In order to become a successful investor, you must acquire a solid knowledge of advanced financial tools. That’s why comprehension of how blue-chip stocks work is one of the key skills a prosperous investor should possess to stay at the forefront of finance.
Blue-chip stocks are giant companies that can boast an immaculate reputation they have been earning for years. The main distinctive features of such business entities are financial stability, a well-designed infrastructure, impressive earnings reports, and a solid history of sustained growth.
Blue-chip stocks manage colossal cash flows and usually have a market capitalization in billions of dollars, thus taking the leading positions in respective business sectors. It’s commonly believed that the name “blue chip” was derived from poker, as the most expensive chips were usually that color.
Paying dividends is not imperative for a blue-chip stock; however, most elite companies have long records of delighting their investors with stable or even rising consecutive annual dividends because dividends are a way of offsetting for investing money in a company.
A blue-chip stock often belongs to the group of the world’s biggest household names
How big and well-established a company needs to be in order to qualify for blue-chip status is a debatable question. Most financial experts agree that a market cap of $5 billion is an acceptable benchmark.
An attractive blue-chip stock is typically a pillar of the most reliable and time-tested market indexes, e.g., the Dow Jones Industrial Average, the NASDAQ-100 in the US, the FTSE Index in the UK, or the TSX-60 in Canada.
All these facts make blue-chip stocks extremely popular among traders, who are attracted by the companies’ long-term strength and annual dividend payments. Boeing Co. and Procter & Gamble are the perfect examples of blue-chip stocks.
There is a broadly held belief among risk-averse investors that blue-chips can cope with severe market challenges of any kind. That’s partly true, but market fluctuations deprive you of a 100% guarantee. The feature of this large market is its volatility - such infamous stock sell-offs as Black Mondays and Black Thursdays speak for themselves. Blue-chip stocks are the least affected equities in times of such events.
Although blue-chip stocks have been proving their relative stability over decades, it’s crucial to diversify your portfolio beyond only one type of stock. Even with a list of companies you consider rock-solid, you shouldn’t invest exclusively in their stocks to make up the bulk of your portfolio.
Diversification is an essential investing technique that is applied to spread your money among various classes of stocks. Choose companies from contrasting industries and different geographical locations, and make sure your portfolio includes stocks with all types of market capitalization (small, medium, and large).
Needless to say, investing in a few blue-chip stocks is still a wise choice, as their reliability makes them nearly immune to market downturns.
Start investing in blue-chip stocks by simply adding them to your investment portfolio; this process can be organized through the help of a broker. This is what you need to do to start investing in a smart way:
Investors can either buy or trade stocks through a brokerage.
1. Stock Investing
Stocks can be bought individually or purchased as a basket of a diversified common stock fund when you invest in mutual or exchange-traded funds (ETFs). However, investing in funds assumes operating with considerable sums of money, which is not an option for everyone. If you decide to purchase stocks through a brokerage, there are several options available. Depending on your needs, you can choose a full-service broker, an online broker, or a discount broker.
2. Stock Trading
There is also a possibility to trade stocks. In this case, you don't own the stocks, but you can trade on the fluctuations of their price same as on the FX market. Such investment products are known as stock CFDs, where CFD stands for "contracts for difference." You can trade either stocks or indices, which are primarily composed of blue-chip stocks.
LiteFinance offers a wide range of broker services, starting from the evaluation of a blue-chip stock’s performance against the goals of the preferable investment strategy and up to general advisory on how to perform your own research properly. LiteFinance can guide you through the registration process and help make your first deposit. From that moment, you will be able to place orders and buy any stocks.
Trading can bring a higher profit than stock investing. Fluctuating dividend payments hide risks for investors. Continue reading with Litefinance.com...