Blue-chip stocks are stocks of established companies that are the leading entities in their sector and are highly reputed. These are large, organised and fundamentally strong companies that have been operating for many years.
These blue-chip stocks are also known for paying out regular dividends to their shareholders over time. Most of these stocks generate stable returns for investors and are known to have much lower downside risk in times of market recessions, inflation, and economic downturns.
Why invest in Blue-Chip stocks?
The stock market can be a volatile place that can unexpectedly show some drastic movements in either direction. Thus, it is always advisable to invest a significant portion of your capital in blue-chip stocks.
Reasons to invest in Blue-Chip Stocks:
- Helps in reducing risk because Blue Chips endure economic downturns.
- High dividend-paying stocks where the payment is made quarterly.
- These stocks can be used for diversification.
- The unsystematic risk(risks affecting a whole sector) involved in these stocks is very low.
- During favourable economic conditions, they can give very high returns.
- As these stocks are well-known to the people, the liquidity in these stocks is very high. That means they can be bought and sold whenever you want.
- Usually a robust and safe pick for long-term investment.
Before investing in a stock, it is always recommended to study its financials. A fundamentally sound company will likely have the money to operate even in challenging times. On the other hand, companies that are under huge debt or are making losses continuously might face the risk of being shut down during economic downturns. In simple terms, companies with robust financials and a trustworthy managerial team should be trusted even in poor market conditions.