There are a lot of options you can invest in when it comes to putting your money in the stock market. Regardless of investing in individual stocks, mutual funds or exchange-traded funds, investors have to choose between a variety of asset classes. The good news is that the starting point for all investors is blue-chip stocks.
Why should blue-chip stocks be the starting point when creating a diversified portfolio? And what exactly defines the leading stocks? In this post, I will answer these questions and more. By the time you finish reading, you will have a solid understanding of this investment term and be ready to include the leading stocks in your portfolio.
What is a blue chip arrow?
So what exactly are blue-chip stocks? These stocks tend to be large companies that have been around for a long time. They are also in the maturity stage of the business life cycle. This means that they have expected income and sales and there are rarely any surprises.
Below are some of the leading stock names that will help you better understand what qualifies as one.
As you can see, preferred stocks tend to be household names for the most part. Now that you have a better idea of what preferred stocks are, let’s dive into why it should be your first investment.
3 reasons blue stocks should be your first investment
# 1. Steady growth
Because blue-chip stocks are mature companies with a strong balance sheet, they are good at providing consistent and consistent growth. This is due to the creation of their production lines and sales. People know and love their products and will continue to do so.
On the other hand, you have small stocks. These companies are just getting started, so their earnings and revenue can fluctuate wildly from quarter to quarter and year to year. As a result, many investment professionals recommend limiting the amount of money you invest in small-cap stocks.
In fact, all professionals agree that blue-chip stocks should be the basis of the portfolio. Companies like The Motley Fool regularly recommend preferred stocks as well as some less popular stocks.
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# 2. Good source of income
Another great reason to start investing in blue-chip stocks is income or dividends. Since these businesses are mature in the growth cycle, they tend not to need to reinvest a lot of cash in order to grow the business.
For this reason, many decide to reward shareholders by paying an ever-increasing dividend. These dividend payments only increase the return that the shareholder earns by investing in these companies.
As of this writing, a . file has been released average dividend yield of the blue-chip stocks just under 2%. The higher the yield, the more dividend income you expect to earn. But getting a high dividend yield is not always a good thing.
# 3. Stabilization
The ultimate benefit of investing in blue-chip stocks is stability. I mentioned earlier how large, mature companies tend not to generate huge profits and returns from year to year. But there is another advantage of the stability of profits that companies with large capital offer.
This is the stability of the stock price. When the market is down, stocks of large companies tend to fall many times lower than other stocks. This is because investors can count on these companies to continue making profits.
for example, If there is a major recession And consumers stop buying, a small company with few sales can easily go out of business if sales drop too much. But a large company does not risk going out of business when sales fall. Yes, sales to these companies will slow during a recession, but not because investors are worried if the company is viable.
As a result, investors are flocking to the safe-haven blue chips, which helps limit some of the losses during the market crash.
At the end of the day, if you are building an investment portfolio, you should start by investing in blue-chip stocks. I know most people want the exciting returns that small businesses offer, but you can’t build a sustainable long-term portfolio by investing only in small business stocks.
You are simply risking too much. Do yourself and your money a favor and start investing in blue-chip stocks and then build a diversified portfolio around these holdings.