We could all use some safety net when it comes to investing. Especially in times when the market is bleeding, and there is no sign of certainty, bluechip stocks act as a paradigm of stability. But what exactly are bluechip stocks? And should you be investing in them? Let’s understand.
What are blue chip stocks?
Blue chip stocks are stocks of well-established and financially stable companies with a long track record of steady growth and strong performance. These stocks are often considered to be good investments because they are less risky and more likely to provide steady returns over the long term. They are often associated with large, well-known companies in industries such as technology, finance, and healthcare and are often considered to be safe and reliable investments for investors who are looking for long-term stability. Blue chip stocks are generally considered to be a good choice for investors who are looking for a more conservative approach to investing and are willing to accept lower potential returns in exchange for less risk.
The term Bluechip comes from the game of poker as the blue-coloured chip is the most valuable on the poker table. An employee of Dow Jones first used it to refer to a share traded above the 200$ price level. If we put that into the Indian context, blue-chip stocks are the type of stocks with a good reputation over the years as an organisation and a stock with a stable performance.
Advantages of Blue-chip stocks
1. Often the biggest Dividend payers.
The dividend yield of such companies are often higher than the other companies, When such companies get their part of the profit, they tend to give out dividend in fairly large numbers.
2. Blue means safety
Because of the reputation of such companies’ stock, the safety that these types of stocks offer is complimentary. Even in a time of recession, a fair amount of demand will be there for such stocks.
3. Diversifies the portfolio
An investor can have different types of stocks in his/her portfolio according to market capitalization, returns, dividend yield etc. Bluechip stocks might help those who want to decrease the risk at the time of recession as it offers safety.
Disadvantages of Blue-chip stocks:
1. Slow growth
Blue-chip stocks generally comprise already established and renowned companies which only grow throughout the long term in contrast to mid and small-cap companies, which have high growth potential.
2. Low returns
‘Lower the risk, lower the return’- As Bluechip stocks offer the utmost safety to the investor, which normally tends to give lower returns compared to other types .of stocks
3. A higher price(generally)
Because of the number of buyers that blue chip stocks have, the stock price is comparatively high. Bluechip stocks generally include buyers who expect consistent long-term benefits, good dividend yield etc.
Should you invest in blue chip stocks?
Blue chip stocks can be your go-to investment avenue if:
- You are looking for safety
- You are looking for dividend-paying stocks
- You are looking for low volatility
- You are willing to pay the higher stock price
This was all about blue chip stocks. To invest or not to invest depends on your investment horizon, age factor and risk appetite. No matter how safe or stable the stock of a company is, one should invest only after examining the fundamentals of the company.