What Is a Blue-Chip Stock?


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Investing in individual stocks is generally considered riskier than diversified funds. However, some companies have been on the market for awhile and proven themselves to generate great returns over a long period of time. These are blue-chip stocks.

What are blue-chip stocks and how can investors use them to their advantage?

Blue-chip stocks, defined

Blue-chip stocks come from companies that are household names. These companies have proven themselves on the public market with historical gains. They're older than startups and have usually been on the stock market for decades.

While any investment carries risk, people often prefer blue-chip stocks over random startups because they're deemed safer.

Do blue-chip share prices always go up?

Blue-chip stocks tend to behave in a reliable manner. Nothing is ever guaranteed in the stock market, but the general consensus is that blue-chip stocks provide long-term growth that generates capital gains.

The reality is that every stock has fluctuations in price. For blue-chip investors, the goal is usually to hold the blue-chip stock for a longer stretch of time. This strategy helps minimize the impact of short-term volatility and focuses instead on growth for a longer time horizon.

Some investors day trade or trade options on blue-chip stocks, though it's not as common as actively trading other, more volatile stocks with bigger price jumps.

Consider a blue-chip ETF

If you want to invest in blue-chip stocks but don't know where to start, consider a blue-chip ETF. Exchange-traded funds are inherently diversified which helps your portfolio do the heavy lifting for you. Some blue-chip ETFs in the US market include:

  • Fidelity Blue Chip Growth ETF (FBCG): Up 69.16% since its inception in June 2020

  • Monarch Blue Chips COre ETF (MBCC): Up 20.69% since its inception in March 2021

  • Fidelity Blue Chip Value ETF (FBCV): Up 36.9% since its inception in June 2020

Blue-chip companies to know about

In places like the Middle East, companies like Emaar Properties are considered blue-chip stocks in national markets.

In the US market, blue-chip stocks like JPMorgan Chase & Co. (NYSE:JPM), Walmart Inc. (NYSE:WMT), and Microsoft Corp. (NASDAQ:MSFT) lead the charge. Others include:

  • Johnson & Johnson (NYSE:JNJ)

  • Salesforce.com Inc. (NYSE:CRM)

  • Walt Disney Co. (NYSE:DIS)

  • Boeing Co. (NYSE:BA)

Some blue-chip stocks also have high dividend payouts. This is especially true if you invest in a class of stock called preferred stock, like Bank of America (NYSE:BAC) preferred stock that pays out 5% in dividends (compared to about 1.8 percent for common stock).

Should you invest in blue-chip stocks?

When developing your investing strategy, it's not a bad idea to include blue-chip stocks in a broad portfolio. It can be a simple way to manage risk and balance a portfolio. With a mixture of stocks, funds, and other assets, generating long-term capital gains can be within reach.

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