Blue Chip Stocks

It’s becoming remarkably difficult to put ‘trust’ and ‘stocks‘ in the same sentence. Fresh off one of the biggest market crashes in history, investors are relatively undecided on the value of stock and equity investments as a whole. From small penny-stock companies to massive giants of the stock market, there’s an understandable aversion to stocks amongst today’s biggest investors.

While this is very much the reality today, it hasn’t always been this way. Despite the volatility and inherent risk of the stock market – itself classified as a high-risk investment by most – there are an assortment of stocks that remain valuable, secure, and dependable for investors. Even in the recent financial turmoil, they’re remained at constant values, securing greater praise from investors.

These stocks are known as ‘blue chip stocks,’ and they’re thought of as an investment must-have by many investors and advisors. Tied to companies that have weathered storms in the past, often types of companies that perform well regardless of the greater economic climate, blue chip stocks get an outstanding reputation due to their consistently strong performance and lack of value decreases.

In this brief guide, we’ll look at the advantages and the disadvantages of blue chip stocks. We’ll take a look at their versatility – how they can be placed in almost any investment portfolio. We’ll observe their security and lack of rapid movement, taking a close look at how they’re amongst the best stock choices for consistent investment. We’ll even look at their history of slow but steady value growth.

To balance out this positive look, we’ll also take a close look at the negatives of investing in blue chip stocks. We’ll critique their limited performance when compared to penny stocks. We’ll search for alternatives that could offer better performance. We’ll even take a look at their value as part of a larger investment portfolio, and how they should be balanced by growth-heavy investment choices.

At its heart, the stock investment industry is about balancing risk. Small companies, particularly those with low-priced stock, are volatile and risky. They could increase, making their investors a rich crowd. But on the other hand, they could shoot downwards in value if the company performs below expectations, even if its poor performance is limited to a single financial quarter.

Blue chip stocks fall into the opposite corner of the industry. They’re not lacking in cash flow, long-term potential, or missing a proven business model. In fact, they’re quite the opposite. The blue chip stocks many investment experts tout as reliable are often in companies that have existed for decades or more, with some of the biggest blue chip stocks actually existing for centuries in a public form.

This means that they’ve weathered many storms, and often come out alive and well. As such, blue chip stocks are low-risk and dependable. They can form the backbone of an investment portfolio in most cases, even when placed alongside high-risk investments. They’re a dependable investment, and this gives them immense appeal to those looking to invest their money in reliable stocks.

At the same time, however, it produces disadvantages for low-volume investors. While the gradual growth of blue chip stocks can be great for high-volume investors ready to accept a low margin, it’s a poor choice for those with limited investment capital. A single year might only make hundreds of dollars for investors – even on a large investment. This certainly isn’t the ideal investment outcome.

As a result, we recommend that investors with small amounts of capital and the expectation of large returns look outside of blue chip stocks for their stock picks. It’s very rare to find stocks that have a mix of security and growth potential – the two are often pushed away from one another. As such, an investment in blue chip stocks isn’t recommended for those with limited overall investment capital.

Finally, there’s the combined option – a portfolio that balances both blue chip stocks and riskier high-growth stocks. While blue chip stocks do move up and down with the market as a whole, it’s rare for them to ‘bottom out’ like other stocks can. As such, you can use blue chip stocks as part of your risk mitigation strategy – investing in them to balance the added risk of volatile stock picks.

It’s important to remember that the ‘blue chip’ label isn’t a formal label as such, but merely the end result of the market’s perception. It’s not unheard of for a ‘blue chip’ company to fail, particularly in times of economic crisis. In fact, many of the financial companies that failed during the recent stock market crisis were considered blue chip and dependable, costing some investors millions of dollars.

Alongside this, it’s important to think of blue chip companies not as rock-solid stock pics, but just as what they are – real companies with real account balances. If a market is falling out, either because of competition or a demand shift, even blue chip stocks will be affected. Enjoy the relative security of blue chip stocks, but don’t let the image of rock-solid value push you away from the reality.

With the right strategy, risk-mitigation plan, and portfolio, blue chip stocks can form an important part of your investment arsenal. However, they’re often mistakenly invested in, all for the illusion of greater security. Balance your portfolio and keep your money safe, but never let the allure of ‘blue chip’ stability push you away from more lucrative investment opportunities.

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