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Blue-chip stock meaning

Blue-chip stock definition

Blue-chip stock refers to shares in large companies that have a reputation for financial stability, delivering dividends to investors on a regular basis, and being one of the top three firms to lead its sector in terms of market share. That said, there is no universally agreed definition for blue-chip stocks, nor is there an official list of corporations that have made this grade.

Why blue-chip?

For investors, blue-chip stocks are seen as a low-risk, dependable way of growing their money. Companies in this list include Apple, IBM, Coca-Cola, Disney, Wal-Mart and Nike. These brands are more than household names – they have become stock market darlings because they regularly deliver dividends and often report impressive levels of earnings.

Generally, longer-term investors are more attracted to blue-chip stocks than traders who are looking to execute short-term strategies. It is worth mentioning that these companies are not immune from the effects of a market crash, and there is always the possibility that a headline-grabbing scandal could send their shares into a spiral. The banking giant Lehman Brothers was a blue-chip stock before it become a high-profile victim of the 2008 financial crisis. Meanwhile, mobile phone manufacturer Nokia was relegated from blue-chip status after failing to adapt to changing consumer demands and losing ground to newer competitors such as Apple and Samsung.

Blue-chip investment strategies

It can be worthwhile to diversify an investment portfolio by owning blue-chip stock alongside shares in younger companies that have the potential for faster growth. Investors who are unsure about which blue-chip stock to back often choose to buy into exchange-traded funds that track a basket of these companies. Just as the old saying warns against putting all your eggs in one basket – a fancy way of saying don’t rely on one thing for future success – these funds can help dilute risk even further by following a multitude of corporations instead of one.

Tokenised securities are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how tokenised securities and leverage work and whether you can afford to take the high risk of losing your money. Nothing in the above article should be regarded as a recommendation to trade generally, to trade on a particular platform or to trade in a particular asset. Asset prices can go down as well as up and past performance is not a guide to future performance. Investors and traders should thoroughly research an asset or strategy before making any trading or investment decision and if necessary seek professional advice.

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