Blue Chip Stocks

Introduction

What are blue chip stocks? A blue chip is a fancy way of saying a large, well-established company that has a very strong historical performance. These are often name-brand companies that most people know about. (Fun fact: They're named after blue chips in poker, which are usually the most valuable chips.)

The Details

Let’s explore blue chips in a bit more detail. There’s not really a set boundary for how large a company has to be to count as a blue chip stock, but a general rule is that it should have a market cap of at least $5 billion. A lot of the large companies that you know of will have a much higher market cap than this.

But what does strong historical performance mean? What I mean by that is that the company should have strong, steady growth over time. Not only this, but they should be able to perform relatively well even in tough economic situations. What that tells us is that people like the company enough to buy from it even when times are hard. That’s good.

The last thing I’ll note is about dividends. Many blue chip stocks pay good dividends since they have plenty of money. It’s not a requirement though, so don’t be surprised if you find one that doesn’t pay dividends.

Examples

Most of the companies on the major indices (Dow, S&P 500, and Nasdaq) are blue chips. A few that I’ll throw here include Apple, Coca-Cola, and Walmart. You’ve probably heard of all of them. Notice how they’re all from different industries. You don’t need to be a tech stock to be a blue chip, despite tech being so dominant right now. They’re all huge, well-known, and loved by most (although I’m not a Coca-Cola fan).

Risk

Hopefully what I’m saying next is pretty obvious. Blue chips are pretty low-risk. They’re unlikely to fail any time soon, and they’re so widely known that they should be bringing in money, and returns, for a while. Even in recessions, they should stay afloat. Investing in blue chips is a great idea for anyone, but especially if your risk tolerance is low.

Conclusion

Blue chips are great. They are especially good if you don’t have a lot of money, since you need to minimize risk. Even if you are well-off financially, I would still recommend picking some blue chip stocks since they’re so reliable and will provide good returns.