Benefits And Risks Of Investing In Blue Chips
To many people, pokers to be precise” Blue Chip” means the highest value. The name was brought to use in 1923 when Oliver Gingold who was then an employee at Dow Jones, discovered certain stock trading more than $200 per share. Today, blue chips stocks do not only refer to stocks at a high price but also more accurately high-grade companies that have been in operation for many years. Those companies that have earned this name have specific characteristics that makes them be on top of the game such as building a reputable brand, surviving multiple economic downturns, having very little or no debt and many others.
In simple terms, a blue-chip company refers to a multibillion, multinational firm that has been functioning for several years and doing really well. Think of companies like PepsiCo, Disney, Coca-Cola, McDonald’s, IBM, General Electric, Wal-Mart, and many other global companies that are dominant in their respective industries. Majority of investors believe that blue-chip companies have more stable earnings and are safe havens during an economic downturn due to their secure nature. This article discusses both sides of investing in blue chips, are they really that secure? Keep reading to find out.
Big earnings from big brands
Profits are what make a stable business. Blue chip investments are particularly popular and are primarily known worldwide. While we may want to recognize that the more famous a brand becomes, the more earnings it makes, let’s not forget that the bigger the business, the bigger the challenges.
One significant reason why wealthy investors trust these economy runners is that they are reliable, more stable and have consistent dividends. Some of these companies are so stable that they can still beat inflation and market volatility.
Thanks to their fame, blue chips stocks are very easy to sell or buy. Now, this is quite essential and cannot be in any way underestimated not unless you have an idea of how frustrating it can get to be unable to offload uncommon investments when value begins to drop or just when you need to release some bit of equity.
One exciting advantage about investing in the big stuff is that you’re exempted from taxation—all your returns. Each blue-chip stock is eligible for Stocks and Shares meaning that your returns are relatively safe from tax. You may also keep your blue chips stock investments on Personal Pension portfolio without having to pay any tax on the accrued interest.
Have you ever wondered whether these vast companies go broke? If you have, then here is your answer. Each time there is an economic downturn, most investors rush to these blue chips as they assume there are more secure than other seasonal stocks. The companies, in turn, offer the needed security during this period through the intelligent management systems in place.
Their management is able to generate stable profits regardless of the economy—or else how do you start narrating as an investor that a Coca-Cola company owes you. Even when the stock market experiences a bear market, investors always stay cool and wait for the cash flow because they always recover –thanks to the smart management.
There is always growth
Any stock experiences inconsistencies in its graph. There is still that period or season when everything is down including the markets. However, blue chips always find a way to get up again and grow. This is because they have strong business models, strong balance sheets, strong cash flows, and steady growth.
Every popular brand has its own personal competitor. For instance, PepsiCo and Coca-Cola company have been competing for very many years. Luckily, in business there is no winner, you just have to play your cards smart keeping the consumer as the main score. The bigger the company the more prominent the competition. Blue chips don’t only have to work to beat their colleagues in the industry but also the upcoming markets.
It is common knowledge that blue chips run the economy as they are multinational and therefore command recognition from more than half of the world. To some extent, these stocks are what drive the market averages; consequently, the returns of the blue chips never stray too far from the profits. Consider a situation where a new company comes up, let’s just assume a beverage company called Kola came to the market to compete with Coca-Cola. The chances of Kola growing its sales and making 50% or 100% profit are quite high—people enjoy trying new stuff. Now, since the whole world takes hundreds of gallons of Coca-Cola every day, it is impossible for them to double their sales.
Those companies are old
As a young entrepreneur, business person or investor, you have an outstanding advantage over older investors. You are more likely to have an excellent understanding, experience, and knowledge of the latest products in sectors such as retail and technology. These products have the potential of growing the markets but in most cases are sold by hipper, newer companies that do not belong to anyone’s blue-chip list.
In other words, newer companies do not have lots of chances in the blue chip’s list, but it does not mean they’re doing bad. It may just mean, they’re not older enough to earn the title. Before investing, pay some little attention to other upcoming companies. You may be shocked to get a better, more profitable, and long-lasting returns.
Too many downside risks
Blue-chip stocks are often heavily followed by analysts and mainly owned by the global public. These types of shares are mostly bought to stabilize the growth and bet that projections will continue. However, anything can happen, and a company can run into challenges. The unforgiving public may get things murkier if the company in question fails to get up and fix the profit expectations.
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