What is a Blue-Chip Stock?

Hi Stella, thanks for the question.

The term blue-chip stock refers to corporations that are market leaders, known for their history of strong performance and outstanding reputation. These stocks usually perform well in good and bad global economic conditions and are followed by the most common market index - Dow Jones Industrial Average.

This index has 30 components (companies), however, not all blue-chip stocks are listed under Dow Jones.

All of the blue-chip corporations have a history of sustained growth and a good future outlook. They are very popular among investors due to their high reliability and because a majority of blue-chip stocks pays dividends.

Due to their large size, blue-chip stocks have the ability to acquire smaller companies providing them with strategic benefits.

These companies are the leaders of their sectors such as Boeing, Visa, IBM, Facebook etc.

Although they’re considered safe-haven among investors, there are no guarantees. This is why investors are advised to diversify their portfolios and apart from blue-chip companies, invest in other stocks as well.