Pick up any stock tip sheet, and it will usually be full of blue-chip stocks. ‘Blue-chip’ stocks are the biggest and most dominant companies in the market — those that should hold up best in any downturn in the economy.
One of the key attractions of blue-chip stocks is their stability. Because they are mature companies that have been around for a long time, investors understand them and know what to expect.
What are some blue chip stocks?
These types of companies are household names. Think Apple in the US, or Commonwealth Bank of Australia [ASX:CBA] and Woolworths Ltd [ASX:WOW] in the Australian market. We all know how big they are, and understand what they do.
For investors looking for income, another reason to invest in blue-chip stocks is dividends. These companies normally pay out two dividends a year. And if the company is growing, and profits are increasing, the dividends they pay out should too.
Due to their size, blue-chip stocks don’t normally grow as quickly as some of the smaller stocks on the market. Because of that, owning them might not be the quickest way to build your wealth. However, they usually survive better when the market takes a tumble.
The idea with investing in blue-chip stocks is to hold them over the long term. The share price may rise and fall with the flow of the market, but should grow over time.
What are the best blue chip stocks to buy?
If you have sufficient capital, you can spread your money over a range of blue-chip stocks. But if you have limited capital, or don’t know which blue-chip stocks to buy, there are listed investment companies (LICs) that do that for you.
LICs are managed funds that usually hold a swag of blue-chip stocks. By investing in one LIC, you can often gain access to over 25 of the biggest blue-chip stocks through the one holding — and collect dividends as well.
Speculating on the latest hot tip or sector might work some of the time. However, holding blue-chip stocks as a cornerstone of your portfolio could be a great base from which to build your wealth.