Blue chip stocks are issued by large companies that boast excellent reputations, dependable earnings and track records of financial success. Many also pay dividends to investors, making them popular core portfolio investments. Examples include Apple, Disney, Home Depot, Johnson & Johnson, Microsoft, and Visa.
Unlike many terms in investing, “blue chip” doesn’t have a formal definition. The phrase likely comes from poker, where blue chips are the most expensive. Generally, companies with large market caps and a history of steady profits are considered blue chips.
Blue chips are typically recognizable household names that operate profitable consumer-facing businesses. They tend to share several traits, such as:
Additionally, many blue chips are also key components of market indices like the Dow, S&P 500 and Nasdaq Composite.
Blue chips tend to be popular core holdings for investors who practice long-term buy-and-hold strategies. Due to their solid reputations, investors may consider blue chips as more stable than small cap stocks. Investors also prefer blue chips due to their:
That said, it’s not unheard of for blue chips to sink during rough waters or when consumer trends change. Nokia, Lehman Brothers, Kodak, and Sears were all blue chip stocks that declared bankruptcy or faced severe financial struggles. However, such catastrophes are usually the exception, not the rule.
Many investors use blue chips as core portfolio holdings. However, buying individual shares of blue chip corporations can get pricey in a hurry, as shares often cost hundreds of dollars apiece.
That’s where low-cost index funds and blue chip-focused exchange-traded funds (ETFs) come in. By investing in these smaller slices of each company, you get instant diversification.
Alternatively, you can invest in an AI-backed set of Investment Kits that offer instant diversification plus the benefits of artificial intelligence on your side.
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