New investors are often confused about the best way to enter the stock market. Is it best to stick with companies they already know about, try out fresh, so-called high-growth firms that have the potential to post huge gains, or stick with blue-chip stocks? It’s safe to say that there are as many investment strategies as there are investors, but owners of blue-chip stocks have several very specific, and compelling, arguments for sticking with these well-known firms that have been around for decades. Most blue-chip companies are quite large and have a reputation for financial stability. Unlike penny stocks, low priced shares that usually come with high risk, blue-chips offer low risk and high share prices. Some investors won’t even consider purchasing a stock unless it is on the list of “blue-chip” shares for sale. Here are their reasons for sticking with these elite stocks:
Safety
If blue-chip companies are anything, they are a safe haven in times of unstable economic conditions. Most such companies have been in existence for decades and have weathered multiple financial storms, management changes, wars, recessions, and other monetary calamities. Just imagine what corporations like IBM, Coca Cola, DuPont and General Motors have been through, historically. It’s pedigrees like theirs that attracts investors by the millions, and typically don’t have their shareholders asking things like do I need a personal injury lawyer?.
Blue-chip stocks do rise and fall in price, but they are almost guaranteed to stabilize even after a fall. Additionally, they rarely go out of business. Whether in good times or bad, blue-chips are highly popular with institutional and new investors. The institutions can afford to buy large blocks in blue-chips and gain voting rights at shareholders’ meetings. New investors sometimes gravitate to blue-chips because they are afraid of the risk that comes with other kinds of stock offerings.
Dividends
Because blue-chip stocks often don’t offer a lot of price movement, they tend to make up for this lethargy by issuing dividends to shareholders. It’s common for some investors to put their money only into those blue-chip stocks that offer regular dividends. There can never be a guarantee that any stock will pay a dividend in the future, but history can reveal much. For example, dozens of the biggest and most-respected blue-chip companies in the U.S. have been paying regular dividends for decades. They know that many shareholders buy their stock for this very reason and don’t intend to stop anytime soon.
Liquidity
Some low-priced and newer stocks don’t always have ready markets of buyers and sellers. This can be a serious problem for shareholders who might have realized some gains in the price but can’t find a buyer when they wish to sell. For the blue-chip stocks, there is never a problem with liquidity. If you own 1,000 shares of Kraft Heinz Company, for example, you can sell it anytime you want at whatever the prevailing share price is. Many millions of Kraft-Heinz shares, in fact, change hands each day, so there’s never a problem with liquidity. This “constant market” is one of the main advantages of owning blue-chip stocks.
