If you’re new to investing, you might have already come across the term “blue-chip stocks”. They refer to a certain type of asset, or more specifically a genre of company stock. Some people might argue that blue-chip stocks are the cornerstone of any investment portfolio, while others argue that they are overrated.
While the truth might lie somewhere in between, it is worth knowing exactly what is meant when someone uses the term “blue-chip stock” so that you can make a more informed and empowered investment decision. Here is everything you need to know about blue-chip stocks.
They are big. And established
The defining feature of blue-chip stocks is that they are the stock of companies that are household names and tend to have the largest market cap out of any company in the world. To give you an idea of what we’re talking about, the most well-known blue-chip stocks are the likes of Apple, Amazon, ExxonMobile, Disney, Microsoft, and P&G. These are companies that are worth billions of dollars, employ tens of thousands of people, and have a presence all over the world. This is what makes a company “blue-chip”.
They are expensive
While the above description might make blue-chip stocks seem like the best option for investors, there are drawbacks. For one, they tend to be very expensive. A single share in a company like Amazon or Tesla will set you back hundreds or even thousands of dollars apiece. As such, blue-chip stocks tend to be more popular with wealthier investors, although investors with less capital can purchase “fractional” shares of most blue-chip companies, allowing them to buy a small portion of a share.
They are easy to find information about
One of the defining traits of blue-chip stocks is that you do not need to be an expert market analyst to find out information about the company itself. Blue-chip stocks are well-known by definition, and there is generally a wealth of resources that investors can use to make decisions about those stocks. For example, someone who might be wondering whether not to buy Amazon stock can consult a global trading platform like Skilling, where they could find real-time information about Amazon’s price movements in an instant. This type of information can be more difficult to access for smaller, more niche companies.
They grow slowly
This is another thing that is important to keep in mind about blue-chip stocks. When their stock price does grow, it does not grow quickly. Given the fact that they are already established market players, they are less immune to the dramatic ups and downs of speculative finance.
If a blue-chip stock delivers a 5% ROI in a single year, that is considered to be a very good outcome. This is a far cry from those trendy tech stocks that soared hundreds and thousands of percentage points in 2020 and 2021. Blue-chip stocks grow slowly and offer long-term stability, which is part of their appeal to some investors.
No matter what your financial goals are, it is worth knowing the benefits and drawbacks of blue-chip stocks. Keep these points in mind if you consider investing.