What Are Blue Chip Stocks?

Posted by Pierre de la Fortune on December 26, 2015 @ 12:01 a.m.

Written by Peter from www.howtotradestocks.org

Blue chip stocks are stocks in well established companies, often companies that have been profitable and paying dividends for many years. These companies usually have a long history of stable earnings, excellent credit ratings and negligible liabilities.

Investing your money in blue chip stocks is probably about as safe as you can get when investing in the stock market. However, the returns are unlikely make your wallet or purse particularly heavy. Historically, the returns on blue chip stocks has been modest in the long term, but this is a trade off for relatively low risk stock investing.

I feel it is imperative that I emphasize the word “relatively”. Blue chip stocks are in no way guaranteed and always have the risk of losing considerable value, no matter what your financial advisor/salesman at the bank may tell you.

Who Are Blue Chip Stocks Best Suited To?

These stocks are often best suited to investors with a low tolerance for risk. Often older investors who have saved for their retirement and would like a better return than the risk free rate their bank is offering.

They may also be suitable investment vehicles for young investors who wish to growth their money over a long period of time with a relatively low level of risk. With blue chip stocks you can also enjoy dividend payments that can be reinvested, commission free, in order to build your position, and grow your capital.

Blue chip stocks are often unsuitable for investors who are seeking high returns on their money. Growth stocks may be a better option here, although these stocks carry greater risk, and may not be suitable for every investor. How Safe Are The Best Blue Chip Stocks?

The best answer I can give to this question is, blue chip stocks are as safe as you can get with the stock market. There have been major stock market crashes where some blue chip stocks have lost a large portion of their value, but overall, blue chip stocks hold up much better than othet types of securities in volatile markets.

As recent as 2008 some of the major bank shares plummeted by as much as 90%. These stocks were at one time considered to be low risk. An example is the well known and respected US Bank Fanny Mae. As you can see on google finance, their stock became almost worthless after the 2008 financial crisis.

It’s important to fully understand that even the best stocks have the potential to end up worthless. However, if you have a diverse portfolio of low risk stocks, the chances are that in the long run, you will come up nicely on top.

I don’t wish to be too negative, but I would hate for you to not fully understand the risk you may be taking. I would hate for you to visit my site and leave without a full understanding of the risk factors associated with investing in the stock market. It is important to understand that the only truely safe place to invest your money is in a traditional bank account, CD, or government bond.

For more info please visit: http://www.howtotradestocks.org/what-are-blue-chip-stocks.html

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