In the world of finance not all companies are created equal. There are companies that will tower over most of the competition in terms of market capitalization, stock value and other metrics. These are the major companies leading in their fields due to their innovative products and services, or due to their sheer age – they’ve just been around longer than most of the competition.
The financial sector has a name for holdings in these types of companies – blue chip stocks. The term ‘blue chip’ itself is taken from the popular card game of Poker, where blue chips are used to represent the highest denomination of value on the table. Blue chip companies are held in high regard by investors because of a number of desirable characteristics that they hold.
Let’s take a look at just what makes blue chip stocks special and why they are so highly desired.
Stability
Blue chip stocks are well-known for their stability even in times when the rest of the market is undergoing heavy turbulence. For this reason, you will find many investors choosing to put their money in these companies as relatively safe options. They have the capacity to hire the very best minds available to figure out how to weather economic downturns as well as the financial muscle to continue operating successfully when companies with weaker fundamentals will have gone under.
Ease of Access
Owing to their popularity among traders as well as their well-established reputations as sound investments, blue chip stocks are easily bought and sold on the open market. The value of this trait may be easily underestimated, but you have to keep in mind the fact that some stocks can be incredibly difficult to offload should they begin slipping into a spell of poor performance, greatly distressing those who are stuck with them on their books.
Blue chip companies, on the other hand, are some of the most liquid holdings available anywhere, allowing you to hop aboard or get off anytime you wish to do so and facilitated by any number of brokers, investment platforms online, or fund managers.
Reliable Dividend Payouts
Owing to their size and relatively well-established place among the highest-valued stock on their respective stock exchanges, blue chip stocks will rarely provide substantial earnings through appreciation of stock value. What they do instead is offer their shareholders dividend earnings according to the number of shares they hold.
Brand Recognition
It’s always nice to be able to say you have a shareholding in a brand that’s instantly recognizable across a large swathe of the population. You would get a kick out of telling your friends that you have shares in Coca-Cola next time you’re eating out, for example.
On a more serious note, however, having a well-known company on your portfolio will make it easier to keep up with the latest news affecting your shareholding, as events related to them will receive more media coverage than medium-sized and small concerns.
Diversified Portfolios
Large corporations are in the habit of building up incredibly diversified international portfolios with interests in diverse industrial sectors. Take BP, for example, which has ownership of a slew of convenience stores across the United States, the UK-based Wild Bean Coffee Company, as well as its own gas stations despite primarily being an oil and gas concern.
The upshot of this is that its risk exposure levels are diversified across different sectors, just as a good portfolio should. By buying blue chip stocks, you’re essentially buying the equivalent of smaller stakes in a couple of medium-sized interests spread out across different markets. It’s good business, however you choose to look at it.
Varied Investment Methods
As veritable titans in their respective stock exchanges, blue chip companies are accessible in a variety of ways for interested investors. While you can quite simply go out and buy some stocks at your nearest brokerage firm or even online, there are other avenues for you to choose from including investment funds (ETFs). ETFs comprising numerous blue chip stocks are widely available and spread out across virtually all major world markets.
You could choose to go for UK-based organizations; American corporations ranked on the S&P 500; or even decide to place your bet on interesting Korean stock exchange heavyweights. ETFs are relatively low-overhead investments as they are charged minimal transaction fees while being gateways to hundreds of various companies at the cost of one transaction fee. They represent a highly efficient way of diversifying one’s portfolio with minimal fuss.
