There is no link between investing and gambling, but one wrong step could make you lose it all in either case. The term “blue-chip stock” has been borrowed from poker, yet the implications are quite different. Formally, companies lined in this category are popular for being stable, popular and established.
These companies are the top players in their industries and investors rely on them for somewhat guaranteed returns. Thus, the stocks of these companies are in high demand, and people like to hoard them for financial security.
But, before your hunt, do know about the fundamentals of this gold standard of stocks.
Which stocks are considered blue chips?
As stated above, blue-chip stocks are highly dependable, and their stability keeps the market safe and secure. Time and again, these stocks have performed exceptionally well even in hard times. Not to mention, the stocks are quite favorable for a bull run as they are market leaders.
The market cap of a company determines whether the stock is a large-cap or otherwise. Blue-chip stocks are those whose market valuation is more than $10 billion. Normally, these stocks have had a successful history of dodging market brutalities. Also, they show immense possibilities for future prospects. Unlike numerous tech stocks, they do not flash to the top and roll back down the next day.
These stocks can be easily traded in premium market indexes like Nasdaq 100, S&P 500 and Dow Jones Industrial Average. However, not all of the blue-chip stocks will pay you dividends. Often, dividends are paid by mature companies which have no reason to reinvest funds in their growth. Hence, people looking for regular returns should investigate before investing in them.
Reasons to Invest in blue-chip stocks
One should never invest all money in a single stock might be the biggest mistake of your life. Diversification should be your focus even if you are investing in the most stable stocks. When you distribute your money among the top-performing companies, the chances of a drastic loss are marginalized and overall profits increase. Thus, you must diversify the funds among small-mid and large-cap stocks. Make sure that you are funding companies from different sectors and locations.
Coming back to blue-chip stocks, their appreciation and demand is often raised by investors hesitant of taking risks. Even though they are not completely immune to market troubles, yet their rate of success and diligence is key to their demand. These companies are highly capable of providing regular dividends, which keeps their investors intact. Hence, the overall profitability is hard to find in other stocks which are not big enough to survive dramatic market changes.
Blue-chip stocks are often the number one choice for any investor. However, it’s not easy to get a hold of them. Keep a continuous eye on their trades and don’t let an opportunity go. Remember, a shot on these stocks can guarantee a lifetime of financial freedom if you are smart enough to use them correctly.