The market capitalisation that a blue-chip company has is the billions and generally is among the top three companies in its company, or is the market leader. It is also more often than not a household name. To buy, among the investor, blue-chip stocks are among the most popular ones. Some blue-chip sticks examples are – Boeing Co., IBM Corp, and Coca Cola Co.
Most blue chips have long records of paying rising or stable dividends, even when dividend payments are not absolutely necessary for a stock to be considered a blue chip. In poker, the most expensive chips are the blue chips, and that is where the term is believed to be form. The standard and Poor’s (S&P) 500, Dow Jones Industrial Average, and the Nasdq-100 in the United States, In Canada the TSX-60, or the FTSE Index in the United Kingdom, is what blue chip stocks are generally a component of, they are some of the most reputable market averages or indexes.
It is debatable how big accompany has to be in order to be qualified for bule chips status. A benchmark for market capitalization of 5 billion dollars is what is generally accepted, although, companies of all sizes can be sector or market leaders. For what type of companies qualifies outside of focusing on mid-cap or large-cap companies which are well established in their industries, there is no specific guideline in the T. Rowe Price Blue Chip Growth Fund. Although, historically the median market cap of the fund’s holdings has been in a range close to a 100 billion dollars.
Leading to the blue-chip company being perceived as a safe investment, even when it may have survived many challenges and market cycles, that always may not be the case. A number of leading European banks along with the General Motors and Lehman brothers, declaring bankruptcy during the recession of 2008, is proof that, during periods of extreme stress, even the best companies may struggle.
Bule chip stocks generally shouldn’t be the entire portfolio, even if they are appropriate for the use as core holdings within a larger portfolio. Usually, some allocations to bonds and cash are contained by a diversified portfolio. An investor should consider, within a portfolio’s allocation to stocks, owning small caps and mid-caps as well. Including blue chips, the risk that comes from having a greater percentage of their portfolios in stock can be tolerated generally by younger investor, whereas older investors, through larger investments in cash and bonds, may choose to focus more on capital preservation.
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