Are Blue Chip Stocks low risk?
Short Answer
Yes! Blue-chip stocks are low risk and are generally considered one of the safest investments. Blue chips are highly recognized well-established, financially sound, excellently reputed companies.
Detailed Answer
What are Blue-chip Stocks?
While Blue-chip stocks are stocks issued by Blue-chip companies which indicates an equity position in these companies. They generally cost high as they belong to the big players in their respective industries. Plus, they remain profitable whether during good or bad times. Examples include Coca-Cola, Apple, Boeing and many more
Are Blue-chip Stocks low risk?
Here are the reasons why blue-chip stocks are considered low risk:
- Blue-chip are companies with the largest market cap and their stocks are highly liquid. This prevents a dramatic share price decline even amidst market unrest. Investors can confidently sell their stocks at any point in time knowing there will always be a buyer.
- These companies have already survived the hardest economic hit. Hence, investors are protected from economic downturns and recession.
- Big companies boast of stable financial performance and are regarded as a less volatile investment. This means the risk factor is comparatively low as compared with the average stock.
- Although the future growth prospects of these companies are low as they are already dominating their sectors. However, investment in blue-chip companies is low risk coupled with low returns when compared with companies with high growth prospects.
- Blue -chips are regarded as zero to little debt companies. They are A-rated credit companies that are capable of clearing any financial obligations. Given this, blue-chips stocks are considered low risk with high creditworthiness.
Conclusion
Blue-chip stocks are low risk, highly-reliable stocks issued by industry leaders that can serve as the backbone of any portfolio. They are a sure bet for low-risk investors. That is, individual who wants to participate in the stock market gains but not bet the farm on their stocks. While they can form the core of the portfolio, investors can minimize risk by diversifying their investment portfolio.
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