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What is Blue Chip Investing?

Let’s talk about something new today!

This might seem out of the blue to you. But hey – none of us here are blue-blooded, and we need to know of more avenues to make money. And while money talk isn’t always the best way to beat the Monday blues, once in a blue moon, finding out about new investment opportunities is just what you need!

With all that subtle talk of ‘blue’ in tow, let’s dive into the deep blue water (Last one! Promise!) that is blue chip investing.

What is Blue Chip Investing?

To understand blue chip investing, we need to first address the question – what is a blue chip company? A blue chip company is a well-established and financially stable corporation – one that has a huge market value and is consistently performing well. These companies are often the leaders of their industry – which makes them super attractive to investors!

The stocks of such companies are called blue chip stocks.

So, naturally, blue chip investing is a strategy of investing in blue chip companies. Blue chip investing is a favored strategy because the reliable, stable, and consistent nature of these companies’ stocks is promising for investors who are looking to build a financially secure portfolio (So… hopefully you!).

Blue chip stocks are often included in major stock market indices, such as the Nifty 50 in India, or the S&P 500 in the United States, due to their significance in the overall economy of their respective countries.

Features of Blue Chip Investing

There are certain important features of blue chip stocks that make them so appealing, even to young investors. These include – 

  1. Stability & Reliability – Look, these are companies that have weathered the storms in the financial markets and still come out on top because they are simply indispensable to their respective industries. Blue chip companies are known for how resilient they are; they survive market downturns and are able to consistently show revenue growth in their books! 👍
  2. Financially Strong – The balance sheets of blue chip companies are every CA’s paradise! These companies consistently show low debt and healthy inflows of cash. They can withstand financial shocks, and even if there are setbacks, typically these companies are the first ones poised to make a comeback. 💪
  3. Regular Dividend – Blue chip companies typically roll out dividends to their shareholders – without defaults! So, if your investing objective is to create a stream of steady income for yourself (in addition to wealth creation for the long term!), this might just be the way to go! 👌
  4. Leadership – Companies that have name recognition, the ability to scale, and have established customer loyalty have a natural competitive advantage over their competitors. You don’t need to be an investment genius to know that market leaders of any industry make relatively safe investment options – because they are more accountable than their competitors as well! 🙌
  5. Liquidity – Blue chip stocks are typically very liquid. This means that it’s easier for you – the investor – to buy and sell shares as you need. There is no restriction on low trading volumes, and blue chip investing can help reduce the risk of large price fluctuations since you can quickly liquidate your investments. 🫰
  6. Low Volatility – We’ve said this a lot, but it bears repeating – no investment is risk-free! Even blue chip stocks aren’t immune to market fluctuations – but, they have a better recovery rate than their competitors. Blue chip stocks tend to be less volatile than a lot of smaller (but high-risk) options out there. Hitching your wagon to a blue chip company usually results in a smoother ride through market turbulence. ✌️

These unique (low-risk, steady reward) features of blue chip investing are the reason for their appeal and popularity today! 

Benefits of Blue Chip Investing

Reasons for the growing appeal of blue chip investing!

When our users reach out to us, it is almost always a learning experience for us. As more and more asked us about blue chip investing, we started to dig into how exactly young investors benefit from it – 

  1. Capital Preservation – The difference between investing today, and a month from now is significant! If you give yourself a longer investment horizon (a liberty you can easily take if you’re in your 20s!), you can really benefit from compound interest. You are able to protect your initial capital (by not spending it!), and are additionally able to create wealth through compounding. It’s a win-win – any way you slice it. 

  2. Steady Income – Some people have side hustles, some have a hobby that brings in a few extra bucks, and some people invest to get the cash flow going! Blue chip stocks with a history of dividend payments can serve as a reliable source of passive income, and you can use it to meet financial goals (or simply reinvest it!) in a timely manner.

  3. Diversification – We’re fans of diversification. This is an option to diversify. That’s about all we’ve got for this one. (Um… Also – this!)

  4. Long-Term Growth Potential – While blue chip stocks are known for their stability, they can also offer substantial long-term growth potential. Think about the growth of a company like Reliance in the past decade. Its net worth in 2013 was ₹176,766 crore – its net worth as of 2023 is ₹1,713,506 crore (Source: NDTV). The growth is massive! Blue chip companies are growing and are likely to continue on phenomenal growth trajectories for the foreseeable future – and you can too!

  5. Learning Opportunities – Curiosity is the fuel that drives a successful investment engine. You can gain valuable insights into financial markets and the dynamics of large corporations by researching and investing in blue chip stocks, and that knowledge can be a useful tool in your arsenal when it comes to making future investments as well!

  6. Low Entry Barrier – Blue chip investing can be affordable as it does allow you to invest fairly modest sums of money, which can be useful if you’re just starting out! This accessibility makes it easier for beginners to get started in the stock market rather than diving in the deep end!

These benefits are enticing, aren’t they?

We think so too! There is always an upside to diversifying into new, safe investment options. But the disclaimer here remains the same as always – set your goals, be consistent, conduct thorough research, and ask for help if needed – especially when you’re dipping into uncharted waters.

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