What makes blue-chip stocks attractive?
- These stocks can generate stable returns over the long term
- These stocks are generally less volatile and can hold their ground amid turmoil
- They hedge your portfolio against market swings
Characteristics of blue-chip stocksBlue-chip stocks are known for their balanced debt-to-equity ratio, consistent source of income and the general goodwill of the company. They are safe bets when it comes to withstanding possibilities of heavy losses when the market battles volatility.
The stocks are very popular among all classes of investors. Also, if you are willing to build a corpus for long-term goals such as retirement, blue-chip stocks can be your ideal bet.
What are the risks associated with the blue-chip stocks?Though blue-chip stocks can withstand market shocks and economic downturns due to their sound fundamentals, there are certain risks associated with them too. They tend to slow down during periods of slow economic growth. In such a scenario, the dividends received from these stocks also go down.
For how long should you invest in blue-chip stocks?There’s no concrete answer to this. However, to gain the maximum mileage out of these stocks, you must remain invested for the long term. To extract the best out of a blue-chip stock, you should ideally remain invested in them for 7 years or more.
Financial goals associated with blue-chip stocksInvestors generally look for considerable capital gains while investing in blue-chip stocks. These stocks are ideal for creating a buffer for long-term goals such as retirement or higher education of children. Having said that, it’s important to remember that the real objective of investing in blue-chip stocks is to bring the much-needed diversification in your portfolio and protect it from taking a major dip in case the market nosedives.
However, blue-chip stocks aren’t ideal for aggressive investors who want to make significant gains within a short span of time. The range of dividends is limited, and short-term investors are unlikely to gain.
To sum up
Blue-chip stocks are similar to other modes of investment and it is necessary to estimate the risk appetite, investment period and financial goals before deciding to invest in it. These stocks are fruits of sound company management with robust fundamentals.
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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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