When investing to make money or save for retirement, someone’s financial risk tolerance may be below. To make a stable return without the persistent risk of a crash, blue-chip stocks are the safest bet. Here are some features and perks of blue-chip stocks to give you a consistent return on your investments.
What are Blue-Chip Stocks?
In investing, blue-chip stocks are stocks that are considered to be safe bets even in the event of a financial crisis. For example, the COVID-19 pandemic hit in 2020, and the market crashed as a result.
However, certain stocks in essential companies remained high and grew. Blue-chip stocks are normally a conservative investment that carries little risk and stable rewards. Their namesake is blue chips in poker, as those pieces normally have the highest value in the game.
Features of Blue-Chip Stocks
blue chip stocks have many features that make them attractive investments. First, a blue-chip stock company like Amazon or Walmart always has consistent revenue due to being one of the essential centrepieces of the retail industry.
Even though the economy and stock market cratered in early 2020 due to the onset of the COVID-19 pandemic, stocks of massive corporations that maintain a big market share still grew. Shares of these companies can act as a sort of rainy-day fund for an investment portfolio that will protect against complete losses.
There is essentially no risk of any of these companies going out of business since they are so big, so they do not run the risk of vaporizing from a portfolio. Moreover, many blue-chip companies pay dividends to their shareholders.
These companies typically make many billions of dollars in profit every year, so they have plenty to spare for payouts to shareholders. The more stocks one owns in these companies, the higher the return on the investment will be.
Advantages of Blue-Chip Stocks
According to the financial specialists at SoFi, the biggest advantage of investing in blue-chip stocks is the stability and consistency of their value.
Even when the market collapses as it did in 2020, these stocks will not tank in value as many other companies did. These companies make massive amounts of consistent profit, so the dividends that shareholders get make investments more worthwhile.
Additionally, having an array of blue-chip stocks in a portfolio will enable one to reach their long-term financial goals easier. Instead of backtracking on stocks that have the risk of losing money, the consistent return of blue-chip stocks in large corporations will help an investor make enough money to reach their future goals.
Diversification of a portfolio is also important because it provides a safety net in case some investments do not pan out. For example, dividends that profitable corporations pay to shareholders allow for different streams of revenue to back up any problematic investments. Finally, blue-chip stocks have the highest market liquidity and confidence, which further drives up prices. Blue-chip stocks are a safe way to diversify an investment portfolio without taking on too much risk.