine of profit, and it is one reason long-term investments are generally safe and profitable with blue chip companies.
Dividends: Due to the aspects of blue chip companies outlined above, there tends to be a high rate of cash flowing into these companies with relatively little debt accrued. Shareholders can get paid dividends for investing in blue chip stocks without actually needing to sell any of it.
How To Buy Blue Chip Stocks
When you feel you have a good enough understanding of blue chip stocks, you may be tempted to invest in some of them. Depending on the broker you use, you will choose to buy individual stocks or invest in diversified funds, for example, ETFs (“exchange-traded funds”). ETFs, also known as “index funds,” is a prevalent option because they protect a single company losing value, along with your investment. Diversified funds provide safety in numbers so that you can benefit from the security of dozens of blue chip stocks in a straightforward acquisition! Mutual funds are another way to spread your investment across numerous high-value stocks and shares.
This slow and stable investment may not be the only thing you are after in trading. For those who would like more price movement over a shorter period, it is worth looking for a broker which provides access to other marketplaces, such as cryptocurrency. Alternatively, you could acquire leverage for an investment in which your stake (plus your profits and losses) can be multiplied by two hundred times or more. Using leverage will require a CFD trade (“contracts for difference”), and different trading platforms will offer varying rates.
Blue Chip Stocks: Top 3 Investment Tips
1. Consider using an ETF: There are many obvious and more nuanced advantages to using exchange-traded funds. One popular reason is that by adding ETFs, you will increase the diversification of your portfolio. Diversified portfolios help traders minimize risk and maximize reward when it comes to trading online. ETFs tend to be cost-effective, often more affordable than other securities. The basket or bundle of securities are much less expensive when assumed in bulk via an ETF than should they be bought as separate shares or other assets. You immediately and automatically expose your portfolio to the pool of investments contained within each fund by trading ETFs. Alongside portfolio diversification, there are many other benefits to exchange-traded funds, including fiscal advantages, lower overall fees and commissions, and greater flexibility.
2. Have a trading plan: Having an excellent trading plan is paramount to any trader’s market success. Regardless of the asset you wish to trade or strategy, you plan to deploy, clarity and defined goals (both short and long term) will always help. Moreover, approaching each trade as part of a larger game plan will help keep your mind free of indecision and emotional-based trading. Your trading plan may change in detail and adjust as you go subject to the changing market conditions, but there are many variables to consider (your level of comfort with risk and the time and money you wish to invest). Remember to add profit targets and risk mitigation tools such as stop-loss and limit orders to your plan.
3. Think long-term: The best plans take into account not only the current context (economic data, price direction, asset performance) but also learn from the past. A helpful habit is to note your trading journey (both losses alongside profits) so that your past mistakes can carve the way to future success. All trades carry inherent risk, and a certain level of loss is inevitable. The lesson is to move forward and make informed trades on the back of previous ones.
When you’ve got your head around blue chips stocks and you’ve decided you want a piece of the action, you will need to find yourself a decent broker. Although there are several reputable online brokers through which you can buy blue chip stocks, we believe our trading platform, TradeOr, offers unbeatable service and value. Invest in significant stocks from markets worldwide, including shares in Netflix (NFLX) and automobile goliath BMW (BMWG). Opening an account is straightforward and quick. You can begin trading in minutes (no credit card required!). You can fund your account with popular cryptocurrencies, including Bitcoin (BTC) and Ethereum (ETH), and explore a multifaceted range of markets from stocks, to forex, commodities, and more. Sign up to our newsletter and have a selection of the more relevant economic news handpicked by our financial experts land straight in your inbox to ensure you never miss a beat.
- Are blue chip stocks a good investment?
Blue chip stocks are a simple way to add diversity to your portfolio. They are widely considered safe and reliable investment vehicles as they represent solid, longstanding, and high performing companies. Blue chip stock is not famously cheap, but in return for the higher price tag, you get higher return rates and proven track records.
- What are features of blue chip stocks?
Blue chip stocks tend to be issued from companies with longstanding reputations and proven market performance. Some of the characteristics you can expect from blue chip companies are high ROE (return on equity), stable or low D/E (debt to equity ratio), and a large market capitalization (often a minimum of $10 billion).
- How to buy a blue chip stock?
The easiest way to invest in blue chip companies is via a brokerage platform. Research your options carefully and make sure you find a broker which ticks all the boxes you need. Here at TradeOr we offer not only a variety of financial markets (cryptocurrency, stocks, indices, commodities, and more) but a veritable smorgasbord of trading tools. Some of our integrated features include premium access to charting software and social network TradingView, 24/7 customer support, and commission-free trading.