What is a BLUE-CHIP STOCK? - How to build wealth investing in BLUE-CHIP STOCKS 2018

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If you spend any time around the world of investing, you will almost certainly hear the term, “blue chip stock”. But what is a blue-chip stock?

The term blue chip stock is reserved for the highest quality companies available on the stock market. A fun fact: it is believed that the term blue chip first became popular in the early 1900s. at that time a blue chip was the most valuable chip at casinos and was an easy reference for the “most valuable” companies on the stock market.

What makes a blue chip.
Well, there are a few traits that blue-chip companies have that make them somewhat easy to spot.

They are large – there is no exact definition for it, but I’m going to say they are usually worth over 100 billion dollars

They have a looonggg stable track of generating revenue.

They typically have a consistent history of paying dividends and raising them to keep up with inflation.

Their bonds are rated investment grade.
When a company issues a bond - rating agencies like Standard and Poors and Moody’s rate that bond based on the company’s ability to repay. This top section here is called investment grade. Generally, Blue Chip stocks will be rated up here, up at the AAA level

That brings us to the next trait. Blue chip companies are typically the financial kings of their industry. They generally have strong balance sheets and income statements. They have been around for a long time and they will be difficult to dethrone.

This raises a word of caution. Although blue-chip companies are generally accepted as some of the most solid companies to invest in. This doesn’t mean their stock prices do not fluctuate. It also doesn’t mean they can never fall. General motors was long considered a blue-chip stock, and they filed for bankruptcy after the great recession in June of 2009.

So, what is the upside?
Let’s imagine you have built a diversified portfolio of blue-chip stocks. Since these are the largest and are among the most reliable of stocks to own, you hope to gain by having the stock price move higher, and they tend to be reliable dividend payers. There are investors out there that live, at least in part, on the dividends that blue-chip companies pay out. A dividend is a cash payment, usually each quarter, for every share you own. And if you have seen our previous video, you’ll understand what I mean when I say that you can take advantage of the power of compounding by reinvesting those dividend payments to buy more shares. If you haven’t seen it, check the description below for a link to it. Sometimes you can have those dividends reinvested automatically so you don’t need to pay commissions on the new shares your dividends buy for you, that’s called a dividend reinvestment plan (DRIP for short)

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DISCLAIMER: I am not a financial advisor. These videos are for educational purposes only. Investing of any kind involves risk. Your investments are solely your responsibility. It is crucial that you conduct your own research. I am merely sharing my opinion with no guarantee of gains or losses on investments. Please consult your financial or tax professional prior to making an investment.

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