While blue-chip stocks can be used as core positions within a larger portfolio, they generally shouldn`t make up the entire portfolio. A diversified portfolio typically includes some allocation to bonds and cash. When allocating a portfolio to stocks, an investor should also consider mid- and small-caps. Younger investors can generally tolerate the risk posed by a higher percentage of their equity portfolios, including blue chips, while older investors can focus more on capital preservation by investing more in bonds and cash. Blue-chip companies are also characterized by low or no debt, high market capitalization, stable debt-to-equity ratio, and high return on equity (ROE) and return on invested capital (ROA). Strong balance sheet data combined with high liquidity have earned all blue-chip stocks investment grade bond ratings. While dividend payments are not strictly necessary for a stock to be considered a blue chip, most blue chips have a long history of paying stable or rising dividends. A top-notch stock is an investment with a proven track record of constant growth and perseverance. There are no exact criteria that define top-notch stocks, but in general, they have the following characteristics: At poker tables, blue poker chips are traditionally worth the most, followed by red and white chips. For example, blue chips could be worth $20 each, red chips worth $5 and white chips worth $1. A top-notch stock is a huge company with an excellent reputation. These are usually large, well-established, financially sound companies that have been operating for many years and make reliable profits and often pay dividends to investors. A blue-chip stock typically has a multi-billion market capitalization, is usually the market leader, or is among the top three companies in its industry, and is a household name in most cases.
For all these reasons, blue-chip stocks are among the most popular among investors. Some examples of blue-chip stocks include IBM Corp., Coca-Cola Co. and Boeing Co. A blue-chip stock is usually a component of the most prestigious indices or averages on the market, such as the Dow Jones Industrial Average, the Standard & Poor`s (S&P) 500 and the Nasdaq-100 in the United States, the TSX-60 in Canada or the FTSE Index in the United Kingdom. All blue-chip stocks are listed on the stock exchange, making it easy to buy shares on popular trading apps and websites such as Fidelity, Charles Schwab, SoFi, and Robinhood. Some platforms even allow users to trade fractional shares, making it easier to buy shares of blue-chip companies with high stock prices. However, there are no formal requirements to be a blue chip. More passive investors may prefer to gain exposure to many blue-chip stocks at once without having to do too much research by buying stocks of one or more blue-chip ETFs or mutual funds. Popular blue-chip ETFs include SPY, which tracks the S&P 500 stock index, and NOBL, a set of 50 blue-chip stocks whose dividend payments have increased over time.
« Blue chip » is an informal term for the most reliable and valuable companies on the market. These are typically companies with a long history of financial stability and tend to be leaders in their industry. For this reason, they are often sought after and are considered very low-risk investments. You can buy blue-chip stocks as individual stocks or through funds containing dozens or hundreds of shares. Investing in individual blue-chip stocks carries a higher level of risk than investing in diversified mutual funds and exchange-traded funds (ETFs). Blue-chip companies are solvent, which means they have a long history of paying down their debts and a lot of capital to meet their current financial obligations. For this reason, it is extremely unlikely that they will go bankrupt. This makes their shares much less risky to hold than shares of newer companies that have debt, short credit histories, and less capital. Since most blue-chip companies are profitable and have been profitable for a long time, many of them reward their investors with dividends. Dividends are periodic payments that companies send to their investors based on their profits. Dividends are generally paid monthly, quarterly, semi-annually or annually. From an investor perspective, blue-chip companies are much less risky than startups.
In fact, we consider them a safer bet than any other publicly traded company. They also have moderate debt. For this reason, many investors turn to low-cost index funds or exchange-traded funds instead. These funds contain an organized collection of investments and allow you to buy a wide range of stocks in a single transaction. It`s easy and instant diversification – at least among blue-chip companies, of course. Common examples of blue-chip stocks are market leaders such as IBM, General Motors, Coca-Cola or McDonald`s. These are companies with a long history of steady growth and low volatility, suggesting that they are unlikely to face major problems in the near future.
